Business Networking Techniques For example, a dairy company producing cheese adds a new variety of cheese to its product line. Horizontal Diversification. This is unrelated diversification: there is no direct fit with the existing business. For instance, companies producing steel might go into the mining business, where it might control the supplies etc. Or the acquisition might provide an offsetting cash flow during a seasonal lull. among themselves, the diversification, is known as related-constrained. Likewise, a company might create related diversification by integrating into the existing value network. Site Example: The addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialties Ltd. is an example of Technology-related concentric diversification 15. Related diversification When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. Voice Marketing Inc. Related diversification. He states that without such a unity, diversification can never work; financial ties alone are insufficient. Usually a firm will either possess or lack a strong skill in marketing for a particular market. An example of conglomerate diversification would be Tata Group, which was founded in 1868 and diversified from its humble beginnings as a hotel company into a global multinational encompassing 100 individual companies. Many knowledgeable people have made blanket statements warning against unrelated diversification. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. Thus, a first condition for successful related diversification is to identify skills or resources that are exportable or that are needed and can be ‘imported! Localization is the concept of adaptation of software to specific locales. As the market matures, however, the necessity for a strong service organization becomes important. However, the two firms together may be able to operate at an efficient level. Strategy | 3. The following are the key tasks that need to be done while localizing: (i) The local character sets need to be supported. The Path to Diversification If the scope and breadth of company types and diversification strategies above are any indication, this is a journey that can vary dramatically from business to business. Jet Airways and Sahara deal is a typical example. To compensate for the unstable situation created by the financial crisis, a trend towards diversification has been appare… The heavy reliance upon a single product line can stimulate a diversification move. Peter Drucker claims that all successful diversification requires a common core or unity represented by common markets, technology, or production processes. Five years later Microsoft opened an office in China. Return from Related Diversification to More For Small Business Home Page. A firm may be highly skilled at R&D and new product development, but it may lack skills in either marketing or production. Sun silk shampoo of HUL is manufactured in SSI units of Pondicherry. Policies | Privacy Because it enables you to more clearly understand what you need to do to more your operation in the direction you need, and want, to go. A small company can often create or enter a market area and do well with an innovative product. Start with your SWOT (strengths, weaknesses, opportunities and threats) analysis. Diversification mitigates risks in the event of an industry downturn. (ii) The interface needs to be translated in a form that is familiar to the local user. request a quote for services here. Based on their earlier experience, it was understood that it was very difficult to parcel out a particular major software localization task to one SV and hence opted for a ‘consortia’ of SVs and set UP a product development centre. About Us | Managing | Its share in the total retail pie is set to increase from the current 2 per cent to about 10 per cent by 2010. This strategy of diversification refers to an entity offering new services or developing new products that appeal to the firm’s current customer base. in improving productivity and/or workflow; in serving existing customers better and more profitably; in diversifying by adding new products and services and/or new markets; by addressing safety and/or environmental issues; and more. An important issue in any diversification decision is whether, in fact, there is a real and meaningful area of commonality that will benefit the ultimate ROI. Group(s):Key Terms & Concepts; Print page. TOS 7. Significant growth in organized retailing during the next three years is expected in the metros and mini-metros through better performance of the existing stores, as well as opening of new stores. Related Diversification. For example, if you are a commercial printer and you add basic graphic design services and packaging services to your product line, you will have a leveraged diversification opportunity. Understand the importance of Small Business Strategy and the relationship of Vertical Mergers to growing your business. 2. A related diversification is one in which the two involved businesses have meaningful commonalties, which provide the potential to generate economies of scale or synergies based upon the exchange of skills or resources. Does adding the new products or services provide you with a leveraged opportunity? One commonly found resource that is exportable is a strong established brand name like Coca-Cola, Microsoft, Pepsi, Puma, BMW, or Nivea. EXAMPLE: Procter and Gamble is a case in point of the related inhibited firm, while Johnson and Johnson is an example of a related linked firm. Request Quote. This is called the market related to concentric diversification. This will translate into approximately Rs1, 400 billion of retail trade by 2010 (Figure 8.19). Doing a thorough analysis and review will enable you to implement more effective strategies, tactics and techniques. When the business-units of a company share the inputs, production technologies, distribution channels, etc. Starbucks – Related Diversification Starbucks is a global coffee chain, originating from the U.S. . One business unit must have skills or resources that are ‘exportable’ to another company or business unit. Similarly, Kingfisher acquired Air Deccan and symbolically kept the Kingfisher logo in the wings and POS outlets in the country, which includes all post offices and petrol pumps. An analysis of the practices of various diversified companies reveals that they seek related diversification in either of the two ways or a combination of the two. Prohibited Content 3. You will have saved your client time and money by enabling the client to 'shop' in one-stop (providing you can excel at delivering those services). A business owner needs to consider efficient diversification strategies to build a competitive advantage, to achieve economies of scale or scope, and/or to take advantage of a financial opportunity that aligns with the business' strategic plan. Through competing in this business, Honda developed a unique ability to build small and reliable engines. