Contractors, building products manufacturers and distributors typically face the question of whether to expand geographically. This may be the result of rising earnings targets or the opportunity to follow existing clients. Private equity firms often need to assess the potential portability of a target business.
The FMI Research Services Group's analysis framework is designed around geographic expansion issues but is easily applied to other types of expansion as well.
If profitable growth is one of your principal goals, then you will inevitably face the question of business expansion. Expansion can take the form of served market segments, areas of expertise, penetration of existing markets or new geographic areas.
External/Industry-related questions addressed through a Geographic Expansion Study may include:
- What is the real potential in this market today versus three to five years from now?
- What are the key local industries?Who are the key buyers of construction products and materials? Are their businesses healthy?
- What are local business leaders and government officials doing to promote growth?
- What is the regulatory environment like?
- What taxes can be expected? Are incentives offered?
- Is local labor available? If so, what skill sets are available, and at what rates? What is the union/nonunion posture?
- Who are the leading competitors? How are they organized and structured? What are their strengths, weaknesses and capabilities?
- What do key local buyers want that they're not getting from current suppliers?
- In what ways might existing competitors be vulnerable?
- How intense is local market competition? How will it likely respond to your entry?
Internal/Company-related questions addressed through a Geographic Expansion Study may include:
- How well is our current business strategy working?
- What are our own strengths and weaknesses?
- How competitive are our costs and prices with existing firms in the market?
- How easy is it to enter this market?
- What are the barriers?
- What are our distinct capabilities, and how will they provide us a sustainable competitive advantage?