Most enterprises tend to gradually expand to survive and become more profitable. Both owners and managers of the enterprise are interested in the company increasing in size. The increase in size often allows for economies of scale both in production and in distribution. Expanding to new markets or acquiring other companies already in these markets, companies can develop new potential for profit, and companies in cyclical industries can increase income stability through diversification.

Business Expansion – Example

BoeingMcDonnell Douglas

For example, in 1997, Boeing, a company very strong in commercial aviation, acquired McDonnell Douglas, a company weak in commercial aviation, but very strong in military aviation and other areas of defense and in space. When orders for commercial airliners fell sharply after a sharp drop in air travel, the increase in defense spending, in part related to the war in Iraq, helped to equalize the earnings of Boeing.