BUSINESS POLICY AND

STRATEGIC
MANAGEMENT
ASSIGNMENT ON
DIVERSIFICATION
STRATEGY
BY:
DISHA GUPTA(57)
POOJA DWARKANI(12)
Pratik meshram(01)
Mandar pradhan(03)
MEANING OF DIVERSIFICATION
Diversification is a form of corporate strategy for a company. It seeks to increase profitability
through greater sales volume obtained from new products and new markets. Diversification can
occur either at the business unit level or at the corporate level

TYPES OF DIVERSIFICATION
There are various types of diversification. They are:
 Concentric diversification
 Conglomerate diversification
 Internal diversification
 External diversification
It also includes horizontal and vertical integration.

CONCENTRIC DIVERSIFICATION

Concentric diversification occurs when a firm adds related products or markets. The goal of such
diversification is to achieve strategic fit.
For example, a company that manufactures industrial adhesives might decide to diversify into
adhesives to be sold via retailers. The technology would be the same but the marketing effort
would need to change.

CONGLOMERATE DIVERSIFICATION

Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its
current line of business. Synergy may result through the application of management expertise or
financial resources, but the primary purpose of conglomerate diversification is improved
profitability of the acquiring firm.

HORIZONTAL INTEGRATION

Horizontal integration occurs when a firm enters a new business (either related or unrelated) at
the same stage of production as its current operations. For example, Avon's move to market
jewelry through its door-to-door sales force involved marketing new products through existing
channels of distribution. An alternative form of horizontal integration that Avon has also
undertaken is selling its products by mail order (e.g., clothing, plastic products) and through
retail stores (e.g., Tiffany's). In both cases, Avon is still at the retail stage of the production
process.
VERTICAL INTEGRATION

Vertical integration occurs when firms undertake operations at different stages of production.
Involvement in the different stages of production can be developed inside the company (internal
diversification) or by acquiring another firm (external diversification). Vertical integration is
usually related to existing operations and would be considered concentric diversification.

INTERNAL DIVERSIFICATION

One form of internal diversification is to market existing products in new markets. A firm may
elect to broaden its geographic base to include new customers, either within its home country or
in international markets. A business could also pursue an internal diversification strategy by
finding new users for its current product. For example, Arm & Hammer marketed its baking soda
as a refrigerator deodorizer.

EXTERNAL DIVERSIFICATION

External diversification occurs when a firm looks outside of its current operations and buys
access to new products or markets. Mergers are one common form of external diversification.
Mergers occur when two or more firms combine operations to form one corporation, perhaps
with a new name. Acquisition is also an example of external diversification.

A CASE OF DIVERSIFICATION: ITC

The case, "ITC's Diversification Strategy" gives an overview of ITC's diversification into related
and unrelated areas in recent years. The case presents an overview of the cigarette industry in
India and gives a detailed account of the areas in which ITC has diversified. The competition that
ITC is going to face in each of the segments it has diversified into is also explored.

In February 2001, the Government of India (GoI) announced a ban on advertising by cigarette
companies and restrictions on the sale and consumption of tobacco products. The proposed
Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001 prohibits smoking in
public places and the sale of tobacco products to people under the age of 18. According to the
Bill, no tobacco related business would be allowed to advertise in any type of media. In fact, the
number of cigarettes sold declined between 1997 and 2002, and major cigarette companies saw a
decline in sales volumes. The declining sales of cigarettes, the proposed ban on advertising, the
increasing anti-tobacco campaigns and the experience in developed countries seemed to suggest
that tobacco would no longer be a profitable business in the future. Consequently, ITC decided to
diversify into non tobacco businesses.

ITC made its first foray into a non-tobacco business long back in the 1970s, when it entered the
hotel industry

FOODS

ITC made its entry into the branded & packaged Foods business in August 2001 with the launch
of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with
brand launches in the Confectionery, Staples and Snack Foods segments. Kitchens of India,
Aashirvaad, Sunfeast, mint-o Candyman, Bingo.

LIFESTYLE RETAILING

ITC’s Lifestyle Retailing Business Division has established a nationwide retailing presence
through its Wills Lifestyle chain of exclusive specialty stores.

EDUCATION & STATIONARY PRODUCTS

ITC made its entry into the stationery business in 2002 with its premium range of notebooks,
followed in the year 2003 with the more popular range to augment its offering.

ITC's stationery Brands are marketed as "Classmate" and "Paperkraft", with Classmate
addressing the needs of school goers and Paperkraft targeted towards college students and

AGARBATTIS

As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector, the
Company commenced marketing Agarbattis (incense sticks) sourced from small-scale and
cottage units in 2003

HOTELS

ITC entered the hotels business in 1975 with the acquisition of a hotel in Chennai, which was
then rechristened ITC Chola. Since then the ITC-Welcomgroup brand has become synonymous
with Indian hospitality. With over 90 hotels in 77 destinations.
PACKAGING

ITC's Packaging & Printing Business is the country's largest convertor of paperboard into
packaging. It converts over 50,000 tonnes of paper and paperboard per annum into a variety of
value-added packaging solutions for the food & beverage, personal products, cigarette, liquor,
cellular phone and IT packaging industries.

Segement Dominance Revenue% PBIT%

Cigarettes 70% share 77 87

Paperboard & Packaging board – 7 10

Packaging No. 1 in Asia
7
Agri – Business One of the largest 4
exporters from India
4 5
Hotels ITC Group ranks No.
2 (7)
FMCG (Others) 4
20% share of
greeting cards
market,
‘Aashrivaad’ atta is
No.1 in branded
Segme

In 2001, ITC invested around Rs. 5 billion in its non-tobacco businesses. This investment was
expected to increase to Rs 20 billion in the next five years.

By May 2002, there were 44 Lifestyle stores in India. The gross turnover from these stores was
over Rs. 200 million, but due to their heavy start up costs, they were still not considered
profitable. Expressions greeting cards, which were sold through 10,000 outlets in 180 Indian
cities, were yet to bring in revenues. According to company reports, losses are on the rise in its
branded garments, greeting cards and packaged foods ventures. Losses in businesses such as
'Aashirvad' wheat flour, Expressions greeting cards and Wills Lifestyle accounted for five per
cent of pre-tax profits in 2002 and continue to be higher than the revenue generated by them. If
losses continue to rise over the next few quarters, it may adversely effect the overall profit
growth.