Planning and StrategyExpansion
The cost of growing without a strategy: why companies need to plan before executing
Expansion opens new markets. It also exposes the limits of the organization. Sustainable expansion depends as much on external opportunities as on the internal capacity to capture them.
A market opportunity can be real and still not be a growth opportunity for a particular company. There can be demand, a growing market, fragmented competition, attractive margins and customers ready to buy. None of that guarantees the organization is in a position to capture it.
Entering a new market isn’t just selling somewhere else. It means operating under different conditions, serving customers who buy differently, coordinating more decisions, acquiring knowledge the company doesn’t have, adapting processes, allocating capital, managing new relationships and, often, transforming parts of the organization itself. That’s why expansion is usually analyzed with an incomplete question: how attractive is the market? The second question is often the more uncomfortable one: what would our organization need to be capable of to capture it?
The market may be the opportunity. The organization may be the constraint.
Key takeaways
- An attractive market doesn’t mean a company is ready to expand: opportunity and organizational capacity are different problems.
- A firm’s growth is also limited by its resources and managerial capacity, not only by the opportunities available (Penrose).
- Sensing, seizing and sustaining an opportunity require different capabilities (Teece).
- For expansion to create value, competitive advantage has to be transferable to the new context.
- Internationalization adds complexity, requires local knowledge and depends on building relationships inside the market.
- Readiness doesn’t mean perfection: some capabilities must exist before entry, others are built during entry and others can be sourced from third parties.
- Sustainable expansion requires aligning three dimensions: opportunity, capacity and transferability.
Companies tend to study the new market more than the organization that will have to win it
Traditional market assessment follows a familiar logic: market size, growth, demand, competition, segments, pricing, regulation, channels, entry barriers and unit economics. It’s necessary work and, done well, it answers a specific question: does an opportunity exist?
The problem is that this question covers only half of the equation. The same market can be highly attractive to one company and unattractive to another. Two companies selling similar services can have entirely different capabilities to compete in it: one has a methodology that adapts easily, teams with experience in other contexts and the financial strength to sustain a learning period; the other depends on its founders, on local relationships and on processes that were never documented. The market is the same. The opportunity isn’t.
An opportunity doesn’t exist entirely independently of the organization trying to capture it.
Business research points in a similar direction. A McKinsey study of the world’s 5,000 largest listed companies between 2005 and 2019 found that roughly half of the sample’s total growth came from geographies outside companies’ home regions, and that companies that expanded internationally generated, on average, 1.9 percentage points more annual total shareholder return than their industry peers.6 The more revealing finding comes next: companies with healthy growth in their home markets gained an additional 2.6 percentage points through geographic expansion, while those struggling at home gained only 1.3 points, not enough to offset the drag of a weak home market. The authors argue that it’s critical to have a clear source of competitive advantage that is transferable across regions, and they offer this as a possible explanation for the difference.
It’s worth not reading more into the study than it says. It doesn’t prove that a company must dominate its home market before going international, nor does it measure the effect of transferability separately. What it does suggest, and this is Advisent®’s interpretation, is something else: expansion doesn’t replace the need to have something that can scale. The question before any market analysis should be what we are bringing to that market that will allow us to compete in it.
The opportunity is outside. The constraint may be inside
In The Theory of the Growth of the Firm, published in 1959, Edith Penrose offered one of the most influential explanations of why firms grow and, above all, why they can’t grow at any speed they choose. For Penrose, a firm’s growth depends not only on the opportunities that exist outside, but on the resources it owns and, in particular, on the productive services those resources can provide: experience, accumulated knowledge and the capacity of its management team to plan and execute.
In the chapter on the managerial limit, Penrose argues that expansion requires the work of managers who know the firm from the inside, and that this capacity can’t be expanded overnight. New managers can be hired, but they need time to acquire firm-specific experience before they are fully effective. As a result, the managerial capacity available at any given time limits how much a firm can expand in that period. Penrose describes this limit as one that recedes: as new tasks become routine, capacity is freed up to take on others. The limit is real, but it moves with experience.
In the following chapter, Penrose examines how the resources a firm already has (its “inherited” resources) shape the direction of its growth. Productive services the firm doesn’t fully use act as an inducement to expand in certain directions; the absence of specialized services, by contrast, can become a constraint on moving in others.
Applied to geographic expansion, the idea is powerful. Advisent®’s interpretation is that the existence of an external opportunity doesn’t remove the internal constraints required to capture it.
