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Diversification

Diversification

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Published by tallalbasahel

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Published by: tallalbasahel on Apr 11, 2010
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07/28/2013

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Discussion Question (Week-6)To what degree does diversification reduce risk? What arguments can be formed againstdiversification? Use examples from your own company or one you know well.TABLE OF CONTENT
1. Introduction2. Achieving a sustainable competitive advantage3. Case Study3.1. Background3.2. Strategy and structure of Chinese business groups3.3. Corporate diversification and restructuring strategies of Chinese business groups4. ConclusionReferences
 
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1
. Introduction
O
ne of the major challenges for the business leader is to maintain the growth of the business.
O
ne of the solutions to this issue is diversification. But majority of organizations find it difficultto spread profitability as pointed out by various researchers. During the past 10 years, Zook indicates that around 90% of the organizations have not been successful in diversifying beyondtheir core business. Further the probability of being successful when diversifying close to thecore business is more as compared to any other methodologies adopted to diversify, as pointedout by Zook¶s study (Varadarajan and Ramanujam, 2007, pp. 380-93).
2
. Achieving a sustainable competitive advantage
When a particular company has certain plus point over their competitors then only they triumphand achieving this competitive benefit is the aim of strategy or planning. So as accomplish thisobjective organizations that achieve competitive benefit in their field generally adopt particular tactics consisting of innovation, better processes, better quality, reduced cost and marketing(Zeile, 2006, pp. 253-79).The three approaches that might be utilized to get competitive plus point, as per Porter are cost,differentiation and focus. In order to achieve competitive benefit, any one or a combination of these approached might be utilized by organizations and these companies which are in a positionto create competitive benefit by utilizing these tactics then they would see better profitability intheir scope of industry. Among the industry the companies that are able to utilize cost as well as product differentiation approaches so as to attain competitive benefit, generally experience the best levels of profitability.But even-though the companies are able to achieve competitive plus point and accomplish better  profitability, the competitors are generally fast to imitate their approaches or might even better on the original work and as such lead to loss of competitive benefit. In the same year of introduction of a new product or service by a company, its rivals were able to lay hands oncomprehensive information of 70% of such products, as per Ghemawat (Khanna and Palepu,2000b, pp. 45-74).
 
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3
. Case Study: Business Group in China
3
.
1
. Background
In China, so as to be a business group, as per SAIC or State Administration for Industry andCommerce, the core firm must fulfill the following criterion ± 
y
 
H
ave a registered net-worth of more than 50 million yuan
y
 
Should have atleast 5 affiliated firms.
y
 
The total registered networth of the core and associated companies must be more than100 million yuan.
3
.
2
. Strategy and structure of Chinese business groups
³In the upcoming nations business groups might play an alike character as corporations in moredeveloped nations. In China a business group would probably create a new firm when it venturesinto a new industry, as in various other nations. In the event of the new industry not beingintegrated in the parent firm¶s charter then it is mandatory for the group to modify its charter or register a new firm, as per the Chinese Company law´ (Andrews and Dowling, 2008,pp. 601-17).
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.
3
. Corporate diversification and restructuring strategies of Chinese business groups
In the last two and a half decades in USA and European nations, corporate restructuring has beena quite accepted approach. Asset, financial and organizational are the three forms of restructuringinto which corporate restructuring which consists of various forms of change, can be classified.Asset restructuring includes the auction or spin-off of business or company in the corporate portfolio resulting in reduction in diversification or acquirement of companies or businessesresulting in greater level of diversification. Leveraged buyouts, stock repurchases etc. form partof financial restructuring.
O
rganizational restructuring contains reorganizations in the firm itself which does not require the auction or clearance of assets (Dharwadkar et al, 2000, pp. 650-69).

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