The action plan is your road map. Home Page | Similarly, two firms when combined may be able to justify an expensive piece of automated production equipment. FAQs | Likewise, a company might create related diversification by integrating into the existing value network. For example, a dairy company producing cheese adds a new variety of cheese to its product line. But there have been occasions where brands have failed where the diversifications have been quite off-color. 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. Diversification is the art of entering product markets different from those in which the firm is currently engaged in. These ways are (a) related- constrained, and (b) related-linked. 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. Even related diversification can be risky. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. 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 … If done correctly, About Us | 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 would a company want to engage in unrelated diversification? 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). This related diversification strategy works because all the companies share the brand, marketing, public relations, and corporate knowledge. There are three major problems. Contact Us | This strategy of diversification refers to an entity offering new services or developing new products that appeal to the firm’s current customer base. 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. 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. 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. Likewise, clothes manufacturers might create their own brand shops, in which they sell their clothes. 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. TOS 7. A diversification analysis needs to demonstrate, and support, that the business will achieve a return on the investment that more than compensates for the risk and the cost. Start with your SWOT (strengths, weaknesses, opportunities and threats) analysis. In the Chinese computer hardware industry of 36 domestic vendors accounted for 82 per cent of the units of domestically manufactured PCs. During the 1990s, urbanization started increasing and a shift was seen from agriculture to the service sector. Prohibited Content 3. Jet Airways has extended its service to the mass market under Jet Lite. The reduction of risk can be another motivation for unrelated diversification. 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. Accordingly Videocon Industries spotted organized retailing as the bright spot for future investments to the tune of Rs25, 000 crore by 2010. It was estimated that 95 per cent of PCs had the English version of Microsoft DOS installed together with one of the many Chinese shells. C. Very High Level of Diversification: This level is applicable to companies that have unrelated diversification. Planning | Understanding the advantages and disadvantages of unrelated or related diversification strategies is important to the growth of your business. Understand the differences between related diversification and unrelated diversification before you invest. 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. 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). So there’s KF Fun TV with seven channels (lifestyle, entertainment, sports, English premium, toon (cartoon), flight guide and view from the top channels, and KF Radio with 10 channels chartbusters and hindi pop, hindi retro (the golden oldies), Hindi Easy Listening, ghazals, english pop, english retro (an earful of vintage), Easy Listening (Honey trenched notes that remind the listener that world is still a wonderful place), Club (dance floor) Jazz and Blues and Lounge (lie back in the lap of lounge with the soothing notes of lounge music) supported with state of the art aircraft and technology for in-flight, catering. This eventually paid the company a ‘prize reward’ by limiting other competitors in the market. For example: 1. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. 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. Since, the SOEs were answerable to the government, all their revenues accrued directly to national government. For instance, companies producing steel might go into the mining business, where it might control the supplies etc. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. For example, the same phone company might decide to go into the television business or into the radio business. among themselves, the diversification, is known as related-constrained. The typical case in this regard is the introduction of Microsoft products into the People’s Republic of China (PRC). For instance, Puma extended its presence to the sunglass market in 2008-9 (Figure 8.17). Group(s):Key Terms & Concepts; Print page. PRC was moving from the socialistic pattern of society to market economy. Richard Fade, vice-president in charge of Microsoft’s Far-east operations, pondered Microsoft’s planned introduction of products into China. 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. (ii) The interface needs to be translated in a form that is familiar to the local user. ft. in 2010. You need to ensure that the advantages of diversification and the expected benefits from investment are met as you planned. One approach is to enter high growth business areas. And sometimes, such powerful is their presence that their strength is used for diversification. Sun silk shampoo of HUL is manufactured in SSI units of Pondicherry. The overall PC market had grown at 32 per cent; 386- and 486-based machines had grown at 102 per cent. 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. The following are the key tasks that need to be done while localizing: (i) The local character sets need to be supported. However, the two firms together may be able to operate at an efficient level. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. Share: Share on Facebook Share on Twitter Share on Linkedin Share on Google Share by email. They were the principal suppliers to the software industry. 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. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. From this point on it penetrated into the technology sector and expanded its products. Website Building | that Work, Managing Time | 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. 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. 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 2002 to 80 million sq. Privacy Policy | Does adding the new products or services provide you with a leveraged opportunity? 