The existence of an external opportunity doesn’t remove the internal constraints required to capture it.
Those constraints take recognizable forms: available capital without the management bandwidth to oversee another operation; demand without delivery capacity; a competitive product without local market knowledge; technology without the processes to support it; sales without the capacity to serve customers afterward; growth without a governance system that allows fast decisions. In every case the opportunity is real. What’s missing is on the inside. Expansion stops being purely a market decision and becomes an organizational capacity decision as well.
Advisent® interpretation and framework. Source: Advisent®.
Sensing an opportunity, seizing it and sustaining it are different capabilities
In his 2007 article in the Strategic Management Journal, David J. Teece proposed a way to break down a firm’s dynamic capabilities (its ability to adapt to changing environments) into three clusters of activity. The first is sensing: identifying opportunities and threats. The second is seizing: mobilizing resources and making the decisions needed to capture those opportunities. The third is transforming, or reconfiguring: combining, protecting and, when necessary, redesigning assets and the organization to sustain competitiveness over time.2
The framework belongs to Teece. What interests us is applying it to a specific situation: expansion. Read this way, the distinction exposes something entry plans tend to overlook. A company can sense an opportunity correctly, enter the new market successfully and still be unable to transform its organization to operate at the new scale. The three capabilities don’t come bundled. An organization that is quick to sense may be slow to mobilize resources; one that executes an entry well may not know how to redesign itself once the international operation stops being an experiment.
Three questions follow, and they’re worth answering separately. Can we sense the opportunity correctly, telling a real signal from a passing trend? Can we mobilize the resources needed to capture it, when they’re needed? Can we change our organization if the expansion works?
Finding an opportunity doesn’t mean being able to capture it. Capturing it once doesn’t mean being able to sustain it.
- OpportunityAn external opportunity exists
- SensingDetect and understand it
- SeizingMobilize resources and decisions to capture it
- TransformingReconfigure assets and organization
- ExecutionOperate consistently in the new context
- Sustainable ScaleGrow without complexity outpacing value
- Sensing · Seizing · Transforming: conceptual basis from David J. Teece (2007)
- Opportunity · Execution · Sustainable Scale: Advisent® extension
“Sustainable Scale” is not a Teece concept. Source: Advisent®, building on Teece (2007).
What works in one market doesn’t necessarily scale to the next
Robert I. Sutton and Hayagreeva Rao devoted Scaling Up Excellence to a problem that isn’t specific to internationalization but runs right through it: how to spread something that works well on a small scale to more people and places without it degrading along the way. Their starting point is that scaling isn’t about multiplying what exists. As volume, people, customers, processes and coordination needs increase, what used to work almost naturally starts to require explicit design, and what isn’t tended to gets diluted.
One of the tensions they describe is especially useful here: the choice between faithfully replicating a model (what they call the “Catholic” approach) and spreading a mindset that allows local variation (the “Buddhist” approach). Neither is right in the abstract; each has costs.
In international expansion, that tension shows up in almost every dimension of the business. The same product doesn’t imply the same pricing. The same brand doesn’t imply the same message. The same technology doesn’t imply the same integrations. The same process doesn’t imply the same regulation. The same value proposition doesn’t imply the same buyer journey. The central question is no longer how to copy what works, but which part of our advantage must stay constant and which part needs to adapt to remain an advantage.
Expanding also means becoming the foreigner
In 1995, in the Academy of Management Journal, Srilata Zaheer developed the concept of liability of foreignness: the additional costs a company faces when operating outside its home country, costs a local competitor doesn’t bear.4 These costs can arise from distance and the coordination it requires, from unfamiliarity with the local environment, from institutional and sociocultural differences, and from the lower legitimacy a newcomer has with customers, suppliers and regulators. Their relative weight isn’t the same in every market or industry; it depends on how different the context is and how much that difference matters to the business.
In 2009, Jan Johanson and Jan-Erik Vahlne revisited their Uppsala internationalization model and shifted its focus.3 In the revised version, markets are understood as networks of relationships between firms, and the main source of uncertainty for a newcomer is not so much being foreign as being outside the relevant networks. They call this liability of outsidership. In their model, internationalization advances through learning, trust-building and growing commitment to relationships within the market.
Advisent®’s interpretation is that a company can know the size of a market perfectly and still not know how business actually gets done inside it. Who influences the purchase decision? Who recommends? Who distributes? Who enables, regulates or certifies? Which relationships build trust, and which players control access? What knowledge only becomes visible by participating? No market report fully answers those questions.
