Explain the concept of diversification. Be able to apply the three tests for diversification. Distinguish related and unrelated diversification. Firms using diversification strategies enter entirely new industries.
Concentric Diversification Examples Related diversification can help drive revenues and profits. Companies utilize various growth strategies. Some choose an organic growth strategy and increase market share in their existing industry by focusing on marketing and sales.
Other companies expand their industry footprint through mergers and acquisitions or enter new industries through a diversification strategy. Concentric diversification occurs when a company expands by entering into an industry related to its current operations.
Companies also diversity to reduce risk and utilize excessive cash on the balance sheet. Concentric diversification is also called related diversification. Related diversification is a diversification strategy for driving shareholder value increases.
Resource Sharing One example of concentric diversification is sharing resources or facilities. Companies do this to achieve economies of scale and reduce costs. For example, a metals distributor who needs a larger warehouse may contract with a manufacturing company that has a processing facility with extra space.
The manufacturer benefits because it operates on just-in-time principles and now part of its raw materials are now on site.
The distributor benefits from the space, the equipment and the warehouse management expertise of the manufacturer. Strategic Partnerships Another way to achieve concentric diversification is through strategic partnerships.
Strategic partnership results when to companies enter into a formal business relationship to obtain benefits greater than they can achieve on their own. By combining skills and resources, they both can achieve their goals faster.
Companies may enter into a contract or may form a wholly separate but related business known as a joint venture. The billing software provider gets the opportunity to expand to a different industry via the partnership and the CRM company gets to build deeper inroads into the energy industry.
Acquisitions Companies also concentrically diversify through mergers and acquisitions. Mergers happen when two companies of approximately equal status combine through the exchange of stock, with only one entity remaining.
For example, Coke purchased several beverage manufacturers to expand beyond the soft drink industry to the beverage industry.Coca-Cola is the Pioneer brand with hidden formulation which is famous for the diversification of its alphabetnyc.com according to trend, they used to add values in their core and supplementary products.
Going back to the example of Coca-Cola, the firm’s emphasis on market penetration and other non-diversification strategies therefore suggests it is a relatively risk-averse company, when compared with a firm like the Virgin Group.
Sep 06, · As the sales of its carbonated soft drinks decline, Coca Cola is working on the much needed diversification of its beverage portfolio. Virgin: Unrelated diversification If somebody was to ask what industry Virgin operates in primarily, the first thought that comes to mind would inevitably vary between each of us.
This is due to the Virgin Group partaking in what’s known as ‘unrelated diversification’ – the fifth strategy in Ansoff’s Matrix.
Related diversification is a diversification strategy for driving shareholder value increases. Businesses implement a related diversification strategy to attain “synergy.” Companies achieve “synergy,” which occurs when businesses perform better as a whole than as the sum of their parts, through sharing resources, combining operations and transferring knowledge.
this document explains diversification in coca-cola by shanika