...Similarly transportation cost may keep the industry fragmented. Entrepreneurs are eager to gain the cost advantage of pursuing a low cost strategy of a fragmented industry. The required rate of return from consolidating industry is often huge. A fragmented industry is a sector of business without a distinct industry leader to control market trends. This business phenomenon happens frequently in local markets with small businesses, including restaurants, auto repair shops and construction companies. A small business owner can use several proactive strategies to overcome industry fragmentation and begin to distinguish her company in the minds and wallets of consumers. A fragmented industry is an entrepreneur's dream, and offers unbelievable opportunity compared to more homogeneous industries. Restaurants, Home Improvement Outlets and Homebuilders, and other Mom-and-Pop endeavors are good examples. Tons of small competitors and no consistent supply chain. Compare this to the a handful of competitors serving homogeneous markets and all using the same 'stuff' made the same way from the same handful of suppliers. There is really very little Ford to do to compete against GM. The cost of entry in a fragmented industry is typically comparatively very low, and , and fragmented industries are nowhere near as regulated as homogeneous industries. There are limitations. If you're...
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...10.1111/j.1467-6486.2007.00719.x A Modern Resource Based Approach to Unrelated Diversification Desmond W. Ng Texas A&M University abstract For over three decades, the questions of how and why an organization diversifies into related and unrelated businesses have drawn the attention of strategy scholars. However, explanations of unrelated diversification have been less than clear. A conceptual model of unrelated diversification is thus proposed. In drawing on Penrose’s (1959) resource based approach, unrelated diversification is explained by an organization’s ‘three pillars’, which consist of its strength of dynamic capabilities, absorptive capacity, and weak ties. The role of the three pillars is to discover new resource applications or uses in conditions of market failure that are characterized by ‘incomplete’ markets. A novel feature of this model is that an organization can diversify more broadly than predicted by Penrose (1959) and other modern resource-based approaches (Teece et al., 1997). Furthermore, unrelated diversification can be beneficial. This study also offers suggestions to measure the three pillars; its contributions and implications are discussed as well. INTRODUCTION The questions of how and why an organization diversifies into related and unrelated businesses have been a central focus of strategy research (Palich et al., 2000; Rumelt, 1974; Teece, 1982). These diversifications have been defined by the degree to which an organization’s products and services draw...
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...Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally very interesting[clarification needed] entering a promising business outside of the scope of the existing business unit. Diversification is part of the four main growth strategies defined by the Product/Market Ansoff matrix[1]: Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. Note: The notion of diversification depends on the subjective interpretation of “new” market and “new” product, which should reflect the perceptions of customers rather than managers. Indeed, products tend to create or stimulate new markets; new markets promote product innovation. Contents [hide] • 1 The different types of diversification strategies o 1.1 Concentric diversification o 1.2 Horizontal diversification o 1.3 When Horizontal diversification is desirable? 1.3.1 Another...
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...Diversification Strategies Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations. When the new venture is strategically related to the existing lines of business, it is called concentric diversification. Conglomerate diversification occurs when there is no common thread of strategic fit or relationship between the new and old lines of business; the new and old businesses are unrelated. Diversification is a market strategy, which is about expanding the business of the company in some way. It stretches from adding new products or services, which in some way are related to the corporation’s previous products or services on the market, too establish oneself with new, on a from the corporation’s point of view, completely unknown market (Grant). Although the idea of diversification as a strategy for growth and risk reduction is rather old, it was only after 1950 it became popular to let the corporation expand over different markets and product lines. This growth strategy continued to attract more and more companies, until it culminated in the 1970s when it became popular to build conglomerates, that is, companies expanding by adding more and more unrelated business to the corporation, often via acquisitions. In the following decades, the...
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...ST 504 E Session 3. 1 Corporate Strategy Diversification Maryam Nasiriyar maryam.nasiriyar@esc-rennes.fr Key Strategic Choices Business level (CA) Cost Leadership (Volume) Differentiation Focused (Niche) Corporate level (CA) Expansion within the same industry versus Diversification Vertical Integration along the value chain or Outsourcing Internationalization Learning Objectives 1.Understand when and how business diversification can enhance shareholder value. 2.Gain an understanding of how related diversification strategies can produce cross-business strategic fit capable of delivering competitive advantage. 3.Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. 4.Gain command of the analytical tools for evaluating a firm’s diversification strategy. ’ When to Diversity A firm should consider diversifying when: • It can expand into businesses whose technologies and products complement its present business. • Its resources and capabilities can be used as valuable competitive assets in other businesses. • Costs can be reduced by cross-business sharing or transfer of resources and capabilities. • Transferring a strong brand name to the products of other businesses helps drive up sales and profits of those businesses. Testing Whether Diversification Will Add Value The Attractiveness Test: • Are the industry’s returns on investment as good or better than present business(es)? The Cost of Entry Test: • Is the...