3. So, in order to capture the market Microsoft had to introduce the software in local versions. Doing a thorough analysis and review will enable you to implement more effective strategies, tactics and techniques. As an example, an automotive dealership that purchases a detailing company (cleans, washes, polishes vehicles – both inside and outside) features involved with related diversification. 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. Example : A cloth manufacturing firm enters into the distribution of clothes. After years of relentless efforts, brands build their own identity. 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. We are located in the Greater Vancouver area of British Columbia, Canada. Diversification can be segmented into related diversification or unrelated diversification. 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. 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. Microsoft had worked with SV earlier on a smaller project and so it agreed to work with them on P-DOS project. 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. In the software industry, State Owned Enterprises (SOEs) dominated the market. This will translate into approximately Rs1, 400 billion of retail trade by 2010 (Figure 8.19). To diversify in your business, your markets, or your products can be costly; therefore, invest in an efficient diversification strategy. 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. Answer and Explanation: Diversification can be of two types related and unrelated. Horizontal Diversification. Agriculture, science and technology, industry and defence were targeted for modernization. From 25 operational malls in 2003, the country is expecting over 600 malls by 2010. The end goal is not the plan but rather the results therefore make sure you have measurements in place to track results. Money | 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. request a quote for services here. Because it leverages strategic fit, companies that engage in related diversification are more likely to achieve gains in shareholder value. One commonly found resource that is exportable is a strong established brand name like Coca-Cola, Microsoft, Pepsi, Puma, BMW, or Nivea. To compensate for the unstable situation created by the financial crisis, a trend towards diversification has been appare… One business unit must have skills or resources that are ‘exportable’ to another company or business unit. Content Filtrations 6. Localization is the concept of adaptation of software to specific locales. 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. Usually a firm will either possess or lack a strong skill in marketing for a particular market. In addition to achieving higher profitability, there are several reasons for a company to diversify. Blog | (iv) Configure the software so that it can support locally available software and hardware. It is when a business adds new, or unrelated, product lines or markets. The following are the types of diversification strategies: Horizontal Diversification. Overseas Chinese were anxious to participate in the resurgence of’ Great China’. 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. Privacy Policy 8. Honda Motor Company provides a good example of leveraging a core competency through related diversification. Related Diversification: When the new business has some sort of connection with the existing business then it is known as related diversification. Business Networking Techniques Review the criteria required to build a Value Chain Analysis for your business. Related diversification is when a company operates several businesses that are linked together in some way or has several related product lines. Examples of Related Diversification? Or the acquisition might provide an offsetting cash flow during a seasonal lull. Service | 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. A small company can often create or enter a market area and do well with an innovative product. Jet Airways and Sahara deal is a typical example. Before publishing your articles on this site, please read the following pages: 1. Marketing | 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"). Image Guidelines 5. It now employs 706,000 people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and … The study further says retail space is expected to increase from 10 million sq. Request Quote. Skills or resources that can be usefully imported or exported can take a variety of forms. Second, potential synergy may exist but is never realized because of implementation problems. Its share in the total retail pie is set to increase from the current 2 per cent to about 10 per cent by 2010. Strategy | for its main operations. Unrelated diversification can balance the cash flows of SBU entities. The reservation system is a remarkable attempt to reposition the image of the Indian industry. Policy | Disclosure | Advertising, Related Diversification to More For Small Business Home Page. Ironically, as the degree of relatedness and the synergy potential increase so does the possibility of an antitrust or MRTP problem. 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. 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). Brands spend years into building their presence and a perception in the mind of consumers. The type of tactical planning you complete as you strategize is important because it forces you to make difficult choices and difficult decisions. Add new products to the existing products in similar markets that will serve similar customers through the same distribution system. It is when a business adds or expands its existing product lines or markets. Technology-related concentric diversification When a new type of product or service is provided with the help of related technology. Ensure that you review the costs and benefits of investment. The second condition is to find a partner or business unit that can either provide or use them. 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. (iii) All documents should be in local language. It is easy to understand why a new industry, with its potential new customers, might prove attractive to a business, … You can reach us through our contact page or He states that without such a unity, diversification can never work; financial ties alone are insufficient. 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. 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