DIVERSIFICATION

Unit IV Anjali Singh

Diversification
Concentric Diversification
related † Technology related † Marketing & Technology related
† Marketing

Conglomerate Diversification
Diversification into areas unrelated to the existing business definition in terms of either customer groups, functions or technology Examples in India ?

Why diversify ?
Minimise risk by spreading it over several business Capitalise strengths or minimise weakness May be the only way to grow

Expansion ² ways
Mergers Acquisitions Joint Ventures Strategic Alliances

Mergers
One company acquires the assets and liabilities of another in exchange for shares or cash. Both organisations are dissolved, assets and liabilities are combined with new stock being issued.

Reasons for mergers
Increase value of organization·s stock Increase the growth rate Make a good investment Improve earnings and sales Reduce competition Acquire resources quickly Avail tax concessions and benefits

Issues in Mergers
Strategic issues ² commonality of strategic interests Financial issues ² valuation of seller firm and sources of financing Managerial issue ² how the organization will be managed post merger Legal issues - restrictions and provisions

Joint Ventures
Activity is uneconomical for the organization to do alone To reduce the risk by sharing it To provide synergies of the two companies When going solo is not an option view regulatory and environment issues

Types of Joint Ventures
Between two firms in one Industry Between two firms across different industries Between an Indian Company and Foreign Company in India Between an Indian Company and Foreign company in that Country Between an Indian Company and Foreign company in a third country

Strategic Alliances
2 or more firms unite to pursue a set of agreed upon goals but remain independent Share the benefits of alliance and control over the performance of assigned tasks. Contribute on a continuing basis in one or more of the key strategic areas ² technology, product etc

Types of strategic alliances
Low interaction/low conflict ( Pro-competitive alliance ) High Interaction/low conflict ( non-competitive alliance ) High Interaction/high conflict ( competitive alliance ) Low Interaction/ high conflict ( Pre-competitive alliance )

Why Strategic Alliances
Entering New market Reducing Manufacturing costs Developing and diffusing technology

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