Business growth through acquisition, mergers, diversifications and

partnerships
Growing your business organically, we can also expand by joining forces with another business. While this can
create problems around decision-making and possible management and staff issues, there can be clear
advantages.

Benefits of business cooperation

Successful business cooperation can deliver:

 more resources
 sharing of the managerial load
 larger skills and talent base
 bigger pool of contacts
 increase in markets
 diversification and organic growth using increased resources
 reduced commercial risk
The right partner should complement your core brand and business development goals, so consider carefully
the type of partnership you plan to pursue to ensure the best chances of success.

Partnerships and joint ventures

Joint ventures and partnerships can offer both partners significant benefits, including sharing experience, skills,
people, equipment and customer bases. Through a partnership or a joint venture arrangement with a
complementary, non-competitive business, you may be able to open new markets or improve your offer to
existing ones. But it's important to choose your partner carefully.

An agreement or contract defining the terms of the partnership or joint venture is essential and further legal
protection is advisable. See how to create a joint venture agreement.

Teaming up should be a win-win situation for both parties. Businesses involved with complementary activities
or skills are usually the most appropriate candidates. For example, a group of sole traders - a carpenter, builder
and gas installer/electrician - could form a company to:

 increase their credibility in the construction trade

 allow them to bid for larger contracts
 appeal to customers looking for a 'one-stop-shop' service
Find out more about joint ventures and business partnerships.

Mergers and acquisitions

Growth through acquisition or merger is a common tactic used to achieve diversification and market
positioning. It can help:

 increase market share

 expand the workforce
 widen the existing service or product offering
 grow revenues
 achieve economies of scale
  reduce costs through shared budgets and greater purchasing power
However, combining two businesses can pose challenges that did not exist before, such as:

 maintaining a presence in multiple markets

 managing a complex product and services portfolio
 retaining a larger and more diverse customer base
 managing more people and operational complexity
Find out more about mergers and acquisitions.

Acquisition and merger may not be suitable business growth strategies for all businesses. They are more
suited to established enterprises, as transactions may involve commercial lawyers and considerable legal work.

You should thoroughly plan, research your options and strategically pursue the right type of growth for your
business. If you decide that growth through partnerships isn't the right fit for your business, you may want
to grow your business organically.

Business growth through diversification

Diversification is a growth strategy that involves entering into a new market or industry - one that your
business doesn't currently operate in - while also creating a new product for that new market.

Different types of diversification strategies

There are several different types of diversification:

Horizontal diversification
Horizontal diversification is when you acquire or develop new products or services that are complementary to
your core business and appeal to your current customers. For example, an ice cream business adds a new type
of confectionary into its product line. You may require new technology, skills or marketing approach to
diversify in this way.

Concentric diversification
Concentric diversification involves adding new products that have technological or marketing synergies with
existing product lines or industries, but appeal to new customers. For example, a PC manufacturer starts
producing laptops. You may be able to leverage your existing technologies, equipment and marketing to
diversify in this way.

Conglomerate diversification
Conglomerate diversification occurs when you add new products or services that are entirely different from
and unrelated to your core business. For example, a film studio opening up an entertainment park. The risks are
high, as this approach requires you not only to enter a new market, but also to sell to a new consumer base.

Vertical diversification
Vertical diversification or integration is when you expand in a backward or forward direction along the
production chain of your product. In this approach, you may control more than one stage of the supply chain.
For example, a film distributor produces its own content, or a technology manufacturer opens its own retail
store.

Deciding how and when to diversify will require:

  detailed market research for the new product or service
 a full assessment of customer needs
 a clear product development strategy and market testing
 sales, marketing and supply chain operations able to cope with the added demands
See how to diversify your business.

Advantages and disadvantages of diversification

There are pros and cons to each of the different diversification strategies. A successful diversification can help
you:

 increase sales and revenue

 grow market share
 find new revenue streams
 achieve higher margins compared to existing products
 limit the impact of changes in the market
On the other hand, diversification will incur development, sales and marketing costs. It will also require
additional skills, management and operational resources. If these demands exceed the potential revenue and
profit gains, diversification can put your business at risk. For example:

 diverting funds and resources into diversification may limit potential growth in core areas of your
business
 lack of knowledge or expertise in the new industry or market may lead to costly delays or mistakes
 diversifying too quickly may cause you to lose track of or dilute your core products or services
 if you stretch your resources too widely, you may struggle to provide a consistent level of service,
which can lead to dissatisfaction and customer losses
In general, diversifying with similar products or services and selling them to a familiar customer base is less
risky than some other business growth strategies, such as creating a product for a completely new market.

Diversification can be a great way to maintain business stability. It allows you to hedge your bets and, if one of
your markets or products fails, you have another to back you up until you recover.