Entering a market is also a process of learning and relationship-building.
Competitive advantage has to travel
If expansion creates value when there is a transferable advantage, the analysis has to go back to the source: what makes the company competitive today. It may be the brand, the technology, know-how, a methodology, a cost structure, intellectual property, data, talent, commercial capability, customer experience, speed, processes or network effects.
The question that matters isn’t whether that advantage exists, but why it would remain relevant under the conditions of the new market. A brand that is well known in one country may be unknown in the next. A cost advantage may disappear against local competitors with a different structure. A methodology may work because it relies on relationships that don’t travel with it.
This is where Advisent® draws a distinction of its own: replicability is not the same as transferability. Something can be perfectly replicable inside the organization (a documented process, a sales playbook, a platform) and still not produce a competitive advantage in another market, because customers value something else or because local competitors already offer it. Replicability answers whether we can do it again. Transferability answers whether, done again, it will still make the difference.
When expansion works, the real problem begins
Most expansion plans are designed for one scenario: the risk that it doesn’t work. Few are designed for the opposite. The company enters, wins its first customers, demand exceeds expectations and sales grow. And then it has to deliver, hire, coordinate, invoice and collect in another context; control quality at a distance; comply with regulations it didn’t know; manage new suppliers; serve customers with different expectations; integrate data from different systems; protect margins and coordinate decisions across markets moving at different speeds.
A successful expansion increases two variables at once: opportunity and complexity.
The problem is that the two don’t necessarily grow at the same rate. Revenue can rise while margins fall. The number of customers can grow while each customer’s experience deteriorates. More markets can mean slower decisions. More people, weaker coordination. More technology, more fragmented data. More local autonomy, less consistency; more centralization, less ability to adapt. None of these tensions shows up in a market study, and all of them show up when expansion succeeds.
That’s why the question that most changes the conversation in a leadership meeting isn’t what happens if we fail, but what will happen to our organization if we succeed.
Many of these tensions originate in the way a company connects marketing, sales, delivery and data, a problem we explore in our article on RevOps and revenue systems.
Expansion increases opportunity and complexity simultaneously.
Conceptual illustration: bar lengths show the direction of change, not measurements. Source: Advisent®.
Advisent® Expansion Readiness System™
To structure these questions, Advisent® uses the Advisent® Expansion Readiness System™: a diagnostic framework developed by Advisent® to structure the variables an organization should assess before committing significant resources to an expansion. It isn’t an academic theory. It draws on the ideas covered above (Penrose’s internal constraints, Teece’s dynamic capabilities, Johanson and Vahlne’s network-based learning, Zaheer’s liability of foreignness and the scaling problems described by Sutton and Rao), but those concepts belong to their authors. What is ours is the way we combine them to support a decision.
The framework can be summarized as a conceptual relationship: opportunity × capacity × transferability = expansion readiness. It isn’t a mathematical equation. The × sign expresses interdependence: a significant weakness in any of the three dimensions can reduce the ability to capture the opportunity, even if the other two are strong.
- Market
- Demand
- Competition
- Economics
- Timing
- Regulation
- Strategy
- Leadership
- People
- Operations
- Finance
- Technology
- Commercial
- Governance
- Brand
- Technology
- Know-how
- Intellectual property
- Processes
- Data
- Talent
- Commercial advantage
Market Opportunity ≠ Expansion Readiness
Sustainable Expansion = Opportunity × Capacity × Transferability
Conceptual, not mathematical, relationship. Proprietary diagnostic framework. Source: Advisent®.
Opportunity: is there an opportunity worth capturing?
The first dimension covers traditional market analysis: attractiveness, demand, competitive intensity, economics, timing and regulation. Its underlying question is whether there is enough potential value in the market to justify the effort. It’s the dimension most companies already assess; the mistake is treating it as the only one.
Capacity: do we have the organization needed to capture it?
The second dimension looks inward: strategy, leadership, people, operations, financial capacity, technology and data, commercial capabilities and governance. The question that organizes it is direct: can we execute the strategy we are proposing? This is where the constraints Penrose described appear, along with the differences between sensing, seizing and transforming that Teece identified.
Transferability: is our advantage still an advantage when the market changes?
The third dimension assesses which part of the current advantage (brand, technology, know-how, processes, intellectual property, costs, commercial capabilities, customer experience, data, relationships and talent) will keep making a difference under the conditions of the new market. It’s the easiest dimension to take for granted and the most expensive to discover too late.
