What is the key strategic issues when a firm is considering capacity expansion?
Whether to expand capacity is a major strategic decision because of the capital required, the difficulty of forming accurate expectations, and the long time frame of the lead times and the commitment. The key forecasting problems are long-term demand and behavior of competitors. The key strategic issue is avoidance of industry overcapacity. Undercapacity in a portable industry trends to be a short-term issue. Profits ordinarily lure additional investors. Overcapacity trends to be a long-term problem because firms are more likely to compete intensely rather than reverse their expansion