Documentos de Académico
Documentos de Profesional
Documentos de Cultura
1. Introduction
Diversification refers to a strategic direction that takes companies into other products
and/or markets by means of either internal or external development. There are basically
two broad forms of diversification as listed below:
Related diversification, occurs when a company develops beyond its present product
and market whilst remaining in the same area. For example a newspaper company
expanding by acquiring a TV station remains with media sector. It will use its present
strengths by using its expertise to develop new interests in same area.
Backward diversification, when activities related to the inputs in the business are
developed. For example a newspaper company acquiring a printing or publishing
company.
Unrelated diversification is used to describe a company moving its present interests into
unrelated markets or products. For example a company whose core business is media
services may diversify into provision of financial services.
1
2. Alternative methods for carrying out diversification
Internal development
External, through acquisition or strategic alliances
Managers should bear in mind that the acquisition alternative should be seen as both a
risk and an opportunity, therefore a clear promotion and management development
strategy must be in place at the time of the take over.
The acquiring company must consider what value it can add to the acquired
business. This may include management, technology and distribution.
A common core of unity must exit between the businesses in terms of markets,
products and technology etc
The acquiring company’s management must understand the business being
acquired
The acquiring company must put a quality management team quickly into the
acquired business
The acquiring business must retain the best management from both businesses.
2
Responding to market decline
Spreading risk
Advantages
Control of inputs, leading to continuity and improved quality. For instance 1984
and 1985 NewsCorp acquired Twentieth Century Fox and six television stations
of the Metromedia Broadcasting Group in the US. These acquisition provided the
company with a wider platform for consolidation of its related activities through
access to studios for making films and television Programmes.
Control markets by guaranteeing sales and distribution. This can arise through a
combination of linkages in the value chain. For example where production and
distribution channels are combined, or where a company uses its well-established
brand names or corporate identity to gain benefits in new markets
Provide better risk control through no longer being reliant on a single market
Disadvantages
May result in slowing growth in its core business
3
Adding management costs.
4
5