Assignment 2 - Diversification Strategies

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Running head: Contemporary Business- BUS 508

April 28, 2012

Assignment #2 Diversification Strategies “Virgin Group and Benetton Group”

Gilbert Feliciano II Professor- Dr. Brian Collins Strayer University

CONTEMPORARY BUSINESS- BUS 508

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ABSTRACT

The diversification literature has largely focused on the degree of applicability of firm resources to a new industry: A firm should diversify into more related industries since synergistic benefits decrease with the distance between the new industry and the firm’s primary industry. It argues that related diversification presents a paradox; while related diversification provides more synergistic benefits. Interdependencies in production processes contribute to both synergies and coordination costs. With increasing interdependencies, coordination costs may rise faster than potential synergies and set limits to the related diversification strategy. This paper will compare and contrast the outcomes of two global groups, “The Virgin Group” and “The Benetton Group”. Both groups have the one thing in common: “Diversification”. While the Virgin Group pursued an Unrelated Diversification strategy, the Benetton pursued Related Diversification. There is no one strategy that is more superior to the other but there is a clear and significant risk in adapting either. The paper will issued an opinion on how one of them did a better job at implementation and made smarter decisions than the other, hence making it a stronger brand.

CONTEMPORARY BUSINESS- BUS 508

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The Groups

The Virgin Group is a leading international investment group and one of the world's most recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow successful businesses in sectors ranging from mobile telephony, travel, financial services, leisure, music, holidays and health & wellness. Across its companies, Virgin employs approximately 50,000 people, in 34 countries and global branded revenues in 2011 were around $21 billion dollars.¹ The Virgin Group covers a wide range of industries-from Travel

and Tourism (Limousines, Vacations, etc.), Leisure and Pleasure (i.e. Spa, Games, etc.), Social and Environment (i.e. Green Fund, Virgin Earth), Beverages (i.e. wines and soft drinks), Media and Telecommunications (i.e. Radio, Broadband, Mobile, etc), Books, Clothing, Finance and Money, and Health (i.e. Health Bank, Life Care).

The Benetton Group’s core business is fashion apparel; an Italian group with a strong character whose style, quality and passion are clearly seen in its brands, United Colors of Benetton, Undercolors of Benetton, Sisley, Playlife. Currently, the Benetton Group is present in 120 countries around the world. Its network of over 6,500 stores, generates a total turnover of over $5.3 billion dollars.² The Benetton Group houses a variety of products that complement each other and are all related to fashion and lifestyle. Their products include clothing, footwear, bags, accessories, perfumes, eyewear, and some household items, such as, blankets, mattresses, and aprons.

CONTEMPORARY BUSINESS- BUS 508

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Diversification Strategies

The Virgin Group opted for Unrelated Diversification. Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets.³ On the other hand, Benetton pursued Related Diversification. Related Diversification is the most popular distinction between the different types of diversification and is made with regard to how close the field of diversification is to the field of the existing business activities.³

The Group’s Outcomes

Despite the Virgin Group’s diversification in industries and products, it never diversified its brand name. All of its services and products in every industry have the name Virgin affixed to it, such as, Virgin Brides, Virgin Atlantic, Virgin Music, Virgin Cola, Virgin Spa, Virgin Money, Virgin...
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