Company lifecycles are the stages of development through which a business goes through. New businesses are faced with various challenges throughout their lives. Failure to deal with the problems will lead to the downfall of a business due to financial losses. The current paper focuses on the differences between the lifecycle and financial strategies adopted by a company that focuses on domestic expansion and a company that focuses on international expansion.
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The first stage of a business is the seed stage. Business ideas and plans are developed at this stage. The challenge of this stage is market acceptance. Many companies concentrate on one market segment to enhance success. Money and resources should be used effectively during this stage. The company stipulates its focus on such areas as skills, experience, and passion.
Other key elements of this stage include business ownership structure, business planning, and accessing professional advisors. The source of capital for expansion becomes a challenge to many companies since they rely on owners, friends, customers, banks, and government grants. A company that focuses on international expansion draws clear guidelines to attract international investors. It has to invest in a wide range of products to offset the risks of business failure.
It is the second stage in business establishment. Business exists legally at this stage. The challenges of this stage include lack of money and time for marketing. The business owners have to take time to determine whether or not the business is on the right track (Hitchcock & Willard, 2012).
A company focusing on domestic expansion will require reduced capital expenditure in such areas as advertising and product promotion compared to a company whose target is international expansion. To expand internationally, a company requires increased capital investment. It has to attract shareholders from different parts of the world to support the business (Parker, 2006).
At this stage, the business becomes well established. A company focusing on domestic expansion faces the problem of hiring many employees and setting up accounting and management systems. Productivity must be improved to enhance proper management of the business. New products and services must be added, increase the financial strain for a domestic company.
For companies aiming to expand internationally, new sources of capital become available. The earnings from the business are passed to shareholders in a company that focuses on domestic expansion. The earnings can also be used in the business as capital to venture into new markets. In a company aiming for international expansion, the earnings are mostly used to increase the market share (Groot, 2010).
At this stage, profits and sales are stabilized. Competition is at its highest, making companies to expand their territories to outdo competitors. Financial resources are diverse. Banks and other investors put all their wealth in the business. In a company focusing on international expansion, products are improved for marketing in other countries.
Poor sales, which come with competition, are not witnessed since the products are shifted to countries where demand is high. In contrast, a company that focuses on domestic expansion will have to fight the competition. Competition reduces sales, leading to losses. Dividend payments become a problem for such companies (Stark, 2011).
At this final stage, the business becomes liquidated. Profits decline and losses set in. In a company focusing on international expansion, losses made in one market are offset by profits made in other countries. Such businesses can borrow finances from various sources since they have a source of security. In contrast, a company that focuses on domestic expansion finds it hard to exist due to high operational costs (Stark, 2007).
A company that focuses on international expansion enjoys more financial security than the one focusing on domestic expansion. International markets open more grounds for financing, which is a key asset for success of any business. Companies with domestic market are wiped out when competition stiffens. Their sources of finance get limited once the competition sets in since they lack assets for security.
Groot, M. (2010). Managing financial information in the trade lifecycle: A concise atlas of financial instruments and processes. Boston: Boston. Academic Press.
Hitchcock, D., & Willard, M. (2012). The business guide to sustainability: Practical strategies and tools for organizations. London: Routledge.
Parker, S. (2006). The life cycle of entrepreneurial ventures. Hong Kong: Springer.
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Stark, J. (2007). Global product: Strategy, product lifecycle management and the billion customer question decision engineering. Hong Kong: Springer.
Stark, J. (2011). Product lifecycle management. Hong Kong: Springer.