In today’s competitive business landscape, growth is essential but knowing how and where to expand is key to success. Whether a company is looking to enter new markets, introduce innovative products, or increase operational capabilities, planning and execution must be strategic. Prologis, a global leader in logistics real estate can be regarded as a success story. Prologis strategically expanded by capitalizing on the rise of e-commerce, recognizing early the demand for well-located distribution centers. Their thoughtful approach to acquisitions and development of industrial spaces allowed them to dominate the market, providing basic and yet essential infrastructure to companies needing rapid AAA industrial spaces. By aligning their growth with broader market trends, like the rise of e-commerce and its relationship with logistic providers, they solidified their position as a key player in global logistics. On the contrary, Target’s expansion into Canada had a whole different outcome. Despite its success in the U.S., the company’s aggressive approach to enter the Canadian market in 2013 lacked proper groundwork. They overestimated their brand’s appeal and miscalculated crucial operational elements, such as supply chain logistics and store locations. For instance, they mistimed the opening of the stores with their distribution centers where the former started operating earlier and ran out of products disappointing customers and stressing their supply operations. These oversights led a costly withdrawal from Canada, which serves as a prime example of how rushed expansion without thorough planning can lead to failure.
Own Assessment: Taking a long look in the mirror
Before jumping into any growth plans, businesses need to assess their current operations. For this, we propose focusing on understanding 3 things: the business strengths, its capacity or limitations and the singularities of the demand it fulfills. This will provide a clear picture of whether it’s time to scale. Key questions to address include: Are current operations prepared to handle an expansion without a big impact on organizational change? Is there room to grow without sacrificing quality? How will expansion affect the customer experience? How much different is the demand the business is trying to attract? What are the risks to the current operations when expanding?
When evaluating these questions, it’s important to look at the company’s specific supply chain setup and industry needs. Even within the same industry, businesses might have very different supply chains. Where, by these multiple configurations, the same concepts can mean different things. A good example of this is the term “optimized operations”, which meaning changes dramatically from one type of organization to another. For this article, we’re focusing on industries with physical supply chains, so businesses in marketing or finance won’t be part of this discussion.
- Retailers: For retailers, optimized operations should be focused on inventory management and customer satisfaction. Retailers need to make sure their stock levels meet forecasted demand without investing in slow-moving products that take a lot of time to sell. Using data-driven forecasting and efficient distribution networks is key to avoiding stockouts while maintaining the operation as efficient as possible. When it comes to expansion, retailers need to verify if they can handle more volume across new regions or channels without changing drastically their core setup. Although, this might include investing in better logistics, adding new distribution channels or even growing the team to keep up with the company’s growth. But the key element is to stay focused on what they do best, while keeping operation within the same standards, delivery times and operational costs. The challenge stands in scaling up while maintaining a high level of customer satisfaction and profitability.
- Manufacturers: For this company configuration, optimized operations involve coordinating production processes, managing raw materials, and delivering the products to distributors or added value assembly lines when expected to. While here, expanding can get complicated, as it often requires checking if facilities can handle more production without slowing down or lowering quality. Taking this into account, expansions in manufacturers may require investments in automation, new machinery or even new facilities, which in the short term will impact production planning and demand fulfillment. Scaling up as a manufacturer might also require reassessing supplier capacities or even bringing third party suppliers to meet higher demands without delays. While expansion helps the business grow, it’s important to stay close to core operations and standards (which can be real challenge for the organization), keeping the focus on maintaining quality standard.
- Distributors: In this case, optimization focuses on two factors: a healthy catalogue where inventory rotates before paying suppliers and the efficiency of logistics and warehouse operations. Their day-to-day focus is on moving products from one location to another with limited storage and specific distribution restrictions. This means they need to handle large volumes of bulky items while keeping transport costs low. Expanding involves evaluating if current warehouse capacity and distribution networks can cover more regions or handle more products without adding delays. Scaling up can be done by adapting infrastructure for a wider variety of products, alliances with suppliers to pump up volume and reduce prices, investing in technology to keep up with fast growing markets or acquiring a larger transportation fleet. While these changes help the business grow, it’s important to stay focused on the main goal: delivering products quickly and efficiently.
