Expansion and Diversification

A company adds capacity to its existing product lines to expand existing operations. For example, a fertilizer company may increase its plant size to manufacture more urea. Expansion of new business requires investment in new products and a new kind of production activity within the firm. If a package manufacturing company invests in new plant and machinery to produce ball bearings, which the rum bas not manufactured before, this represents expansion of new business or diversification. Sometimes a company acquires existing firms to expand its business. In either case, the firm makes investment in the expectation of additional revenue. Investments in existing or new products may also be called as revenue-expansion investments.

Expansion decision: a decision concerning whether the firm should increase operations by adding new products, additional machines, and so forth. Such decisions would expand operations.