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. It is helpful to divide diversification into ‘related’ diversification and ‘unrelated’ diversification. Bottling plants of SDC (Soft Drink Concentrates) are now widely engaged in bottling fresh juices of orange, apple, mango, pineapple, grapes, tender coconut and lemon juice for MNCs Pepsi and Coke in India. Even related diversification can be risky. Answer and Explanation: Diversification can be of two types related and unrelated. Campbell Soup Company  Engages in the manufacture and marketing of branded convenience food products worldwide  4 segments  U.S. Soup, Sauces, and Beverages  Baking and Snacking  International Soup, Sauces, and Beverages  North America Foodservice 11. Unrelated diversification lacks commonality in markets, distribution channels, production technology, and R&D thrust to provide the opportunity for synergy through the exchange or sharing of assets or skills. Report a Violation, Product Diversification: Limitations of a Firm to Undertake Addition of a New Product, Business Strategies: Internal Growth and External Growth Strategies, Increasing Share of Products in Existing Markets. Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries (Figure 8.1). For instance, Puma extended its presence to the sunglass market in 2008-9 (Figure 8.17). Obtaining a ‘bargain’ price for a business. Site Index | This eventually paid the company a ‘prize reward’ by limiting other competitors in the market. And remember that your plan for strategy in business needs to be reviewed on a regular basis and be adapted as market and economic conditions change. It involves adding new products to your portfolio for markets that are similar or related to your existing customer base, with the ultimate aim of making your business bigger, increasing revenues and, above all, creating a more versatile, resilient, and future proof organisation. The third is to ascertain whether the organizational integration needed to accomplish the exchange is feasible. If done correctly, Although Honda is best known for its cars and trucks, the company actually started out in the motorcycle business. It includes the exchange of business assets by exploiting marketing skills, manufacturing skills — economies of scale, brand name, research and development, etc. Where a business expands its activities into product lines that are similar to those it currently offers. Honda Motor Company provides a good example of leveraging a core competency through related diversification. The CAGR (16.5 per cent) of the World Computer Software and Programming Services Market is the highest in Asia. They were the principal suppliers to the software industry. These ways are (a) related- constrained, and (b) related-linked. Why is strategizing important to your business? Since, the SOEs were answerable to the government, all their revenues accrued directly to national government. It is when a business adds or expands its existing product lines or markets. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. Diversification allows for more variety and options of products and services. The very concept of an unrelated business, where by definition there is no possibility to improve that business through synergy, suggests risk and difficulty. Overseas Chinese were anxious to participate in the resurgence of’ Great China’. Home Page | And on the other side, the diversification analysis might over-estimate the benefits to be gained in synergies. With a related diversification strategy you have the advantage of understanding the business and of knowing what the industry opportunities and threats are; yet a number of related acquisitions fail to provide the benefits or returns originally predicted. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital , and finance, etc. This shows that compatibility was improving to withstand the latest versions of the software. It is usually because the diversification analysis under-estimates the cost of some of the softer issues: change management, integrating two cultures, handling employees. Agriculture, science and technology, industry and defence were targeted for modernization. This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. 2. Why would a company want to engage in unrelated diversification? A firm, which has many SBUs that merit investment might buy or merge with a cash cow to provide a source of cash. Concentric Diversification is a form of horizontal diversification where the companies perform the following: 1. The driver for this acquisition decision is profit; it needs to be a low risk investment, with high potential for return. Under related diversification the company makes easier the consumption of its products by producing complementing goods or offering complementing services. Image Guidelines 5. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. It is when a business adds new, or unrelated, product lines or markets. If such a meaningful commonality is lacking, the diversification may still be justifiable, but the rationale will need to be different. During the 1990s, urbanization started increasing and a shift was seen from agriculture to the service sector. Networking | For example, BIC is said to follow a related- constrained diversification, as all of its products (razors, cigaret… In the Chinese computer hardware industry of 36 domestic vendors accounted for 82 per cent of the units of domestically manufactured PCs. Disclaimer 9. Because there may be cost efficiencies. 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