- E-commerce: Even though it is regarded more as a sales channel than an industry, e-commerce optimized operations divide between fulfillment speed, customer service, and its integration with other sales channels (online and physical stores). When e-commerce businesses expand, they often need to boost their warehouse capacity, improve last-mile delivery efficiency, and streamline returns. The key challenge is to keep customer service high, even as order volume increases. To scale up successfully, they must guarantee their technology can handle more traffic, transactions, and fulfillment while keeping operational costs low and delivery times quick. These changes may require investing in better tech and logistics, but they should stay aligned with their core focus on providing excellent customer experiences.
- Services: For service companies, optimized operations are all about managing people, resources, and customer satisfaction effectively. Since they don’t deal with physical products, their success relies on skilled teams and reliable technology. When it comes to expanding, the challenge is figuring out how to grow the team or upgrade systems without losing the quality of service. This could mean hiring and training more staff, improving tools or software, or outsourcing some tasks to handle the extra workload. Service providers also need to ensure that new locations or markets stick to the same standards customers expect. Scaling up is about keeping operations smooth, meeting demand, and delivering great service while staying efficient and adaptable.
This variety of approaches highlights how each industry and supply chain configuration has their own focus and needs. Understanding these implications is essential when determining whether a business is ready to expand.
Types of Growth Strategies
When it comes to growing a business, there are a bunch of strategies to choose from. Choosing the right one can make all the difference in achieving long-term success. Geographical expansion is all about reaching new markets and finding more customers with minimal tweaks on the business model. Then there’s Mergers and Acquisitions (M&A), where companies team up or buy from each other to quickly boost their market presence. Research and development (R&D) focuses on creating new products or improving existing ones to grow through innovation. Another strategy is corporate venture capital and incubators, where companies invest in startups to discover and boost fresh ideas and technology. Finally, they need to decide between organic growth, which comes from their own marketing and sales efforts, and inorganic growth, which typically involves M&A. Each of these strategies has its own benefits and challenges, so it’s important for companies to think about what works best for their goals.
Geographic Expansion
Geographic expansion happens when a company decides it’s time to reach new customers and grow their market share by entering different regions or countries. This strategy helps them bring in new revenue streams and depend less on their current markets. For this type of expansion to be successful, businesses need to plan carefully to understand and adapt to the new audience. Businesses must consider a lot of factors such as Brand Identity and its adaptation to local audiences to maximize opportunities. They must consider Localization, which means that they must adapt their offerings to the specific needs to the targeted destination. They must perform Market Research to quantify potential growth and calculate its different scenarios with risk factors over a detailed market capture timeline. They must evaluate their Operational Capabilities to ensure a supply chain service and strong relationships with suppliers and shippers that will participate on the expansion. A Financial Analysis to ensure financial viability and performance indicators aligned to the market capture timeline to review success.
Geographic expansions can happen in four ways based on two main choices. First is the reach of the expansion: it can be a domestic expansion, where the company can use a lot of its existing strengths or could be an international expansion where existing resources may not work as smoothly. The latter comes the expansion mode: which can be organic by growing on its own efforts or inorganic in which it might be by acquiring another company, merging, or by starting a franchise.
A great example of this is Starbucks, the world’s largest coffeehouse chain, which has expanded globally by paying close attention to five key factors. They showed strong Brand Identity by managing to create a consistent offering across world spanning locations. They allowed for strong Localization efforts by slightly altering their offerings to adapt to local tastes and cultural nuances. They showed strong Operational Capabilities by managing a supply chain with both local and global suppliers. Finally, their Financial Analysis enable their decision making to maximize shareholder value in terms of choosing where to play and how to play.
Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&As) are business strategies where companies merge or acquire other companies to grow or improve their competitiveness. In a merger two companies of similar sizes agree to combine resources creating a new, stronger business that aims to be more effective together than they would be separately. In an acquisition, one company acquires another to gain control of its resources. The acquired company can then be integrated into the acquirer’s portfolio, creating synergies that add value.
Successful M&As often happen in Key Markets, particularly in regions where the acquirer has little to no presence. By buying a local company, they not only acquire physical assets but also gain intangible benefits like local expertise and established networks. Businesses that perform effective M&As do so by performing Effective Cost Synergies to reduce redundancies and increase profitability. Additionally, Product/Consumer based M&A’s target companies based on the value of specific products, or the consumers perception of the acquired company. Companies that succeed with mergers and acquisitions think about Scale to attain more leverage to negotiate better prices and keep competition on their toes.
