Related Diversification Is a More Successful Strategy Essay Example for Free

Related Diversification Is a More Successful Strategy see(exploitation of know-how, more efficient use of available resources and capacities). In addition, companies may also explore diversification Just to get a valuable comparison in the midst of this strategy and expansion. Types of diversifications Moving away from the core competency is termed as diversification. Diversification involves directions of development which take the organisation away from its present markets and its present products at the aforementi unmatchabled(prenominal) time.Diversification is of two types (i) Related diversification Related diversification is development beyond the present roduct and market, but still within the broad confines of the patience (i. e. value chain) in which a company 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 beyo nd the confines of its incumbent industry. For example ,a food processing firm manufacturing leather footwear as well.The different types of diversification strategies The strategies of diversification evoke include internal development of advanced products or arkets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products limit manufactured by another firm. Generally, the final 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.There atomic number 18 three types of diversification concentric, horizontal and conglomerate (1) Concentric diversification The company adds new products or operate which have technological or commercial ynergies with current products and which will call down to new customer groups. The objective is therefore to benefit from synergy effec ts due 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 completely 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 enviable 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 sparing environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firms dependenc e on certain market segments. (3) complex 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 little relationship with the firms current business.Therefore, the main reasons of adopting such a strategy are first to improve the lucrativeness 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 change magnitude 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 unfamiliar product whirl means a lack of experience in the new skills and techniques required.