Diversification is a form of corporate strategy to increase profitability of a company through greater sales volume obtained from new products and new markets. Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. I will be discussing diversification strategies of Johnson & Johnson who have benefited from diversification and National Semiconductors Company which was not able to succeed in their diversification efforts.
Diversification is a form of corporate strategy to increase profitability of a company through greater sales volume obtained from new products and new markets. It occurs either at the business unit level or at the corporate level. It is a risk management technique that mixes a wide variety of investments within a portfolio. It attempts to smooth out unmethodical risk events in a group so that the positive performance of some investments will neutralize the negative performance of others. Companies may diversify for strategic objectives, expected outcomes, valuable comparison between strategy and expansion. Some companies diversify by conquering new positions through mergers and acquisitions whiles others diversify when there are not much growth opportunities for the market they are in. There are many reasons for pursuing a diversification strategy, but most pertain to management's desire for the organization to grow. Companies must decide whether they want to diversify by going into related or unrelated businesses. They must then decide whether they want to expand by developing the new business or by buying an ongoing business. There are advantages to diversification, beyond simply expanding one's product line. For example, a diversified company is potentially better insulated against a loss of revenue in one business tranche. 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 new 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. On the other hand, when the new and the old businesses are unrelated it is classified as Conglomerate diversification which occurs when there is no common thread of strategic fit or relationship between the new and old lines of business, meaning the new and old businesses are unrelated. Compare and contrast the two businesses—core business, their size, financials, global presence, use of e-business (marketing, sales, etc.). Johnson & Johnson Inc. - Successful
Johnson & Johnson is an American multinational pharmaceutical company founded in 1886, manufacturing sterile surgical supplies. Its core business is the manufacturing of medical devices and consumer packaged goods. Its common stock is a component of the Dow Jones Industrial Average. The company is listed among the Fortune 500. The corporation has grown to have more than 250 operating companies in 60 countries employing approximately 116,000 people, producing medicines and medical devices, as well as consumer products like sanitary goods, baby shampoo and dental floss. National Semiconductor Corporation - Unsuccessful
National Semiconductor Company has an international reputation for semiconductors. The pioneering chip maker offers a variety of integrated circuits (ICs), especially analog and mixed-signal (blending analog and digital functions) chips. Its products focus on analog chips, which transform physical information - light, sound, pressure, even radio waves - into data that a computer can use. National Semi's chips are used in wireless, networking, medical, solar, automotive, and industrial applications. It gets more than 75% of sales from customers outside the US, largely to contract...
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