Related diversification. Technology-related concentric diversification When a new type of product or service is provided with the help of related technology. One business unit must have skills or resources that are ‘exportable’ to another company or business unit. However, the two firms together may be able to operate at an efficient level. Image Guidelines 5. Related diversification can sometimes provide economies of scale. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. It is helpful to divide diversification into ‘related’ diversification and ‘unrelated’ diversification. The benefit of this related method is it gives simpler expansion: you already … Agriculture, science and technology, industry and defence were targeted for modernization. Jet Airways and Sahara deal is a typical example. Start with your SWOT (strengths, weaknesses, opportunities and threats) analysis. 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. 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. Copyright © 2002 - 2018 Voice Marketing Inc. All Rights Reserved. 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). There are three major problems. Disclaimer 9. (Make sure you understand the definition business model - the practices, and focus, of the business on delivering the value proposition - to engage in a strong and successful strategic planning process). Does your capital investment plan leverage diversification? Business Networking Techniques During the 1990s, urbanization started increasing and a shift was seen from agriculture to the service sector. Statista An increase in diversification transactions has been recorded since 2013 Due to the financial crisis, the realization of new construction projects has become more difficult. 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. Obtaining a ‘bargain’ price for a business. Group(s):Key Terms & Concepts; Print page. And sometimes, such powerful is their presence that their strength is used for diversification. Do you have resources for marketing planning? However, the two firms together may be able to operate at an efficient level. One type of resources that is often easily exchanged is excess capacity. Because it leverages strategic fit, companies that engage in related diversification are more likely to achieve gains in shareholder value. Through competing in this business, Honda developed a unique ability to build small and reliable engines. This eventually paid the company a ‘prize reward’ by limiting other competitors in the market. Does adding the new products or services provide you with a leveraged opportunity? This shows that compatibility was improving to withstand the latest versions of the software. Sales | Concentric Diversification is a form of horizontal diversification where the companies perform the following: 1. The technically competent software vendors were few in number, often associated with ministries or universities or both. It is when a business adds or expands its existing product lines or markets. Overseas Chinese were anxious to participate in the resurgence of’ Great China’. The heavy reliance upon a single product line can stimulate a diversification move. Why is strategizing important to your business? The smaller firm might then consider joining forces with a larger firm which has a service organization that can be adapted to the involved product. Two smaller consumer product firms, for example, may not be able to afford an effective sales force, new product development or testing programme, or warehousing and logistics systems. It includes the exchange of business assets by exploiting marketing skills, manufacturing skills — economies of scale, brand name, research and development, etc. Conduct a market opportunity analysis and look for unmet needs that align with your objectives. Or the acquisition might provide an offsetting cash flow during a seasonal lull. Related diversification provides the potential to attain synergies by the exchanged or sharing of skills or resources. Website Building | Privacy Policy 8. In addition to achieving higher profitability, there are several reasons for a company to diversify. This is unrelated diversification: there is no direct fit with the existing business. Policies | Privacy Also write down your choices and decisions to plan the actions necessary to move forward (use samples to provide you with a model for your own action plan). Microsoft had worked with SV earlier on a smaller project and so it agreed to work with them on P-DOS project. Similarly, two firms when combined may be able to justify an expensive piece of automated production equipment. request a quote for services here. Samsung Related and Unrelated Diversification Samsung Group started out as a grocery store and then transitioned into the wool trade and various other trading markets until it finally found its niche building television sets in the 1970s (Samsung Group, 2018). Site 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 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. But there have been occasions where brands have failed where the diversifications have been quite off-color. The business has been pursuing a long-term strategy of diversifying its core offering beyond beverages; this is designed to help differentiate the brand, which is very important considering coffee is almost a commodity. The CAGR (16.5 per cent) of the World Computer Software and Programming Services Market is the highest in Asia. (iv) Configure the software so that it can support locally available software and hardware. For instance, companies producing steel might go into the mining business, where it might control the supplies etc. The lending of many banks has become more stringent, and many companies are pushing their construction projects to procrastinate. For example: 1. Before publishing your articles on this site, please read the following pages: 1. Retail space development in leading centres will provide high impetus to retail growth as about 38 per cent of India’s high income households live in the top five cities (Mumbai, Delhi, Kolkata, Chennai and Bangalore), and an additional 28 per cent stay in mid-sized cities. For example, a dairy company producing cheese adds a new variety of cheese to its product line. Product Diversification Example Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. From 25 operational malls in 2003, the country is expecting over 600 malls by 2010. The other kinds of players were original equipment manufacturers. Ensure that you build those business measures, set up reporting (even if it's a manual process), and make sure that someone is accountable for the planned results. Although Honda is best known for its cars and trucks, the company actually started out in the motorcycle business. The third is to ascertain whether the organizational integration needed to accomplish the exchange is feasible. among themselves, the diversification, is known as related-constrained. The driver for this acquisition decision is profit; it needs to be a low risk investment, with high potential for return. Understand the differences between related diversification and unrelated diversification before you invest. Voice Marketing Inc. