DIVERSIFICATION

N. Harin Jeba Lydia

What is diversification?
Diversification is a corporate strategy to
increase sales volume from new products and
new markets.

Diversification can be expanding into a new
segment of an industry that the business is
already in, or investing in a promising business
outside of the scope of the existing business.

Diversification is part of four main growth
strategies


Diversification stands apart from the other
three strategies.
Market penetration, product development and
market development strategies are usually
pursued with the same technical, financial, and
merchandising resources used for the original
product line.
Diversification usually requires a company to
acquire new skills, new techniques and new
facilities.
Why Diversification?

The two principal objectives of
diversification are
improving core process execution, and/or
enhancing a business unit's structural
position.


DIVERSIFICATION IN THE CONTEXT OF
GROWTH STRATEGIES

Diversification is a form of growth
strategy
Growth strategy involves increase in
performance objectives
One of the primary reasons is the view
held by many investors and executives
that "bigger is better.

TYPES OF DIVERSIFICATION
Concentric diversification
Conglomerate diversification
Internal diversification.
External diversification.
CONCENTRIC
DIVERSIFICATION
When an organization takes up an activity in
such a manner that it is related to the existing
business definition of one or more of a firms
businesses.
There are three types of concentric
diversification:
Marketing-related
Technology-related
Marketing and technology-related


MARKET-RELATED CONCENTRIC
DIVERSIFICATION:
When a similar type of product is offered with the
help of unrelated technology
TECHNOLOGY-RELATED:
when a new type of product or service is provided
with the help of related technology
MARKET AND TECHNOLOGY RELATED:
When a similar type of product is provided with
help of related technology.
CONGLOMERATE DIVERSIFICATION
When an organization adopts a strategy
which requires taking up those activities
which are unrelated to the existing
business definition
Examples:
ITC- a cigarette company diversifying
into the hotel industry
Shriram Fibers Ltd (nylon industrial yarn,
synthetic fabrics, fluorochemicals,
fluorocarbon refrigerators, etc)

INTERNAL 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.
Another form of internal diversification is
to market new products in existing
markets.
EXTERNAL DIVERSIFICATION
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.
Acquisitions, a second form of external
growth, occur when the purchased
corporation loses its identity

Reasons for adopting
diversification strategies
To minimize risk
To capitalize on organizational
strength
When diversification is the only way
out if growth in existing businesses is
blocked due to environmental and
regulatory factors.