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...http://zenithresearch.org.in/ DIVERSIFICATION - STRATEGIES FOR MANAGING A BUSINESS P. KANNAN*; DR. R.SARAVANAN** *Head, Department of Management Studies, N.P.R. College of Engineering & Technology, Natham. *Research Scholar, Anna University of Technology Coimbatore, Coimbatore, Tamil Nadu, India. **Director, School of Management, Sri Krishna College of Technology, Kovaipudur, Coimbatore- 641042, Tamil Nadu, India. ABSTRACT When thinking about building a diversified portfolio, remember the old adage, “Don’t put all your eggs in one basket.” Diversification is not only about the number of investments in your portfolio, it’s also about the relationships among those investments. Diversification becomes an attractive strategy when a company runs out of profitable growth opportunities in its core business. In a diversified company the strategy making challenge involves assessing multiple industry environments and coming up with a set of business strategies, in which it operates. Multinational diversification strategies feature a diversity of business and a diversity of national markets. Despite the complexity of having to devise and manage so many strategies, these strategies have considerable appeal and more competitive potential. The study focuses on the manner in which diversification strategy is applied for different sectors like IT, FMCG etc. It deals with the core concept of diversification strategy to succeed by companies. KEYWORDS: Investments, Related Diversification, Strategy, Unrelated...
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...Chairman, he is director, decision maker, leader, manager and executor of the company and thus, in the position to solve and decide upon the dilemmas faced by Blockbuster regarding the issues on the diversification of the company. MAJOR PROBLEM From 1985 to 1992, Blockbuster has managed to become a video-rental giant. But by 1993, Blockbuster through its Chairman, H. Wayne Huizenga was seeking a new image, that of a multimedia company. Steps were taken towards this goal including sponsorships of concert tours, music retailing, television and film production and operating indoor children’s play centers. These diversification strategies, however, did not escape from several criticisms and by the fall of 1993, Chairman Huizenga had enough reasons to rethink of what he wanted for the company. The myriad of difficult decisions concerning Blockbuster’s future can be traced to the dramatic changes in the company’s strategic context. This and Huizenga’s hurried and scattered approach to diversification had put the company into danger. How should Chairman Huizenga address the criticisms that arise from his abrupt and scattered decisions on the diversification of Blockbuster? CASE FACTS Three factors that make up strategic context which could have helped Huizenga understand the opportunities and constraints set before the company are: (1) history of Blockbuster, (2) the environment in which Blockbuster operates, and (3) the resources available to Blockbuster. Once the strategic context...
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...CORPORATE STRATEGY AND DIVERSIFICATION Definition of Corporate Strategy Business Strategy addresses the question How should a firm or business compete with sustained advantage in a given competitive environment? Corporate Strategy addresses the question What should be the appropriate scale and scope of the enterprise? Corporate Strategy therefore influences how large and how diversified a firm should be. The definition of a business determines to a large extent the Corporate strategy. A firm can be a single business firm operating in a single industry environment with a fairly apparent definition. On the other hand a large and widely diversified firm with many different businesses each operating in a different industry environment, faces the challenge of defining each of its various businesses as well as developing an overall definition. It is easier for Microsoft to define its business than it is for G.E. or the Tata group to develop an overall business definition. Why do Firms Diversify. 1) To Grow. Growth is an implicit objective in nearly all organisations. Stock markets tend to reward growing companies. Managers find growth extremely attractive because it hold out the prospects of increased earnings for the firm leading to increased compensations for themselves. They also see the acquisition of new knowledge as instrumental in improving their self actualisation prospects. 2) Fuller utilisation of Resources and Capabilities. Firms find that they have un utilised...
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...on the means of entry. B. initiating actions to boost the combined performance of the businesses the firm has entered. C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage. D. steering corporate resources into the most attractive business units. E. All of these. 2. Which one of the following is not one of the elements of crafting corporate strategy for a diversified company? A. Picking new industries to enter and deciding on the means of entry B. Choosing the appropriate value chain for each business the company has entered C. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage D. Steering corporate resources into the most attractive business units E. Initiating actions to boost the combined performance of the businesses the firm has entered 3. Diversification merits strong consideration whenever a single-business company A. has integrated backward and forward as far as it can. B. is faced with diminishing market opportunities and stagnating sales in its principal business. C. has achieved industry leadership in its main line of business. D. encounters declining profits in its mainstay business. E. faces strong competition and is struggling to earn a good profit. 4. Diversification ought to be considered when A. a company's profits are being squeezed and it needs to increase its net profit margins and return on...
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...traits and overall environment categorized as follows: SWOT Summary |Strengths |Weaknesses | |High market share in the video rental industry |Company resources are finite/spreading resources too thin | |High capital used to purchase new companies/products |No clear sense of direction for the future | |Various business units |Over confidence in current market share | |Opportunities |Threats | |Video-rental business is thriving |Stuck in a market promising little or no growth in the future | |Product integration possible through acquisition of related |Other media for home entertainment |...