The fact that M&As are different from geographic expansion does not imply that they’re mutually exclusive. M&As can be done internationally to perform a geographic expansion or they can be done locally.
A great example of this is Anheuser-Busch InBev also known as AB InBev, an American-Belgian-Brazilian drink and brewing company based in Belgium. AB InBev owns approximately 630 beer brands across 150 countries, including popular names like Stella Artois, Corona and Modelo. The company’s size and name reflect its history of mergers and acquisitions, which have brought many benefits to the business. The company made these M&As successful by showing a strong set of skills and focusing on key areas. First, Key Market selection, they carefully choose acquisition targets based on the market’s overall potential and the specific company’s value. Second, they leverage Effective Cost Synergies by reducing overlap and simplifying operations after acquisitions, making things more efficient and cost-effective. Lastly, they focus on Product/Consumer acquisitions, prioritizing companies with strong brands and popular products that appeal to different customer segments.
R&D Base
Research & Development (R&D) Based Expansion occurs when a company creates new products or improves existing ones to attract more customers or keep current ones, especially when competitors launch new products. Companies have two main options for R&D expansion. They can take a product-based approach, focusing on developing a strong product using their own resources, or a market-based approach, which starts with a detailed market analysis.
In the market-based approach, companies examine three main factors: Localization, which means understanding trends and customs in different regions; Positioning, which focuses on whether customers want more premium or budget-friendly options; and Synergies, which involves looking for opportunities in related markets. For this article, we’ll focus on the market-based approach since it has an outward focus and is often a more strategic business choice.
Coca Cola has managed to perform very well in R&D based expansions using these very same factors. They’re really good at Localization, making new products that match the tastes and preferences of different regions by looking at local cultures. They also performed well in terms of Positioning by spotting premium products in the beverage market, such as Topo Chico and Smartwater. Lastly, they use Synergy analysis to find markets that fit well with their main business, which helps them expand more easily.
R&D plays a crucial role in driving growth and innovation, but its importance varies across industries. In fast-evolving fields like technology, pharmaceuticals, and automotive, R&D is essential for staying relevant and competitive. Companies like Apple, Pfizer, and Tesla rely on R&D to develop groundbreaking products, enter new markets, and stay ahead of their competitors. For example, Apple uses R&D to create the latest in consumer tech, Pfizer focuses on developing life-saving medicines, and Tesla invests in electric and self-driving vehicle technologies. On the other hand, in more stable industries like food or household goods, R&D tends to focus on smaller improvements, like better flavors, sustainable packaging, or healthier options. This flexibility makes R&D a valuable tool for growth, tailored to the unique needs and pace of each industry.
Corporate Venture Capital & Incubators
Corporate Venture Capital & Incubators are ways for big companies to support and benefit from the innovation of startups. With CVC, companies invest directly in young businesses or startups, giving them financial support in exchange for access to their ideas, technologies, or new market opportunities. This approach allows the company to explore new sectors and technologies without fully committing to them, which helps spread risk.
Incubators, on the other hand, give startups direct support (workspace, guidance, and business tools) to help them grow. By partnering with startups in an incubator, companies can stay on top of new trends and innovations while building connections with potential future partners. Both incubators and corporate venture capital help companies stay competitive and flexible by benefiting from fresh ideas and fast-changing markets.
Unilever, the global company behind brands like Dove, Ben & Jerry’s, and Lipton, has successfully used Corporate Venture Capital (CVC) to stay innovative and enter new markets. Through its CVC arm, Unilever Ventures, Unilever invests in startups that fit with its main business areas, like beauty and wellness, to reach health-conscious and eco-friendly consumers.
Unilever’s CVC strategy focuses on Market Agility, Diverse Investment Portfolio, and Open Collaboration and Innovation with startups. Agility helps Unilever quickly respond to new consumer trends by investing in brands that fit today’s market needs. A diverse portfolio allows them to spread risk and reach a broad range of markets and customer groups. Unilever’s commitment to open innovation shines through its incubator, Unilever Foundry, where they partner with startups globally to address challenges like sustainability and digital engagement. This blend of flexibility, varied investments, and collaboration keeps Unilever growing and connecting with more consumers in new areas.
