Related Diversification Is a More Successful Strategy Essay

(exploitation of know-how, more efficient use of for sale resources and capacities). In addition, companies may also explore variegation Just to commence a valuable comparison between this dodge and expansion. Types of diversifications Moving outside from the core competency is termed as diversification. Diversification involves directions of development which take the system away from its preface markets and its present products at the same time.Diversification is of deuce types (i) Related diversification Related diversification is development beyond the present roduct and market, but still within the broad confines of the industry (i. e. apprize chain) in which a social club operates. For example, an automobile manufacturer may adopt in production of passenger vehicles and light trucks. (ii)Unrelated diversification Unrelated diversification is where the organisation moves beyond the confines of its circulating(prenominal) industry. For example ,a food touch on firm man ufacturing leather footwear as wellhead.The different types of diversification strategies The strategies of diversification can include internal development of recent products or arkets, encyclopedism of a firm, alliance with a complementary company, licensing of peeled technologies, and distributing or merchandise a products line manufactured by another firm. Generally, the final system involves a combination of these options. This combination is determined in function of acquirable opportunities and consistency with the objectives and the resources of the company.There are three types of diversification concentric, horizontal and rush together (1) Concentric diversification The company adds bleak products or services which direct technological or commercial ynergies with genuine products and which will appeal to new customer groups. The objective is therefore to benefit from synergy effects repayable to the complementarities of activities, and thus to expand the firms market by attracting new groups of buyers. Concentric diversification does not lead the company into a all in all new world as it operates in familiar territory in one of the two major fields (technology or marketing).Therefore that tolerant 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 belligerent environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products pay off a good quality and are well promoted and priced.Moreover, the new products are marketed to the same economic environment as the lively products, which may lead to rigidity and instability. In other words, this strategy tends to annex the firms dependence on certain market segments. (3) composite diversification (or lat eral 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 little kind with the firms current business.Therefore, the main reasons of adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital 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 prudent investigation. Going into an unknown market with an unfamiliar product offering intend a lack of experience in the new skills and techniques required.