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... and Yale (BA). Snow is Professor of Business Administration at Pennsylvania State University and a frequent lecturer in executive development programs throughout the world. Summary of the Book Contents The book differs from other book since it is about providing strategy formation that counters specific questions of problem at a more specific level where compared to others that provides strategy formation at a generic level. The book discussed that the sources for competitive advantage are market share and synergy. In addition, the strategies for competitive have been derived into 8 generic competitive strategies which are a collective from 4 strategies for gaining market share and 4 strategies for pursuing synergistic diversification. However, the writers made a disclaimer that the aforementioned strategies may not be...
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...Economics of industry According to Daniel O. Klier, diversification is defined as a process when the firm enters into a new product category than the industry that it is currently working in. Thus, diversification leads to the firm entering into new markets by offering new product range. Currently, many companies have been initiating to enter into diversification since it helps to reduce their dependency on a single product range and its limited market. Over a period of time, many companies have been diversifying to reduce their risks. For instance, Wipro which is an IT firm few years back diversified into fast moving consumer goods industry, Giorgio Armani which is a fashion luxury goods brand diversified into hotel industry, Hindustan unilever limited diversified into water purifiers etc. A firm can diversify into three categories: Concentric diversification: in this type of diversification the companies would like to generate those product categories which require the same technology inputs. Thus, the company will be using the same research and development and technological knowhow and enter into a new product category. For instance, for instance, Maggie has introduced soups and ketchups where the technological efforts in the food processing market remain the same but the product is new. Conglomerate diversification: in this type of diversification, the company is entering into a new industry with a new product range which is not similar to its products in any form. for...
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...Group Case Study 1 Report HAS 6149 Group 3 Florida International University Background Information Yunnan Baiyao Group Co., Ltd. (YB) is a state-owned enterprise in China. Through more than a hundred-year history, Yunnan Baiyao had become a household brand in China for its unique traditional herbal medicines that were effective in the treatment of open wounds, fractures, contusions and strains. However, along with the rapid changes of the pharmaceutical industry in China and the maturity of YB’s products, they are reaching a bottleneck. In order to help YB to extend its life cycle and stabilize its profit, YB had to look for new growth areas. The options of product diversification and market diversification have risen. In this case study, our mission is to decide which option above is better for the development of YB based on our analysis. SWOT Analysis Strengths Long history and respected reputation in China and other Asian countries. Year 2012 is the 100 anniversary of YB, as a brand with 100 years history, YB is well-known in China, as well as in Singapore, Malaysia, Thailand, and Vietnam. For a long time till now, this respected brand always with the image of trustful, healthy, and organic. In 1996, Yunnan Baiyao Company integrated other three producers into a sole owner of Baiyao-Yunnan Baiyao Group Co. (YB). By this means, YB can strengthen its brand reputation and standardize the products’ quality. A diversified and vertically integrated player...
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...Expound on the benefit of broader range of opportunity of of international portfolio diversification. Ans. Investing can be an effective way to save for retirement or other long-term goals such as college expenses or elderly care. As an investor, you can place your money in a variety of investments, such as bonds, certificates of deposit, stocks and mutual funds. You can also invest in a wide range of industries, from manufacturing to insurance. Diversification refers to the practice of spreading your investment dollars over several types of investments -- this practice can offer several advantages. Reduced Risk of Loss * Although economic, political and social conditions can cause fluctuations in your investment portfolio balances, these factors rarely have the same effect on all types of investments. Diversification of your investment portfolio can help shield you against overall losses caused by changes in factors that affect individual investments. For example, if you invest 20 percent of your money in international stocks and the rest in bonds and mutual funds, a change in international market conditions will likely only have a significant impact on 20 percent of your portfolio. Broader Range of Opportunities * Placing your money in several types of investments can give you access to a broader range of opportunities than investing all of your money in one or two types of investments. This provides opportunity for investment growth if some of your investments become stagnant...
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...LESSON–10 ALTERNATIVE GROWTH STRATEGIES FOR SMALL BUSINESS Sonia Sabharwal STRUCTURE 10.0 10.1 10.2 10.3 10.4 10.5 10.6 Introduction Objectives Meaning of Business growth Need for growth Advantages of growth Limitations of growth Forms of growth 10.6.1 Organic growth 10.6.2 Inorganic growth Meaning of growth strategy Types of growth strategies 10.8.1 Intensive Growth strategy 10.8.2 Diversification 10.8.3 Modernization 10.8.4 Merger 10.8.5 Joint Venture Crisis in Business Growth Summary Glossary Self Assessment Questions Further Readings 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.0 INTRODUCTION In earlier units we discussed the processes involved in the setting up of commercially viable and technically feasible small scale enterprises (SSE). We also examined the processes of finding an ideal location and layout for a SSE. In this lesson we will take a view of different alternatives available for the growth of a small scale enterprise. Business growth is a natural process of adaptation and development that occurs under favorable conditions. The growth of a business firm is similar to that of a human being who passes through the stages of infancy, childhood, adulthood and maturity. Many business firms started small and have become big through continuous growth. However, business growth is not a 137 homogenous process. The rate and pattern of growth varies from firm to firm. Some firms grow at a fast rate while others grow slowly. Also, not all enterprises survive...
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