Market Opportunity ≠ Expansion Readiness.
Is your company ready to expand?
A useful way to start the diagnosis is to flip the usual scenario and ask about success, not failure.
If demand in the new market exceeded our projections tomorrow, which part of our organization would fail first?
The answers are often revealing. Sometimes it’s the sales team, which can’t handle more opportunities. Other times it’s management, which doesn’t have time to oversee another operation; delivery, which can’t absorb more volume without losing quality; working capital, which can’t finance another market’s collection cycle; hiring, which can’t find talent in time; technology or data, which weren’t designed for multiple countries; customer service, compliance, pricing, processes, governance or local partners.
A negative answer to several of these questions doesn’t necessarily mean the company shouldn’t expand. It may mean something more precise and more useful: not yet, or not this way.
Not every capability has to exist before entry
None of this should be read as an argument for waiting until the organization is perfect. Being ready isn’t the same as being complete. The Uppsala model itself describes internationalization as a process in which market knowledge, relationships, trust and commitment are built by participating in the market. Part of the capacity needed to compete in a market can only be developed inside that market.
The useful question, then, isn’t whether the company has every capability, but which ones it needs beforehand, which it can build along the way and which it can get from others.
Capabilities that must exist before entry
These are the ones whose absence makes the strategy unviable or creates disproportionate risk: a clear competitive advantage, the financial capacity to sustain the learning period, management time to oversee the operation, the ability to deliver what is sold without hurting the current market, and compliance with the minimum legal requirements to operate.
Capabilities that can be built during entry
Commercial knowledge of the market, relationships with customers and partners, an understanding of how customers buy, operational adaptation and a fine-grained grasp of the local context tend to develop better by operating than by analyzing from the outside.
Capabilities that can be sourced externally
Partners, distributors, local talent, advisors, suppliers, technology, infrastructure and specialized expertise can be brought in without building them from scratch, as long as the company keeps control over what defines its advantage.
The question isn’t only whether we are ready. It’s what we need to control, what we need to learn and what we can get from others. That distinction is what makes progressive entries possible: limited pilots, test markets, alliances before wholly owned subsidiaries, and commitments that grow as the evidence justifies them.
Sustainable expansion isn’t about replicating the company
Every expansion faces a tension between standardizing and adapting. Too much standardization can ignore differences customers see as decisive. Too much adaptation can destroy the economies of scale that justified the expansion and fragment the organization into units that share almost nothing.
The practical question is what should be global and what needs to be local. As an example, a common split in B2B service companies might look like this:
| Dimension | Typical tendency |
|---|---|
| Strategy | Global or regional |
| Pricing | Possibly local |
| Technology platform | Global |
| Integrations | Local |
| Brand identity | Global |
| Messaging | Adapted |
| Methodology | Shared |
| Commercial execution | Localized |
| Governance | Shared |
The right split depends on the industry, the market, regulation, the business model and, above all, where the competitive advantage lies. What defines the advantage tends to be protected and standardized; what defines local relevance tends to be adapted.
Replicating too much and reinventing too much are two different ways of losing scale.
The market may determine how much you could grow. The organization determines how much of that growth you can capture
Expansion usually starts with something that happens outside: a growing market, emerging demand, a customer who asks for it, a technology that opens a door, a competitor that pulls back, a regulation that changes. But the market only sets the potential space. The company has to occupy it.
Each of the perspectives we’ve covered sheds light on part of that challenge. Penrose reminds us that growth is limited by a firm’s resources and managerial capacity. Teece, that sensing, seizing and transforming are distinct capabilities. Johanson and Vahlne, that entering a market means learning and building relationships within a network. Zaheer, that operating as a foreigner carries its own costs. Sutton and Rao, that scaling without degrading what works requires deliberate choices. And McKinsey’s research, that expansion pays off more when there is an advantage capable of traveling.
Brought down to the decision, Advisent®’s view is this: before deciding where to expand, ask which capabilities you are trying to expand from. Before estimating how much revenue a market can generate, ask how much complexity it will add. Before replicating, ask what should travel and what should change. Before committing resources, ask what we control, what we need to build and what we can get from others.
A market opportunity doesn’t automatically become a growth opportunity.
Sustainable expansion happens when a company not only finds where to grow, but builds the capacity to capture that growth without losing what made it competitive.
Frequently asked questions about business expansion
What is business expansion?
