Related Diversification Is a More Successful Strategy for Growth Among Firms Than Unrelated Diversification.

Topics: Milk, Marketing, Cheese Pages: 14 (3806 words) Published: September 11, 2010
This paper proves the hypothesis of marketing: - Related diversification is a more successful strategy for growth among firms than unrelated diversification. It explains the concept of diversification, the rationale of diversification, types of diversification, diversification strategies, and dimensions of diversification. This paper analyses the given hypothesis using various examples and reaches a conclusion.

Related, unrelated, diversifact, diversification, diversifame, diversifad, diversifriction Hypothesis
Related diversification is a more successful strategy for growth among firms than unrelated diversification. Diversification is a form of growth marketing 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 or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry in which the business is already in. At the corporate level, it is generally entering a promising business outside of the scope of the existing business unit. Diversification is part of the four main marketing strategies defined by the Product/Market Ansoff matrix:

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. Therefore, diversification is meant to be the riskiest of the four strategies to pursue for a firm.

Rationale of diversification
There are two dimensions of rationale for diversification.
(i)The first one relates to the nature of the strategic objective: Diversification may be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. •Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.

(ii)The second dimension involves the expected outcomes of diversification: Management may expect great economic value (growth, profitability) or first and foremost great coherence and complementarities with their current activities (exploitation of know-how, more efficient use of available resources and capacities). In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion. Types of diversifications

Moving away from the core competency is termed as diversification. Diversification involves directions of development which take the organisation away from its present markets and its present products at the same time. Diversification is of two types:

(i) Related diversification: Related diversification is development beyond the present product and market, but still within the broad confines of the ‘industry’ (i.e. value chain) in which a company operates. For example, an automobile manufacturer may engage in production of passenger vehicles and light trucks.

(ii)Unrelated diversification: Unrelated diversification is where the organisation moves beyond the confines of its current industry. For example ,a food processing firm manufacturing leather footwear as well.

The different types of diversification strategies
The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This...
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