To Diversify or Not to Diversify

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  • Topic: Time Warner, Dot-com bubble,
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  • Published : February 19, 2012
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Ques> A big question in business is: To Diversify or Not to Diversify? Some corporations (e.g., Amazon, 3M and General Electric) have diversified broadly over the years and have had great success. Other diversification attempts (e.g., Time Warner’s purchase of AOL) have taken companies away from their core businesses and their experiences are less successful. Research two corporations that have had different outcomes (one successful and one unsuccessful) with their diversification strategies. Compare and contrast each corporation’s diversification strategy and evaluate the reasons for each one’s success or failure in the venture. Write a 4-6 page paper in which you: 1.Compare and contrast the two businesses—core business, their size, financials, global presence, use of e-business (marketing, sales, etc.). 2.Compare and contrast their outcomes (one successful, one unsuccessful). 3.Analyze the three primary reasons for the different outcomes. 4.Recommend two actions the unsuccessful one could have made to make their diversification venture successful. 5.Use a minimum of three (3) quality external resources from the last five (5) years to support the content of the paper. (Note: Do not use Wiki sites.)

Diversification is a risk management technique that mixes a wide variety of investments within a single portfolio. The basic rationale behind this portfolio is to divide the investment in different kinds and on average it will yield higher returns and pose a lower risk than any individual investment found within portfolio. Diversification can result in success of the business and can also result in failure. For example Amazon started as a online book retailer company and now retails all kinds of things and has revenue over $34 billion. On the other hand AOL and TimeWarner merged to diversify and result in biggest failure of merging. They lost 70% of their shares in just two and a half year. Here below the Amazon is considered as a successful diversification example and AOL TimeWarner or TimeWarner Inc. as unsuccessful example of diversification Amazon:- It is world’s largest online retailer company. It was founded in 1994 and was officially online in 1995.Amazon has different websites for many countries such as USA,Canada ,UK,India,Russia and many other European countries. Amazon was started for the online retailing of books initially but it diversified by also offering sale of DVD’s ,CDs,MP3 song downloads ,Softwares, Games and other products. Amazon recently diversified into electronic market with launch of its tablet Kindle fire. The Key to success of Amazon is low prices of products, they offer convenience, expanding selection and increasing availability are interrelated which is called as virtuous cycle by the company which together make up the foundation of the fabulous growth that has taken Amazon from bookseller which was started in a garage and now it is holding a 14 billion dollar retail machine. Amazon’s direct-to-customer online model allowed to keeps its inventory in a small number of strategically located large house, which let the company to offer a vast selection of goods and without capital investment and inventory risk that traditional brick and mortar retailer faces. The Amazon is get paid before it has to pay to its retailers which enabled Amazon to build a retail business with a negative operating cashflow cycle The Amazon has expanded its category of products over 40 different products but still their 64% of revenue of Amazon comes from media categories. The expansion of product categories represents the growth opportunities for company, given the lower online penetration rates in most of these categories. The digital media store of Amazon has a substantial investment and investors anxiously await for the launch of new initiatives in downloadable music, video and text. Amazon has a significant growth through international businesses. Even Amazon almost ships to any country in the world; it...
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