Business expansion is the process by which a company extends its activity into new markets, segments, geographies or lines of business. It includes international expansion but isn’t limited to it. It involves more than selling somewhere else: it requires operating under new conditions, serving different customers, coordinating more decisions and often adapting processes, capabilities and organizational structure.
How can you tell if a company is ready to expand?
A company is ready when three conditions align: there is a market opportunity worth capturing, the organization has the capacity to execute the entry strategy, and its competitive advantage remains relevant in the new context. A useful test is to ask which part of the organization would fail first if demand in the new market exceeded projections.
What capabilities does a company need to internationalize?
It usually needs a transferable competitive advantage, the financial capacity to sustain a learning period, management time to oversee the new operation, delivery capacity that doesn’t hurt the current market, legal and regulatory knowledge, and processes and technology that work in more than one country. Some of these must exist before entry; others can be built during entry or sourced from external partners.
Should a company be strong in its home market before expanding?
It isn’t an absolute rule, but business evidence suggests it helps. A McKinsey study of the 5,000 largest listed companies (2005–2019) found that companies with healthy growth in their home region benefited more from international expansion than those struggling at home. The authors link this to having a competitive advantage that can be transferred across regions.
What is liability of foreignness?
Liability of foreignness is a concept developed by Srilata Zaheer (1995) to describe the additional costs a company faces when operating outside its home country, costs a local competitor doesn’t bear. They can arise from distance, unfamiliarity with the environment, institutional and cultural differences, and lower legitimacy with customers, suppliers or regulators.
What does liability of outsidership mean?
Liability of outsidership is a concept introduced by Jan Johanson and Jan-Erik Vahlne in their 2009 revision of the Uppsala internationalization model. It holds that markets function as networks of relationships and that a newcomer’s main difficulty isn’t only being foreign, but not belonging to the relevant networks where knowledge, trust and opportunities are created.
What is a transferable competitive advantage?
It’s a source of advantage that keeps creating differentiation when a company enters a different market: for example, a technology, a methodology, an internationally recognized brand or a cost structure that is hard to match. Being replicable internally isn’t enough; it has to remain valuable to customers and hard for competitors in the new market to imitate.
What should be adapted when entering a new market?
It depends on the industry, regulation and business model, but pricing, commercial messaging, technology integrations, commercial execution and some operating processes are often adapted. What defines the competitive advantage tends to stay shared: strategy, methodology, the technology platform and brand identity. The goal is to adapt what’s necessary without fragmenting what enables scale.
Sources and further reading
Academic foundations
- Penrose, Edith. The Theory of the Growth of the Firm. Oxford University Press (first published 1959; fourth edition 2009, with an introduction by Christos Pitelis). See especially chapter IV, “Expansion Without Merger: The Receding Managerial Limit” (pp. 43–64), and chapter V, “‘Inherited’ Resources and the Direction of Expansion” (pp. 65–87). Oxford University Press
- Teece, David J. “Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance.” Strategic Management Journal, 28(13), 2007, pp. 1319–1350. DOI: 10.1002/smj.640
- Johanson, Jan, and Jan-Erik Vahlne. “The Uppsala Internationalization Process Model Revisited: From Liability of Foreignness to Liability of Outsidership.” Journal of International Business Studies, 40(9), 2009, pp. 1411–1431. DOI: 10.1057/jibs.2009.24
- Zaheer, Srilata. “Overcoming the Liability of Foreignness.” Academy of Management Journal, 38(2), 1995, pp. 341–363. DOI: 10.2307/256683
- Sutton, Robert I., and Hayagreeva Rao. Scaling Up Excellence: Getting to More Without Settling for Less. Crown Business, 2014. ISBN 9780385347020.
Business research
- Bradley, Chris; Doherty, Rebecca; Northcote, Nicholas; and Röder, Tido. “The ten rules of growth.” McKinsey & Company, August 12, 2022. Study of the 5,000 largest listed companies, 2005–2019. mckinsey.com
- Doherty, Rebecca; Mazhindu, Amos; Silberstein, Marc; and Röder, Tido. “The growth code: Go global if you can beat local.” McKinsey & Company, Strategy & Corporate Finance Blog, June 23, 2023. mckinsey.com
The Advisent® Expansion Readiness System™ is a diagnostic framework developed by Advisent®. The concepts of the managerial limit and inherited resources (Penrose), dynamic capabilities (Teece), liability of foreignness (Zaheer), liability of outsidership and the Uppsala model (Johanson and Vahlne), and the scaling problems described in Scaling Up Excellence (Sutton and Rao) belong to their respective authors.
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