Organic vs. Inorganic Growth
Choosing between organic and inorganic growth depends on a company’s goals and resources:
Organic Growth: This type of growth focuses on internal development, such as expanding product lines, improving customer engagement, and scaling operations. It tends to be a slower but more sustainable way to grow, allowing businesses to maintain full control over their processes.
Inorganic Growth: Through mergers, acquisitions, and partnerships, businesses can grow faster and enter new markets more quickly. However, this approach requires substantial capital and often comes with the challenges of merging distinct business cultures and systems.
There are 10 main factors that should be evaluated when choosing between organic growth or inorganic growth:
- Growth Speed
Organic growth is slower, focusing on internal improvements and market expansion. In contrast, inorganic growth (like M&As) is faster, providing immediate market access. Walmart, known for organic expansion, quickly entered the UK market by acquiring Asda in 1999.
- Cost Implications
Organic growth requires continuous investment, while inorganic growth demands a large upfront investment but delivers instant revenue. Nestle’s acquisition of Pfizer’s infant nutrition unit in 2012 saved long-term R&D costs.
- Risk Levels
Organic growth typically has lower risk since it builds on existing operations. Inorganic growth, however, can bring integration challenges. Unilever chose organic growth for sustainable products, keeping control over values and risk.
- Control and Integration
Organic growth maintains full control, while inorganic requires merging cultures and systems. L’Oreal acquired Kiehl’s and NYX but kept some brands independence for smoother integration.
- Market Conditions
Organic growth suits stable markets, while inorganic works better in fast-changing markets. IKEA expanded gradually without acquisitions because the retail market was steady and predictable.
- Core Competencies and Synergies
Organic growth relies on existing expertise; inorganic can quickly add new tech, talent, or resources. AB InBev’s acquisition of SAB Miller helped it gain global reach and distribution.
- Regulatory and Legal Issues
Organic growth generally has fewer legal issues, while inorganic expansion often involves more regulatory challenges. For example, when Bayer bought Monsanto, it faced heavy antitrust reviews, showing how complex these processes can be.
- Financial Health and Shareholder Expectations
Organic growth is easier to fund without heavy debt, while inorganic often requires more capital that can affect shareholder value. Heineken’s acquisition of FEMSA Cerveza was successful because it fit the company’s strategy and was backed by strong finances.
- Culture Fit
Organic growth keeps company culture steady, while inorganic growth requires aligning different cultures. Mars’s acquisition of Wrigley went smoothly because they shared similar values, making integration easier.
- Long-Term Strategic Goals
Organic growth aligns directly with the company’s goals, while inorganic can speed up growth but may shift focus. Danone’s acquisition of WhiteWave aligned with its strategy to enter plant-based foods, staying true to its long-term vision.
Developing a Strategy
A successful expansion strategy starts with thorough market research and internal capability assessment. Key considerations include:
Market Analysis: Before expanding into new markets, businesses must evaluate potential locations based on demand, competition, legal requirements, and operational fit.
Operational Readiness: Ensuring that logistics, supply chains, and production are prepared to handle growth is critical. Expanding too quickly without the infrastructure to support it can lead to inefficiencies and customer dissatisfaction.
Risk Management: Every expansion carries risk, from shifting market conditions to unexpected regulatory challenges. Mitigating these risks through careful planning and contingency strategies will help ensure the expansion is sustainable.
Delphus’s Success Stories
- Technical sale to capitalize on industrial space development by a steel manufacturer
- LVT as a new flooring category on a tile only manufacturer
- Recycling and energy generation by a waste management service provider
- From manufacturing selling polyurethane modules to distributors to opening its own retail stores
Conclusion
Business growth is not a one-size-fits-all process. Whether expanding through organic strategies like internal development or taking the more aggressive route of mergers and acquisitions, the key is to align your growth approach with your long-term business goals. By making informed, strategic decisions, companies can ensure that their expansion efforts lead to sustainable success and increased market presence.
For businesses looking to expand, partnering with expert consultants can provide valuable insights into market dynamics and help create customized strategies that drive growth.
