01/03/2021
Business expansion in 6 steps

Business Expansion in 6 Steps with examples ( Xiaomi, Raymond etc. )

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Keeping your business growing has never been as challenging as now, owing to emerging technologies bringing disruptive changes in the business world over the night. business expansion in 6 steps

On top of that. international competitors have made it even tougher to maintain your constant profitability and recurring revenue.

To help you cope up the challenges in the present business world, we have come up with six powerful tips , which will help you take your brand to the next level.

1: Adequate working capital requirement

what is working capital? It is current assets (revenue generated from the customers) minus the current liabilities (suppliers, salary, rent etc).

No business can start or expand without adequate working capital

Simply, it is money that comes into your business minus money goes out of your business; the remaining amount is called working capital, which will help you in further business expansion .

Revenue generated from the customers –

 Current liabilities = Working Capital
If you are planning to do forward, backward or lateral integration, then, you must have
“reasonable working capital” with you.

For Example: Suppose, you have food
processing plant:


Expenses                                Amount

Monthly Unit Cost Rent          Rs 10
workers’ Salary                       Rs 10
Raw material                           Rs 20
Other Expenses                      Rs 10
Total Fixed Cost                     Rs 50

On the sale of finished products at Rs 100 in total, you get profit of Rs 50 per month.

But when your customer doesn’t pay you timely, your monthly cash in-flow decreases, and so does your working capital. Eventually, it stops your business from expanding.

2: Expertise in the line of Business

Let’s understand this with an example. When Xiaomi came to India they used online
distribution model to sell their phones, instead of opening physical stores.

 But when they realized that sales without customer service is not sustainable, they came up with Xiaomi special Lounges so that they can provide after sale services to their customers.

They expanded their area of expertise from “sales” to “customer services”, and improved their brand’s experience from online to offline stores.

3: Brand Awareness

It can be understood with the example of clothing brand Raymond.
After producing yarns and textiles for years, Raymond adopted forward integration to open their own stores.

brand awareness

Now the bigger question is; why did they start doing so?

During their early times, they used to make and sell these yarns to the dealers and distributers. But then they thought of opening their own stores.
These Raymond stores helped the customers to understand brand even better, and converted it into a complete range and value.
They didn’t just open Raymond stores, but started making readymade suits and stitched suits and took their business to 3 levels:

level 1 — Making their own yarns.
level 2 – Opening their own Stores.
Level 3 – Making readymade suits and stitched suits.

So you need to understand the fact that the business will always grow when your customer understand all your integrations are suiting your brand’s value chain.

4: Higher Margin

There are many channel partners at every stage in a business, who keep their margin share. Some business has big margin share, while some has very less.

You should always try to go for a business where margin is huge. This will not just help you in making your business big but will also help you in getting good value in the business. cash is very important for business expansion


For Example:

Big Bazaar business expansion, with many sections such as technology, clothing, home products, is one of the biggest retail chains in India.
In clothing section, they noticed that the biggest margin share went to suppliers, while they were left with a very small share.
Then, they introduced their own 2 new clothing brands viz. Indigo Nation and John Miller through backward integration, and increased their margin share drastically.

5: Availability of Resourse

Resources are mainly of two types: i.e. “material Resources” and “manpower Resources”.
Let’s see, what are manpower resources?

Manpower resources are the people working in different teams of your organization like sales, marketing etc.

Example:

If you analyze the working hours of your whole team and realize that 20-25% time they are sitting ideal. In this case, you can improve productivity by stretching the team’s working hour by 10-15%, which may help you in
“expanding your business”.

What are material resources?

Fixed assets, available space, raw material and services come under Material resources.
You need figure out that, how can you optimally make use of available material resources to expand or diversify your business.

Here, you need to be very practical in assessing whether your existing resources can help you in expanding business without exerting extra burden on manpower resources.

6: Oppurtunity to Expand

Before planning to expand your business, you need to figure out what kind of integration (Forward or Backward) will match your
business model to grow uninterrupted.

For Example:

Earlier Lava mobile used sell mobile phones by putting their label on imported mobile from oversees. Later Lava started manufacturing their own phones. They manufactured not only for themselves but for other mobile
manufacturing companies as well.
similarly, when you plan to expand your business:

You should think how you can you maximize your revenue by “targeting different potential market beyond your value chain”.

You need to sit with your team and “brainstorm extensively before
implementing integration in your business”.

What is Business expansion Strategy?

Expansion can be achieved by investing in customer acquisition,  adding new locations or expanding a product line.

Why does a business expand?

 It increasing your customer base will help you convert more customers, Successfully expanding your business can put it in a positive position for gaining necessary funds.

How to manage business expansion?

Define your growth objectives, Do a growth diagnosis of your company, Prepare a growth strategy.


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