Routes to take when expanding business

Personal Finance

Routes to take when expanding business

Strategic alliances are increasingly being used as a means of expansion, especially global expansion. PHOTO | FOTOSEARCH 

Growth and expansion are expected for any business after a few years of operating. The growth stage is characterised by expansion and increased market share.

Expansion should, however, be done strategically to avoid hiccups. Rapid expansion may expose the business to other risks, for example liquidation risk.

There are several ways a business can expand, from simple methods to more complex ones.

One way is through partnerships and strategic alliances. The partnership can occur when two businesses decide to collaborate for a period and on a project.

For example, when tendering, some procurement entities allow applicants to form a consortium.

This will enable the individual entities to build capacity in terms of expertise. It is best to have a collaboration agreement to safeguard the relationship of the parties and their obligations.

A partnership can be formed by admitting new owners into the business. Equity partners are those who buy a stake while other partners may be admitted due to their expertise in an area.

In both cases, it is advisable to have in place a partnership deed to manage the relationship and it is also important to register the new entity as a partnership.

Strategic alliances are increasingly being used as a means of expansion, especially global expansion.

There are several specialist alliances, for example for lawyers and other specialists. Such deals serve as referral networks, capacity building and accessing new markets in new territories.

To be able to maintain and achieve growth, consider joining a strategic alliance.

You can work with like-minded businesses, for example forming a specialist association you desire and inviting other businesses to join.

A merger and acquisition also works for market share expansion.

A merger occurs when two independent businesses form an entity. The old outfit ceases to exist and the new entity is formed.

Mergers can be regulated according to the provisions of the Competition Act. During a merger, several legal issues come into play, for example, recruitment, asset transfers, registration of the new business, and licensing.

A lot of mergers have occurred in the banking sector to enable the lenders gain a larger market share among other considerations.

Diversification is another way to expand. It can occur where your business gets into a new sector or into a new geographical area.

A lot of businesses are taking advantage of new opportunities to diversify and grow.

A licence or a franchise can give your business access to global markets. A franchise is granted by the franchiser, allowing the franchisee to open a new outlet in the domestic market.

The franchiser allows the franchisee to use the its trademark but the franchisee must run the business according to the owner’s rules.

For example, if it is a restaurant, the franchiser’s operation manual can dictate the uniforms and recipes.

The franchiser is paid a fee in exchange.

The last way of global expansion is setting up presence in a new country by registering a new entity.

This is a more permanent but expensive way of expansion as there are attendant costs such as registration fees, licensing fees, work permits and other costs.

In most countries, taxation for a foreign business is higher than for local ones.

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