Definition of Expansion: Types, Stages, and Examples

Definition of Expansion – The term expansion is not something that is foreign to people in the business world. Expansion is generally carried out when the business has reached a point of growth or development and in an effort to generate more profits, where the company enlarges or increases the number of certain interests. Meanwhile, expansion is taken from the word expandere which is an absorption word in English expansion which means to spread.

To find out more about the expansion, you can see this article, Readers.

Definition of Expansion

In general, the meaning of expansion in the economic environment itself is an effort made to increase economic activity and growth of the business world. According to the Bank Indonesia dictionary, this economic expansion has meaning in economic development. In this case, development then follows a conjuncture pattern, namely the process of economic growth or decline that occurs continuously and alternately.

Usually, the marker of economic development is an increase in prices, an increase in the amount of money circulating among the people, an increase in total production, and also an increase in consumption.

Market expansion can be said as an activity that the company carries out with the aim of expanding new markets with various products that the company already has before. The purpose of the company to expand is to reach the market in a new location. By expanding, it is hoped that the company will be able to get new customers and introduce new products.

Meanwhile, from a business point of view, expansion is an effort to expand or enlarge the company’s business network as an effort to increase the company’s profits in the future. To find out the meaning of business expansion, you can refer to the following discussion.

Definition of Business Expansion According to Experts

The following is the definition of business expansion according to experts.

1. Financial Services Authority (OJK)

According to the OJK, business expansion is an activity aimed at expanding or enlarging the scale of a business, which is usually marked by the creation of a new market, expansion of facilities, and recruitment of new employees. In addition, according to the OJK, expansion can also refer to an increase in economic activity and the business world.

2. Bambang Riyanto

According to Bambang Riyanto, expansion in business is a company activity that aims to enable the expansion of business capital, both fixed capital and working capital, within a company.

3. Alex S. Nitisemito

Alex then explained expansion as a form of the company’s efforts to expand its market coverage and production capacity. According to Alex, the reason for this condition then occurred was because there was an increase in demand for the company’s product and service capacities.

4. Suad Husnan and Enny Pudjiastuti

According to Suad Husnan and Enny Pudjiastuti, expansion is a form of business expansion by adding capital, adding capacity, adding units to meet different production needs, and acquiring (merging) with several other companies.

Expansion Type

As previously mentioned expansion is a strategy to expand a business. Therefore, in its application it cannot be done haphazardly, companies must adjust to their business needs.

With careful planning, it will help minimize the risk of expansion failure, such as financial losses, ineffective management, instability, and so on.

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In addition, the expansion itself has several types, including:

1. Mergers

The first type of expansion is a merger in which two or more companies are combined into one company. This type itself is done as an effort to expand the business. Companies that are more dominant will maintain their corporate identity, while other companies’ identities will become unclear. Before merging, it is important to know the reputation of the companies to be merged. The merger itself can be divided into three parts, namely:

  • A conglomerate that acquired several companies.
  • Horizontal merger where the company will then buy another company with another operational level or level.
  • Vertical mergers are companies that are in the same industry but have differences at the operational level.

2. Acquisition

The purpose of acquisitions in expansion is to increase the company’s income. Acquisition as a take over process or acquisition of share ownership or company assets driven by one or a certain group of investors.

The purpose of the acquisition is as a form of expansion by increasing the company’s income or to increase income from other sectors. It is possible that a company will then acquire a raw material producer so that later the company can continue to maintain it.

3. Hostile takeover

The next type of merger is a hostile takeover in which forced acquisitions are made to a company. In other words, a business person will then buy shares of other companies. This is done when the shareholder opens an offer to his business.

Then, these shares will be acquired at a price higher than the market price. In addition, the company will also immediately change ownership, usually what happens is a change in management and employees as a whole.

4. Leveraged buyouts

The leveraged buyout of expansion then requires a large amount of capital. Leveraged buyout is an attempt to own a business by borrowing money and making purchases. Expansion of this type can be said to be one of the expansions that will spend quite a lot of capital. Of course this is because money or capital is obtained by way of debt to other parties.