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. Related diversification can sometimes provide economies of scale. TOS 7. (ii) The interface needs to be translated in a form that is familiar to the local user. As an example, an automotive dealership that purchases a detailing company (cleans, washes, polishes vehicles – both inside and outside) features involved with related diversification. However, many less successful examples of diversification have quickly faded from memory: Coco-Cola began an ill-fated wine business in 1977; Kodak’s foray into pharmaceuticals lasted just six years; and the less said about Cosmopolitan’s range of yoghurts, the better. Concentric diversification strategies are rampant in the food production industry. Answer and Explanation: Diversification can be of two types related and unrelated. that Work, Managing Time | 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. From this point on it penetrated into the technology sector and expanded its products. Add new products to the existing products in similar markets that will serve similar customers through the same distribution system. Richard Branson, famous for his company Virgin, has more than 300 companies that carry the Virgin name: Virgin Atlantic, Virgin Mobile, and Virgin Galactic — his most recent venture into space travel — are just a few examples. Unrelated diversification can balance the cash flows of SBU entities. From the Reference Library. Diversification mitigates risks in the event of an industry downturn. Where a business expands its activities into product lines that are similar to those it currently offers. As the market matures, however, the necessity for a strong service organization becomes important. The type of tactical planning you complete as you strategize is important because it forces you to make difficult choices and difficult decisions. Godrej is marketing the mosquito repellent Good knight and mango juice Jumpin, which are typical products of small entrepreneurs. For instance, Puma extended its presence to the sunglass market in 2008-9 (Figure 8.17). Honda Motor Company provides a good example of leveraging a core competency through related diversification. Policy | Disclosure | Advertising, Related Diversification to More For Small Business Home Page. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. Five years later Microsoft opened an office in China. 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 ). Why? It is when a business adds new, or unrelated, product lines or markets. Second, potential synergy may exist but is never realized because of implementation problems. It is usually because the diversification analysis under-estimates the cost of some of the softer issues: change management, integrating two cultures, handling employees. Planning | First, relatedness and potential synergy simply don’t exist. Related Diversification: When the new business has some sort of connection with the existing business then it is known as related diversification. 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 … 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. Horizontal diversification allow a firm to start exploring other zones in terms of product manufacturing. Microsoft in 1984 signed its first OEM agreement in Taiwan, home of over 3,000 PC systems and component manufacturers, before opening an office in 1989. Related diversification When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. The following are the key tasks that need to be done while localizing: (i) The local character sets need to be supported. Site Index | 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. 2. Privacy Policy | For example, the same phone company might decide to go into the television business or into the radio business. Ironically, as the degree of relatedness and the synergy potential increase so does the possibility of an antitrust or MRTP problem. The software vendors were the next category. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. Marketing | For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. Money | 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). The end goal is not the plan but rather the results therefore make sure you have measurements in place to track results. You can reach us through our contact page or Horizontal Diversification. Contact Us | GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital , and finance, etc. Content Filtrations 6. Share: Share on Facebook Share on Twitter Share on Linkedin Share on Google Share by email. For example, when a company that sells good products expands to start selling kitchenware, it will supplyto the same customers in th… Reducing risk can also lead to entering into businesses that will counter or reduce the cyclical nature of the existing earnings. Many knowledgeable people have made blanket statements warning against unrelated diversification. The following are the types of diversification strategies: Horizontal Diversification. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. Prohibited Content 3. Diversification is the art of entering product markets different from those in which the firm is currently engaged in. Localization is the concept of adaptation of software to specific locales. occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries (Figure 8.4 "The Sweet Fragrance of Success: The Brands That “Make Up” the Lauder Empire"). Likewise, clothes manufacturers might create their own brand shops, in which they sell their clothes. Blog | Entering business areas with high ROI prospects: A basic diversification motivation is to improve ROI by moving into business areas with high ROI prospects. Plagiarism Prevention 4. Diversification can be segmented into related diversification or unrelated diversification. Content Guidelines 2. To compensate for the unstable situation created by the financial crisis, a trend towards diversification has been appare… In the Chinese computer hardware industry of 36 domestic vendors accounted for 82 per cent of the units of domestically manufactured PCs. One approach is to enter high growth business areas. 