A diversification corporate strategy implies that a firm will
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The first type of diversification is concentric diversification wherein the firms ensure that there is a technological similarity between its existing core competencies and the newer product lines. Indeed, this type of diversification is aimed at leveraging the existing competencies and expertise and which is aligned with its resources and capabilities. In this type of diversification, firms typically launch additions to their product lines and at the same time target newer market segments.
The idea here is to ensure that their brand image and brand loyalty are transferred to the newer products.
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Further, this type of diversification is sometimes not done strictly to target newer market segments but ensure that the untapped market segments are targeted. Examples of this would be launching Tablet computers by companies like Apple and Samsung, which are already present in the Smartphone market. This type of diversification happens when firms tag on to the existing market segments and leverage the existing customer base though the products that they launch are aimed at sub segments in the current market.
A diversification corporate strategy implies that a firm will ______. A) become an industry's low-cost leader. B) expand by adding new product lines. C) reduce. 17) A diversification corporate strategy implies that a firm will ______.A) expand by adding new product linesB) reduce the company's size to increase market.
This type of diversification is usually followed when the firms launch newer products that have some relation to the existing products but at the same time, the firm is entering a new business. This new business can be related or unrelated to the current businesses in which the firm operates and the idea here is to ensure that the existing customers transfer their loyalties to the new product lines.
The third type of diversification or conglomerate diversification is completely different from the previously discussed strategies as this type of diversification is a strategy where conglomerates launch entirely new product lines that have no alignment with their existing resources and capabilities and enter completely new markets where they do not have a presence. For instance, Reliance, which ventured into Retail and Mobile Telephony, is an example of a conglomerate diversification.
Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business.
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Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification. One of the most common reasons for pursuing a conglomerate growth strategy is that opportunities in a firm's current line of business are limited. Finding an attractive investment opportunity requires the firm to consider alternatives in other types of business. Philip Morris's acquisition of Miller Brewing was a conglomerate move.
Products, markets, and production technologies of the brewery were quite different from those required to produce cigarettes. Firms may also pursue a conglomerate diversification strategy as a means of increasing the firm's growth rate. As discussed earlier, growth in sales may make the company more attractive to investors. Growth may also increase the power and prestige of the firm's executives.
Conglomerate growth may be effective if the new area has growth opportunities greater than those available in the existing line of business. Probably the biggest disadvantage of a conglomerate diversification strategy is the increase in administrative problems associated with operating unrelated businesses. Managers from different divisions may have different backgrounds and may be unable to work together effectively.
Competition between strategic business units for resources may entail shifting resources away from one division to another. Such a move may create rivalry and administrative problems between the units. Caution must also be exercised in entering businesses with seemingly promising opportunities, especially if the management team lacks experience or skill in the new line of business. Without some knowledge of the new industry, a firm may be unable to accurately evaluate the industry's potential.
Even if the new business is initially successful, problems will eventually occur. Executives from the conglomerate will have to become involved in the operations of the new enterprise at some point. Without adequate experience or skills Management Synergy the new business may become a poor performer. Without some form of strategic fit, the combined performance of the individual units will probably not exceed the performance of the units operating independently.
In fact, combined performance may deteriorate because of controls placed on the individual units by the parent conglomerate. Decision-making may become slower due to longer review periods and complicated reporting systems. Diversification efforts may be either internal or external. Internal diversification occurs when a firm enters a different, but usually related, line of business by developing the new line of business itself.
Internal diversification frequently involves expanding a firm's product or market base. External diversification may achieve the same result; however, the company enters a new area of business by purchasing another company or business unit. Mergers and acquisitions are common forms of external diversification. One form of internal diversification is to market existing products in new markets. A firm may elect to broaden its geographic base to include new customers, either within its home country or in international markets.
A business could also pursue an internal diversification strategy by finding new users for its current product. Finally, firms may attempt to change markets by increasing or decreasing the price of products to make them appeal to consumers of different income levels.
Another form of internal diversification is to market new products in existing markets. Generally this strategy involves using existing channels of distribution to market new products. Retailers often change product lines to include new items that appear to have good market potential.
Packaged-food firms have added salt-free or low-calorie options to existing product lines. It is also possible to have conglomerate growth through internal diversification.
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This strategy would entail marketing new and unrelated products to new markets. This strategy is the least used among the internal diversification strategies, as it is the most risky. It requires the company to enter a new market where it is not established. The firm is also developing and introducing a new product. Research and development costs, as well as advertising costs, will likely be higher than if existing products were marketed.
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In effect, the investment and the probability of failure are much greater when both the product and market are new. External diversification occurs when a firm looks outside of its current operations and buys access to new products or markets. Mergers are one common form of external diversification. Mergers occur when two or more firms combine operations to form one corporation, perhaps with a new name.
These firms are usually of similar size. One goal of a merger is to achieve management synergy by creating a stronger management team.
Diversification as a Viable Corporate Strategy
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