Expanding business boundaries

Some companies are seeking ways to expand business boundaries to grow their businesses and generate greater revenues. There are lots of reasons for why some companies want to enter other business sectors. First, some companies may reach the limits of their expansion in their current sectors. The limit does not mean there is no room for them to expand further, it is just no longer profitable for them to expand in their sectors that the costs of expansion exceeds the potential returns from further expansion. Secondly, there are better opportunities in other sectors that companies cannot resist. This is probably more common. For example, after Apple’s launch of its first generation of iPhone, many other companies also joined the smartphone sector, including Alphabet and Amazon. This is because the smartphone market is just too profitable to resist. More than a half of Apple’s revenues is generated from its iPhone business. We should not forget Apple was originally a personal computer maker and now Apple’s Mac sales are less than 10% of the total sales and even less than Apple’s revenues generated from services. Thirdly, sometimes it is tax efficient for some companies to get involved in other sectors. For example, some companies also own football clubs, because they need to keep spending money on their football clubs, the taxable profits are reduced and they can pay less tax. Moreover, in the future, if they need lots of cash, they can sell their football clubs and their previous investment in their football clubs could potentially be paid back partially or fully.

Of course, it is not easy to enter a new sector, even for large successful companies. For example, Alphabet has given up his ambition in producing tablets, they have announced they are no longer to produce tablet hardware but will continue developing tablet software. Good products or services are important for succeeding in any sector and a company’s previous record does not necessarily reflect its performance in a new sector, although its cash flow, brand and previous experience can certainly help it to succeed. Brands are sometimes very important because brand can determine how easy the company enters a new sector. Alphabet definitely has a very good brand. Despite its products’ quantities, its products always gain enormous market attention. This is very important for a company to break into a new sector. Maybe Alphabet does not successfully break into the tablet business, Alphabet’s popular brand has helped it gain incredible market attention in all sectors where it gets involved, including the driverless car industry, the smartphone industry. There is another more recent example, Facebook. Facebook is a company which was originally founded as a social media company. Recently it publicly announces the plans for its cryptocurrency, Libra. Although the cryptocurrency has received a lot of debates and criticism, it certainly gains the market attention and helped to push the prices of other cryptocurrencies higher. However, popular brands do not always mean success and some popular companies actually create new brands when they enter a new sector. For example, P&G has many brands, it uses Oral-B for its oral-hygiene products, Gillette for its men’s personal care products, Pantene for its hair care products. According to categorisation theory, consumers tend to evaluate new products based on their previous experience with the brand and the brand’s concept. Having different brands can prevent companies from containing itself in just one concept and help to gain more opportunities in more sectors. 

However, since people love the concept of high tech in general, large and successful tech companies do not need to create a different brand for entering a new sector and they can break into any sector relatively easily with the help of their brands’ popularity.