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. Why would a company want to engage in unrelated diversification? Third, possible violations of antitrust laws in the west and MRTP (Monopolies and Restrictive Trade Practice) law in India create an additional risk when an acquisition or merger is involved. He states that without such a unity, diversification can never work; financial ties alone are insufficient. Horizontal diversification is a very popular growth strategy in business. 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. Review the criteria required to build a Value Chain Analysis for your business. We are located in the Greater Vancouver area of British Columbia, Canada. If you are prepared (and able) to invest in your business during either good or challenging times, make sure that you develop business performance measures to track the costs and the benefits expected? Starbucks – Related Diversification Starbucks is a global coffee chain, originating from the U.S. . for its main operations. Human Resources | Networking | (iii) All documents should be in local language. After years of relentless efforts, brands build their own identity. You must ensure that you are managing the direction you take. The reduction of risk can be another motivation for unrelated diversification. So, in order to capture the market Microsoft had to introduce the software in local versions. To diversify in your business, your markets, or your products can be costly; therefore, invest in an efficient diversification strategy. 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. Since, the SOEs were answerable to the government, all their revenues accrued directly to national government. 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. Once you begin this planning process you will need to ensure that the plan you develop is do-able; make sure you include effectiveness measures in your plan. Why? It is a complicated process, which involves various tasks. 2. 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. Home Page | It now employs 706,000 people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and … Likewise, a company might create related diversification by integrating into the existing value network. If such a meaningful commonality is lacking, the diversification may still be justifiable, but the rationale will need to be different. Accordingly Videocon Industries spotted organized retailing as the bright spot for future investments to the tune of Rs25, 000 crore by 2010. 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. The action plan is your road map. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. Examples of Related Diversification? Two smaller consumer product firms, for example, may not be able to afford an effective sales force, new product development or testing programme, or warehousing and logistics systems. New markets and new products or services are usually good diversification opportunities; but consider these opportunities in the context of integrating benefits into a much stronger overall unique value proposition. One commonly found resource that is exportable is a strong established brand name like Coca-Cola, Microsoft, Pepsi, Puma, BMW, or Nivea. About Us | Richard Fade, vice-president in charge of Microsoft’s Far-east operations, pondered Microsoft’s planned introduction of products into China. Strategy | Another way to improve the ROI is to acquire a business at a ‘bargain’ price so the involved investment is low and the associated ROI is therefore high. Skills or resources that can be usefully imported or exported can take a variety of forms. FAQs | Request Quote. Brands spend years into building their presence and a perception in the mind of consumers. Managing | Western software companies had not historically introduced localized versions of software in China. The typical case in this regard is the introduction of Microsoft products into the People’s Republic of China (PRC). 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. They were partially government run or had significant ties with the government. Reliance entered into retailing by allocating Rs25, 000 crore in a phased manner is a typical example. Understanding the advantages and disadvantages of unrelated or related diversification strategies is important to the growth of your business. If done correctly, This is called the market related to concentric diversification. 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. layoffs and terminations, promotions, and even recruitment. Thus, a frequent motive to diversify is to export or import a marketing talent. A firm may be highly skilled at R&D and new product development, but it may lack skills in either marketing or production. ft. in 2010. Its share in the total retail pie is set to increase from the current 2 per cent to about 10 per cent by 2010. 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 is when a company operates several businesses that are linked together in some way or has several related product lines. Under related diversification the company makes easier the consumption of its products by producing complementing goods or offering complementing services. This happens when the diversification move involves integrating two organizations that have fundamental differences and/or because one of the two organizations lacks the ability or motivation to undertake necessary programmes to make the diversification work. Usually a firm will either possess or lack a strong skill in marketing for a particular market. They were the principal suppliers to the software industry. Some firms that engage in related diversification aim to develop and exploit a core competency to beco… Because there may be cost efficiencies. And on the other side, the diversification analysis might over-estimate the benefits to be gained in synergies. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. These ways are (a) related- constrained, and (b) related-linked. For example, BIC is said to follow a related- constrained diversification, as all of its products (razors, cigaret…
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