Diffusion and Concentration Paths of Expansion
In modern intricate economy, the act of expanding business into the international market has been a major challenge among managers. Equally, the act of gaining sizeable commitment and presence in many countries has been a testing issue among business executives. However, with the modern technological development, business managers can use different paths to dominate the market in foreign countries. The diffusion path involves moving businesses into many foreign countries and gradually increasing the presence and commitment during their operations in the new markets (Daniels, Radebaugh, & Sullivan, 2001). Contrary, concentration path entails moving business to few or one country at a time until they develop strong competitive position and commitment. Concentration path also involves gradual movement of business operations from one country to other depending on the popularity and productivity of a business. Therefore, it is the responsibility of business managers to adopt an effective path to adopt in expanding business operations in other foreign countries.
In most instances, business managers may opt to use the two paths at different expansion levels. Conversely, the use of the two paths requires adoption of effective mechanisms that will facilitate commitment in some countries and rapid movement of business in other countries. Normally, modern managers prefer diffusion path in the situation where the business has little lead-time over its competitors. Business executives and managers also prefer diffusion path when the business is expecting to gain advantage over its competitors in new market by lining up the best distributors, suppliers, and local partners. Collaborating with some of the most successful partners in foreign market is vital in reducing the cost incurring in popularising a business in a new market. However, modern scholars have criticized the diffusion path for straining the company resources and time. Consequently, when business managers prefer to adopt diffusion path strategy, they are forced to search for reliable partners who can provide some of the resources required in expanding the business (MacGregor, 2007).
On the other hand, business managers opt to use the concentration method when the business is expected to incur fixed cost in the new market. Based on the available statistical findings, huge fixed costs occur due to technological requirements of building large capacity. The requirement of changing the business products can as well result to the rise in the company fixed costs. Other factors that can result to the rise in business fixed cost include the change in the business promotion mechanism, the alteration of the business strategy, the establishment of new business outlets, and recruitment of new business employees.
Furthermore, business managers may prefer adopting concentration path in the situation where they want to get full control of the business in foreign countries. Full control of business operation plays a critical role in facilitating the maintenance of business organisational culture as well as in increasing the business profitability. The desire to use concentration path is also enhanced by the fear of working together with other business in foreign market (Taylor, 2013). Business executive who have a clear objective of succeeding in new market also use concentration path in order to gain full control of the market. However, the concentration path is ineffective in the situation where the developing business has a plan of collaborating with other businesses. Contrary to diffusion strategy that advocate for partnering, concentrated paths forces managers to have full control of the business. The concentrated path is also inappropriate to new and less developed businesses. In most instances, the concentrated path is blamed for being relatively expensive and a complicated business expansion initiative
Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2001). Globalization and Business. New York, NY: Prentice Hall
MacGregor, R. C. (2007). Small business clustering technologies: Applications in marketing, management, IT and economics. Hershey, PA: Idea Group Publishers
Taylor, J. G. (2013). Investment timing and the business cycle. New York, NY: Wiley
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