Economic advantage:-

Economy of Scale

Economy of scale will be the most important economic advantage from expanding a business. By Expanding an increasing level of production to a certain level can save a proportionate amount of cost to business.

For example a factor have surplus capacity utilizing this will cause no extra cost but helps to earn extra revenue if increased level of production, that is how economy of scale influence the decision whether to expand or not.

Nearness of resources

If the business is decided to expand or shift its operation to a place nearby the Resources such as raw material and labor then this will enhance the level of activity or reduce the cost by reduction of the transport cost of raw material.

An expansion decision may also consider the proximity of resource as an economic beneficial factor.

Potential customer

A physical expansion to a new location need to consider for the gaining of new potential customers. On such an expansion Demographic factors should have been considered as dominant age group.

Tax advantage:-

Import duty

In cases where, a company export products from home country to a foreign country which is considered here as a host country, then foreign country will usually impose an import duty on the value of this product. In this case manufacturing products itself in foreign country will avoid this tax (but has to analyze for cost versus benefit in manufacturing unit there in foreign country).

Import Duty has an influence in deciding whether to expand or not to foreign market where company have the most of customer base.

Tax treaty between Home and Foreign country

After setting up a subsidiary in foreign country, then at the time of remitting money back to the country there business will have to bear tax liability on home country as well.

But at the same time if there is a tax treaty between countries, then company has to pay only if any extra tax is applicable in home country. No need to double pay tax.

For example

 

	Tax rate case1	Tax rate case 2
Foreign-Paid	15%	15%
Home	15%	20%
Extra to pay in home	NIL(no need to pay in home)	5% (pay extra rate)

In considering an expansion to foreign country tax treaty has also have an important role.

Business expansion refers to a process or a strategy whose main focus is to increase the number of stores in different locations which leads to an increase in customers and an increase in profit. Business expansion also helps in improving the employment opportunities.