dIVERSIFICATION STARTEGY

2. Diversification
Diversification is a business development
strategy allowing a company to enter additional
lines of business that are different from the
current products, services and markets.

3. Why do Firms Diversify?
• When they have excess resources, capabilities,
and core competencies that have multiple uses
• Diminishing growth prospects in present
industry
• Cost saving opportunities
• Capture strategic fits
• Capture financial economies
• Spread business risk
• Leverage brand name

4. Types of Diversification
Horizontal Diversification:
It is a strategy in which a firms long term
strategy is based on growth through acquisition
of one or more similar firms operating at the
same stage of the production-marketing chain.
- E.g. Acquisition of Arcrol by Mitta Steels
Vertical Diversification:
It is a process in which a firm's grand
strategy is to acquire firms that supply it with
inputs (such as raw materials) or are customers
for its outputs (such as warehouses for finished
products).

5. Concentric Diversification :
Thus, the acquiring firm searches for new businesses
whose products, markets, distribution channels,
technologies and resource requirements are similar to
but not identical with its own, whose acquisition results
in synergies but not complete interdependence.
▫ e.g. acquiring of Spice Telecom by Idea
Conglomerate Diversification:
A conglomerate is a Corporation made up of
several smaller, independently-run companies
which may operate across several sectors and
industries.
• e.g. acquisition of Adlabs by Anil Dirubhai Ambani Group

6. STRATEGIES FOR ENTERING NEW BUSINESSES
Acquisition
Internal new
venture (start-up)
Joint venture
Diversifying into
New Businesses