Question

‘Chai Cart’, an Indian company, was set up in 2021 near a prime office hub in Nurgaon. The company aimed to fulfil the high demand for tea among office goers. Within a few months, the demand picked up and the business started earning good profits. In response to the rising demand, the company decided to expand its operations. Expansion of its business could be based on activities or on acquisition of ownership and control of other business concerns. ‘Chai Cart’ expanded its present production capacity by adding more machines. Furthermore, it opened its branches in shopping malls, airports and suburban locations, allowing it to reach more customers and to increase brand visibility. They also introduced new products, including a wider range of food items, coffee and other beverages to attract more customers. In this way, the company increased its business activities and broadened its present capital structure.
(a) Identify and explain the type of expansion discussed in the above paragraph.
(b) Also explain one other type of expansion.

Hint:

Internal expansion = growth from within; external expansion = growth by joining or acquiring other firms.

Answer 1

(a) Type of Expansion:
The type of expansion discussed is Internal Expansion.

Explanation:
Internal expansion refers to the growth within the company by increasing production capacity, opening new branches, and adding new product lines.

In the case of 'Chai Cart':
- It added more machines to increase production capacity.
- Opened new outlets in shopping malls, airports, and suburban areas.
- Diversified product offerings by adding coffee, food items, and beverages.

All these are examples of growing from within the organisation without merging or acquiring other companies.

(b) Another Type of Expansion – External Expansion:
External Expansion refers to growth through mergers, acquisitions, or takeovers of other businesses.

Explanation:
In this method, a company gains ownership or control of other existing businesses to expand quickly. This can include:
- Horizontal Merger: Merging with companies in the same line of business.
- Vertical Merger: Merging with suppliers or distributors to control the supply chain.
- Conglomerate Merger: Merging with unrelated businesses.

External expansion helps in gaining market share, eliminating competition, and achieving economies of scale.