Business forms
An Introduction to the various business forms and methods of expansion is required to be made to the new or existing businessman and businesswoman. The motive is to make people understand their own business and figure out the endless opportunities present before them, which they are not able to identify in many cases. But by proper identification and full utilization of such opportunity a person can increase the size of their business and earn huge profits.
Today there is no scarcity of opportunity for a business to develop and expand. The need is just to identify the best suitable one for us. A number of opportunities are available in the world to expand and diversify business. That Integration can be in the own field or even as diversification in some other field. Thus we can define two types of expansion plans for the business.
Integration.
Diversification.
Alliances.
Integration:
Integration is a kind of expansion of business, which is done by staying within the limits of the work area of the present business. For instance, increasing the variety or color or even features of the same product. Now if a person is making shoes for men only. Then making shoes for women and kids can do the expansion. It can also be in that way that sports shoes, casual shoes etc can be made along with the regular variety. Moving on Integration can be of two types.
Forward Integration or an Integration in which the steps are taken to meet the further requirements in the business process. For instance opening retail outlets. Take for instance if a person selling shoes starts selling socks on his shop. And along with that he/she keeps shoe polish, brush etc. on the shop than this can be called Integration at the later stage or Forward integration.
Backward Integration or an Integration in which the methods of production are taken into control so as to make it cost lesser and increase the profits. For instance, setting up factory to make the product from the raw material which costs lesser. An example will more clearly help in understanding diversification. If a person is making shoes in his factory. Then which the production of shoes, he starts processing rubber or leather whatever he/she uses as raw material for his/her product. This will be called Integration at early stage or backward integration.
Diversification:
Diversification means expanding business in other spheres of the business world. That is to sell or make those things, which are by no way related to the old or recent product. For instance, a shoemaker buys a sugar mill or Nuts and bolts. Here the entrepreneur is not making any integration in his/her existing business. That is the buying of such does not effect positively or even negatively the profitability of his present business. Then this is called diversification. The good example here can be of WIPRO. A well renowned company in the field of IT or Information Technology sector. It is now expanding its operation in other fields that is not by any way effecting its present business. WIPRO makes baby diapers and other baby products. Another example can be taken of TATA, which recently won CORUS. It has made its name in many other fields as follows.
Tata steel.
Tata telecom.
Tata power.
Tata motors. Etc.
Thus diversification in different fields increases their area of operation as well as margin and profits.
Alliances.
In many cases the companies even after lots of hard work and good result finds them, unable to grow at the required rate. At that time such efficient companies make alliances. These strategic alliances help the companies to over come the problem of competition by decreasing their costs. Actually, here the cost decreases due to synergy effect.
These efficient companies use their resources together to meet the demands of the customer and pay equally for the advertisement and other promotional expenses. For instance, many cement companies make alliances to meet the overall demand of cement in a country. For instance, In India, ACC is the group of cement making companies. ACC stands for Associated Cement Companies. These companies have a contract with each other to produce as per the agreement to meet the demand of the customers.
This way they use each other sources to cut their costs and earn huge profits. Also their collective unity helps them not to be taken over by some big company. In the end they safeguard the future of their company and overcome the problem of present competitive market conditions very effectively.
Need of Integration and diversification and alliances.
It is very clear here that these above-mentioned companies present status that they have their own area of operation and earning good profits in their field. Still to make more profits and as a plan of their expansion, they are making their way in other fields too. And behind all these expansion is one reason, and that reason is very clearly defined in the phrase as;
SURVIVAL OF THE FITTEST.
AS in today?s world, the competition is increasing. Big fishes are eating small fishes. Thus it become very necessary for a company to move up from being just a small fish and does not allow itself to be swallowed by the big fish.
Conclusion
In conclusion it can be easily be stated here that growth is the need of the hour. If a company does not grow then some day it will loose its identity and be taken over by some other big company. So to avoid such a case of overtaking by some other entrepreneur, it will be very much advisable to the small companies to grow and expand even if they have to make alliances with other companies. Not to forget here, that in the business world it is the struggle for the identity, and only those survive who show enough growth and strength to take over all kinds of competition.
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