This paper examines three core business expansion strategies: market penetration, market development, and product development. Using FSI International and Sony Ericsson as case studies, the paper demonstrates how companies apply these strategies to achieve growth in different market conditions. Market penetration focuses on expanding within existing markets to new regions; market development involves entering new market segments with existing products; and product development emphasizes innovation for current markets. The paper concludes that successful strategic management requires selecting the approach best suited to a company's business model and industry.
Market penetration is a strategy that many businesses consider when they decide to expand their operations to other regions within the same market. Market penetration usually involves the establishment of business relationships in new geographical areas. With market penetration, businesses can measure their success through concrete metrics. For instance, the percentage of sales in different regions is one way to determine where a company is generating strong revenue and where it needs improvement in operations and service delivery.
A successful example of market penetration is FSI International, Inc., a supplier of surface conditioning equipment and technology for microelectronics manufacturing. Since FSI decided to penetrate the Asian market with direct sales and support, the company found considerable growth in revenue. According to Electronic News Online, 40 percent of FSI's sales in 2004 were from Asian customers. This represented an increase of 29 percentage points compared to the previous year, when Asian customers comprised only 11 percent of all sales. Don Mitchell, FSI's CEO and President, described their market penetration strategy:
"By providing a full portfolio of support services directly in Asia, we're developing stronger customer relationships. As a result, our customers are now showing great interest in expanding beyond their use of FSI traditional spray cleaning technologies to include new back-end-of-line and wafer bumping applications for spray as well as employing our advanced immersion and CryoKinetic technologies."
Market development is defined as the process of finding new markets for products a company is already making. Market development is similar to market penetration in that both aim to expand a business. The key difference is that market development involves entering a new market segment or venture with an existing product, while market penetration focuses on the same market but expands to new regions or locations.
A successful business example of market development is the joint venture between Sony and Ericsson companies. The merger of these two companies, now known as Sony Ericsson, provided them with the opportunity to extend their products into a new market segment. Sony entered the mobile cellular phone market, while Ericsson gained access to Sony's advanced electronics technology and integrated those features into their mobile phones.
Product development is a strategy of increasing sales by improving existing products or developing new products for current markets. The collaboration between Sony and Ericsson exemplifies product development strategy. By uniting the design innovation and product features of both companies, Sony Ericsson created products that were more marketable to consumers than the original offerings from either company alone.
The resulting Sony Ericsson products represented a significant advancement from traditional cellular phones into multi-purpose devices. Such features included a combination of a PDA, telephone, video recorder, digital camera, and other functionality—a clear example of product development strategy in action.
"Matching strategy to business model"
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