5. Internal Growth Expansion

One type of expansion is internal growth expansion. In this type of expansion, the company then relies on internal resources and capabilities to increase business size. Some examples of activities that are generally carried out in an internal growth expansion are:

  • Buy new machines or build new factories to increase production capacity.
  • Reach a wider range of consumers by opening new outlets or branch offices.
  • Increase advertising costs with the aim of increasing sales
  • Offering a new variant of an existing product to the market.
  • Expanding market segments, for example by reaching other segments related to the current segment. Expanding into new markets, for example by selling products abroad.

6. External Growth Expansion

As the name implies, this type of expansion then involves external parties to grow. External growth expansion itself incorporates the resources and capabilities of other firms. This form of external expansion can be carried out in several ways, including:

a. Acquiring another company

This acquisition itself involves taking over and controlling another company. After the acquisition, the target company then becomes a subsidiary of the acquirer. However, each then still operates independently.

b. Merger with another company

This merger is the result of the merger of the two companies into one larger entity so that after the merger, only one company survives.

c. Establishing a joint venture

Under the joint venture, the two companies then agreed to build a new business. This strategy itself allows companies to combine capacities, expertise, technology, and complementary resources. The company will share the risk with business partners.

  • Building a strategic alliance – Finally, this strategic alliance then involves an agreement between two or more companies to be able to share resources and carry out a particular project. Each of them would then remain independent of the other.
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3 Stages of Expansion

1. Make Careful Planning

A business can be considered ready to grow if the company has good planning, and this also supports the expansion process. For this reason, companies should ask a number of questions, such as what goals do they want to achieve by expanding their business? Then what’s the target? How will the business develop in the next five years? as well as how the company’s current sales?

If this question has been answered, at least the company will get four main conclusions:

  • First, the business is ready to expand because the sales flow is smooth and it already has many regular customers.
  • Second, the business must then have a product, brand, and can be self-produced within the next five years.
  • Third, market share has begun to expand and already has a lot of demand, so new markets must be presented to accommodate business sales.
  • Fourth, new employees are needed so that every form of operational activity can be carried out on an ongoing basis and so that the sales process can be more effective and faster.

2. Determine How the Business Model

Later when carrying out expansion activities, the current business model will no longer be the same as the future business model. In the application of length, SOP or Standard Operating Procedures are also needed, and if you want to add employees, then business activities will also change slowly.

In addition, the method of selling will also of course change over time. For this reason, it is very important to determine a business model so that it can help determine the right standard or method which can then be used in business activities.

More than that, if you have determined a new target market and already have many types of new products that are very varied, then you must also determine what methods should be applied to reach a larger target market, gain engagement, and carry out sales actions within your target market. the market.

3. Prepare the Capital Required During the Expansion Process

Business capital will certainly be needed in carrying out expansion activities. This capital itself is needed to rent or build a new building, buy an online store, also pay employees, build a physical store to build a production factory or warehouse.

You can also get this capital from the profit of the sales process. Apart from that, you can also make capital loans. Applying for a business capital loan does not always indicate that the business is unhealthy or unable to expand. Sometimes, applying for a business capital loan is also needed by business people to manage the company’s financial cash flow.

Expansion Example

Many activities can then be carried out through business expansion, starting from opening a new branch, also building partnerships with other companies, creating new products, increasing marketing and many more. One example of business expansion is:

  • Semen Gresik Tbk, where they set up a holding company or holding company for Semen Gresik, as well as expanding by opening new branches or agencies under it. Business expansion in the sense of expanding business operations to other countries or abroad is one of the strategic agendas for a company. This is because overseas expansion has very important implications in maximizing business growth. For example:
  • Alibaba Group Holding Ltd is one of many multinational companies (corporations) which are currently developing rapidly in the field of digital business (e-commerce). Alibaba Group is also actively expanding its business to various parts of the world. The European and American regions have succeeded in becoming its expansion targets.

Thus the discussion of the definition of expansion to examples of expansion. Hopefully all the discussion above can be useful as well as add insight to Readers.