1- Identification of Theory
Kovach, Hora, Manikas, & Patel (2015) stated that the theory of expansion is adopted by large size firms. The firm is looking for expansion into other geographical areas for its product offerings and to run its operational functions at a suitable location. The firm has collected suitable data from 3857 publicly traded firms from the period of 1991 to 2013. The firm has found that narrow product offerings, low geographical diversification, and low inventory slack are closely connected with the firm’s performance. Tenhiälä & Helkiöb (2015) discusses Enterprise Resource Planning (ERP). The article discusses the control and improvement of ERP to expand their business and keep data managed in a proper manner, so the article is mainly based on expanding theory. Dovleac (2014) discusses the sale of products is greatly dependent on price and to expand the business it is necessary to set a reasonable price. All the articles have employed quantitative research method to gather the information and expand their business.
Description of Theory
Kovach, Hora, Manikas, & Patel (2015) argue that the theory of the expansion of the firm means to start the operations in different geographical locations. Expansion is the main preoccupation of top management that leads the firm to the top. Economists who have spent their lives in observing the operations of firms come impressed with the idea of expansion. The expansion itself is a critical task where a firm has to go through many factors. Expansion requires great effort, time, money and expertise as the firm is going to operate in a different environment. The firm has to set a strategy to deal with the competitors already working in the market. Marketing the product and creating a positive image in the mind of customers is a whole new task. A firm can choose whether it is going to produce the products or export the finished products depending on many factors such as money and time.
Unique products usually have high demand in the market therefore they are sold at high prices due to their distinctive quality. Similarly to gain the interest and loyalty of the customers, newcomers set low prices for their product in beginning and raise them later with the passage of time. When there is competition in the market that won’t last for a long time, skimming suits better in such situations. Therefore, the company has to adopt the effective manner to compete in the new environment.
2- Components of the Theory
Kovach, Hora, Manikas, & Patel (2015) explain, it is assumed that the production and performance improve with the company going multinational. Recent theories have shown U- shaped relationship that shows a negative impact on the firm going multinational before it turns into better performance and productivity. Before going multinational, a firm has to go through many factors such as geographic location and whether the people are willing to pay for their product or not. Setting the rational price where the customers are satisfied and willing to pay for the product. The pricing strategy has a deep relation with expanding of a firm. As discussed above that price can play a vital role in introducing the product in the new market and make market share where the similar product is already introduced and exist in the market by the competitors.
3- Where it has been applied
Kovach, Hora, Manikas, & Patel (2015) discusses the idea of expansion is adopted by many companies the biggest example is McDonald's, which is running its function worldwide with more than 36,000 locations. McDonald's has made its market recognition by adopting the expanding functions in the world. McDonald's has adopted four major elements to success that are quality, service, cleanliness and value. McDonald’s serves more than 69 million customers in a single day in more than 100 countries. McDonald’s has set the price at a reasonable level where the customers are willing to pay for their food products. Any firm going multinational or expanding its business activities in the other geographical locations has to recognize the key elements depending on the firm’s operations that are the main key to success.
4- How it Affects the Target?
Kovach, Hora, Manikas, & Patel (2015) argues, expanding the business affects the company and target in a great way it can either be negative or positive depending on the expertise and experience of the top managers. For example, McDonald’s has created a strong brand image by expanding its function globally. McDonald’s started its food and beverage service in 1997. McDonald’s has been very successful in creating a positive image of their product in the mind of customers with their unique and best practices. The idea of expansion was achieved by the top manager’s professional expertise and their solid leadership qualities, which provided the company with success. The Great Place awarded McDonald’s as one of the top 25 Multinational Workplaces to Work Institute in November 2014. McDonald’s was chosen for its commitment and investment in providing development and training worldwide with 1.8 million employees. Great Place to Work discovered the practices of McDonald’s as the best in the area of development and commitment.
References
Dovleac, L. (2014). Pricing Policy And Strategies For Consumer High-Tech Products. Bulletin of the Transilvania University of Brasov. Series V: Economic Sciences. , 7 (14), 37-42.
Kovach, J. J., Hora, M., Manikas, A., & Patel, P. C. (2015). Firm performance in dynamic environments: The role of operational slack and operational scope. Journal of Operations Management , 1–12.
Tenhiälä, A., & Helkiöb, P. (2015). Performance effects of using an ERP system for manufacturing planning and control under dynamic market requirements. Journal of Operations Management , 36, 147-164.
