Second, potential synergy may exist but is never realized because of implementation problems. In a related diversification the resulting combined business should be able to achieve improved ROI because of increased revenues, decreased costs, or reduced investment, which are attributable to the commonalties. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. Diversification can be segmented into related diversification or unrelated diversification. Copyright © 2002 - 2018 Voice Marketing Inc. All Rights Reserved. They were the principal suppliers to the software industry. For instance, Puma extended its presence to the sunglass market in 2008-9 (Figure 8.17). Related Diversification. In addition to achieving higher profitability, there are several reasons for a company to diversify. Jet Airways and Sahara deal is a typical example. 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 provides the potential to attain synergies by the exchanged or sharing of skills or resources. PRC was moving from the socialistic pattern of society to market economy. 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! layoffs and terminations, promotions, and even recruitment. Planning |
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). Concentric diversification strategies are rampant in the food production industry. Richard Fade, vice-president in charge of Microsoft’s Far-east operations, pondered Microsoft’s planned introduction of products into China. Entering business areas with high ROI prospects: A basic diversification motivation is to improve ROI by moving into business areas with high ROI prospects. Why? 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. Concentric Diversification is a form of horizontal diversification where the companies perform the following: 1. 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. Overseas Chinese were anxious to participate in the resurgence of’ Great China’. There are three major problems. Before publishing your articles on this site, please read the following pages: 1. Sales |
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. Localization is the concept of adaptation of software to specific locales. The acquisition of the cash cow may reduce the need to raise debt or equity over time, although if the cash cow is acquired, resources will need to be expected. Five years later Microsoft opened an office in China. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital , and finance, etc. Starbucks – Related Diversification Starbucks is a global coffee chain, originating from the U.S. . Related Diversification: When the new business has some sort of connection with the existing business then it is known as related diversification. We are located in the Greater Vancouver area of British Columbia, Canada. Conduct a market opportunity analysis and look for unmet needs that align with your objectives. One approach is to enter high growth business areas. For example, a shoe producer starts a line of purses and other leather accessories; an electronics repair shop adds to its portfolio of services the renting of appliances to the customers for temporary use until their own are repaired. Brands spend years into building their presence and a perception in the mind of consumers. Strategists delude themselves that there is a synergistic justification not on the basis of judgement supported by a thorough external and self-analysis, but by manipulating semantics. Add aspirations and results to the SWOT (some do SOAR (strengths, opportunities, aspirations, and results) as a separate activity) to ensure that your vision for your business is incorporated in your goals and objectives. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. 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. ft. in 2002 to 80 million sq. For example, BIC is said to follow a related- constrained diversification, as all of its products (razors, cigaret… Human Resources |
This strategy of diversification refers to an entity offering new services or developing new products that appeal to the firm’s current customer base. 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. Its share in the total retail pie is set to increase from the current 2 per cent to about 10 per cent by 2010. Related diversification can sometimes provide economies of scale. Typical example is Kingfisher Airlines, where the chairman and CEO Vijay Mallya himself routed the surplus cash from this liquor business to give the ‘Fly the good times’ experience to Indian aviation. Add new products to the existing products in similar markets that will serve similar customers through the same distribution system. 3. Microsoft had worked with SV earlier on a smaller project and so it agreed to work with them on P-DOS project. (iv) Configure the software so that it can support locally available software and hardware. A firm may be highly skilled at R&D and new product development, but it may lack skills in either marketing or production. Understand the differences between related diversification and unrelated diversification before you invest. Many knowledgeable people have made blanket statements warning against unrelated diversification. To diversify in your business, your markets, or your products can be costly; therefore, invest in an efficient diversification strategy. Content Guidelines 2. Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries ( Figure 8.10 The Sweet Fragrance of Success: The Brands That “Make Up” the Lauder Empire ). ft. in 2010. Horizontal diversification is a very popular growth strategy in business. Marketing |
The reduction of risk can be another motivation for unrelated diversification. Because it leverages strategic fit, companies that engage in related diversification are more likely to achieve gains in shareholder value. Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. Technology-related concentric diversification When a new type of product or service is provided with the help of related technology. Because your print services can be combined with graphic design services upstream (same end client) and be combined with packaging services downstream (same end client and/or same destination). 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 … For example: 1. Horizontal diversification allow a firm to start exploring other zones in terms of product manufacturing. Product Diversification Example Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. It is a complicated process, which involves various tasks. Policy | Disclosure | Advertising, Related Diversification to More For Small Business Home Page. The overall PC market had grown at 32 per cent; 386- and 486-based machines had grown at 102 per cent. Since, the SOEs were answerable to the government, all their revenues accrued directly to national government. Money |
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