Related Diversification Is a More Successful Strategy Essay

(exploitation of know-how, more efficient use of functional resources and capacities). In addition, companies may also explore variegation Just to get a valuable analogy between this strategy and expansion. Types of diversifications Moving away from the core competency is termed as diversification. Diversification involves directions of development which bribe 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 roduct and market, but still within the broad trammel of the industry (i. e. value chain) in which a lodge 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 contemporary industry. For example ,a food processing firm manufacturing leather f ootwear as well.The different types of diversification strategies The strategies of diversification can include internal development of bare-assed products or arkets, 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 nett strategy involves a combination of these options. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. in that respect be three types of diversification concentric, horizontal and conglomerate (1) Concentric diversification The company adds new products or services which have technological or commercial ynergies with current products and which will appeal to new guest groups. The objective is therefore to benefit from synergy effects due to the complementarities of activities, and thus to expand the firms market by attracting new groups of buye rs. Concentric diversification does not lead the company into a only new world as it operates in familiar territory in one of the two major fields (technology or marketing).Therefore that kind of diversification makes the task easier, although not necessarily successful. (2)Horizontal diversification The company adds new products or services that are technologically or commercially nrelated to current products, but which may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced.Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firms dependence on certain market segments. (3) heap up diversification (or lateral diversification) The company markets new roducts or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers. The conglomerate diversification has very elflike relationship with the firms current business.Therefore, the main reasons of adopting such a strategy are rootage to improve the profitability and the flexibility of the company, and second to get a better reception in bang-up markets as the company gets bigger. Even if this strategy is very risky, it could also, if successful, provide increased growth and profitability. Risks in diversification Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires the most careful investigation. Going into an unknown market with an foreign product offering means a lack of experience in the new skills and techniques required.