Q) Reliance Industries has entered the telecom sector via Reliance Jio.

What kind of
diversification is it? Analyze.

Reliance Industries has diversified into unrelated area by diversifying into the telecom business,
where they cannot leverage any kind of capabilities that they have developed via previous
ventures of Oil & Gas. Historically, they have always ventured into unrelated diversification
when they entered the retail business after Oil & Gas.

First phase of diversification strategy is called as Heterogeneous (conglomerate) diversification.

The main aim of this type of diversification strategy is moving to new products or services that
have no technological or commercial relation with current products, equipment, distribution
channels, but which may appeal to new groups of customers. The major motive behind this kind
of diversification is the high return on investments in the new industry. Furthermore, the
decision to go for this kind of diversification can lead to additional opportunities indirectly
related to further developing the main company business - access to new technologies,
opportunities for strategic partnerships. The main aim of this business is to venture into a sector
where they could leverage the existing network of Reliance Retail & launch a series of new
services which would then benefit the company to grow its core business & service like reliance
retail can now have new technological capabilities of E-commerce as well as the use the new
series of new technologies of LTE network for supply and other activities. Also the company is
going to create new capabilities in a new field which would allow it to enter new business by
using the capability created by reliance Jio.

Once reliance Jio is into the market and its capabilities in the field of LTE networks & Services
like TV & music is created, Reliance would than go into Concentric Diversification in stage 2 of
Reliance JIO. Concentric Diversification can termed as enlarging the production portfolio by
adding new products with the aim of fully utilizing the potential of the existing technologies and
marketing system. The concentric diversification can be a lot more financially efficient as a
strategy, since the business may benefit from some synergies in this diversification model. It
may enforce some investments related to modernizing or upgrading the existing processes or
systems. Here reliance Jio would enter a series of new businesses which are related to its
existing capabilities which includes networks & Apps ecosystem.

Thus they are going to use the economies of Scope to enter multiple business by just creating
a capability for a single business i.e. Telecom which would ultimately give them profitability
by creating multiple streams of revenue from a single capability i.e. of LTE Towers.