There are three types of diversification: concentric, horizontal, and conglomerate.

Concentric diversification[edit source | editbeta]
This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. 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. It also seems to increase its market share to launch a new product that helps the particular company to earn profit. For instance, the addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technological-related concentric diversification. The company could seek new products that have technological or marketing synergies with existing product lines appealing to a new group of customers.This also helps the company to tap that part of the market which remains untapped, and which presents an opportunity to earn profits.

Horizontal diversification[edit source | editbeta]
The company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain market segments. For example, a company that was making notebooks earlier may also enter the pen market with its new product.

When is Horizontal diversification desirable?[edit source | editbeta]
Horizontal diversification is desirable 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 economic environment as the existing products, which may lead to rigidity and instability.

Another interpretation[edit source | editbeta]
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 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.

Conglomerate diversification (or lateral diversification
The company markets new products or services that have no technological or commercial synergies with current products but that may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons for adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger. Though this strategy is very risky, it could also, if successful, provide increased growth and profitability.

Companies that follow single- or dominant-business strategies have low levels of diversification. A single business is a company where more than 90% of its revenues are generated by the dominant business. A dominant business is a company that generates between 70 and 95% of their sales within a single category. Companies classified as dominant businesses also tend to be vertically integrated to some extent, with many having begun as a single business and evolving over time into a dominant business through vertical integration (a topic that will be discussed later in this course).

all the businesses share product. and there are no common links between businesses. and there are only limited links between businesses. technological. Moderate to High Levels of Diversification Related Constrained: Less than 70% revenue comes from the dominant business.A diversified company is one that earns at least 30% of its revenues from sources outside of the dominant business and whose units are linked to each other by the sharing of resources. Related Linkage: Less than 70% revenue comes from the dominant business.technological. and distribution linkages. Dominant business: Between 70% and 95% of revenue comes from a single business. technological and distribution linkage. Unrelated diversified companies generate at least 30% of their total revenues from the dominant business but there are few linkages between key value-creating activities. Very High Levels of Diversification Unrelated: Less than 70% revenue comes from the dominant business. As has been mentioned earlier in our discussion of diversification. and by product. some companies that have pursued unrelated high diversification strategies are restructuring to focus on a less diversified mix of businesses that may reflect an inability to manage high levels of diversification. At a more specific level… Limited Diversification • • single business: > 95% of sales in single business dominant business: 70% to 95% in single business Related Diversification • • related-constrained: all businesses related on most dimensions related-linked: some businesses related on some dimensions Unrelated Diversification • businesses are not related . and distribution linkages. Moderately Diversified companies also earn at least 30% of their revenues from the dominant business and all business units share product. This is because of the recognition that a lower level of diversification would improve the match between the company’s core competencies and environmental opportunities and threats Levels and Types of Diversification Low levels of Diversification Single Business: More than 95% of the revenue comes from a single business.

Suhzou. Shenzen. Marantz and Magnavox. among others. Philips expanded in the 1970s and 1980s. More recent Philips innovations are the Laser Vision Optical Disc. primarily as a manufacturer of incandescent lamps and other electrical products. Mitsubishi Electric and Mitsubishi Motors. The company headquarters moved to Amsterdam in the 1980s. Bruges. following market leaders Matsushita and Sony. Juarez and Manaus in Latin America. and is market leader in many regions for a number of product categories –for example. since 1991 IBM established the IBM Global Services. Norelco. Around the early 1900s. and Hasselt in Western Europe. this change translated into a more efficient concentration of manufacturing – from more than 100 manufacturing sites to 36. According to Mitsubishi. and Beijing. which is jasabisnis and technology providers. in the southern region of the Netherlands. Philips also made major contributions in the development of television pictures. IBM’s expertise in managing the business and then be seen as an opportunity to get into the business of technology and business service providers. the company diversified into many other areas such as electronics small appliances. It introduced the compact audio cassette in 1963 and produced its first integrated circuits in 1965. lighting. then the GTS an infrastructure provider services such as outsourcing and so forth. its research work leading to the development of the Plumbicon television camera tube. its research in lighting contributed to the developments of the PL and SL energy savings lamps. it had become one of the largest producers in Europe. Mitsubishi started in 1870 as a shipping company. IBM Global Services is comprised of two main divisions namely Global Business Services (GBS) and Global Technology Services (GTS). with more than 186. is an excellent example of one of the original keiretsu. This is one example of company with “related-linked strategy”: Royal Philips is the world’s third largest consumer electronics firms.Example of companies that use related diversification: IBM IBM was originally known as the market leader in hardware and software in the world. and products sold in more than 160 countries. So. Two of these companies. acquiring Magnavox (1974) and Signetics (1975). Dreux. Philips started to diversify its offerings to radio valves and X-rays equipment. Later. are useful in exploring the original questions posed about Japanese super-brands. Today. this global giant has hundreds of companies under its loose umbrella. The company was established in 1891 in Eindhoven. some of which do not carry the Mitsubishi brand name. the Compact Disc. In the 1990s Philips carried out a major restructuring program and changed from highly localized production to globalize production. shavers and LCD displays. the television business of GTE Sylvania (1981) and the lamps division of Westinghouse (1983). Philips operates in more than sixty countries. and to 14 sites for productions.000 employees.” Mitsubishi Motors is a major corporation in its own right. Mitsubishi Electric by itself is in the top 200 of Fortune magazine’s “Global 500 World’s Largest Corporations. at the Eindhoven Technical University. Later in the century. by the turn of the century. in electronic . The company first produced carbon filament lamps and. and invented the rotary heads. He was trained locally. with over 30. medical systems and domestic care products. If GBS is consultant service management. Another important change was the appointment of Gerard Kleisterlee as president of Philips and Chairman of the Board of Management in 2001. the companies conduct their business activities independently but they cooperate in areas of common interest. but its lighting division continues to occupy the center of Eindhoven. system integration to management applications.000 employees. and Optical Telecommunication Systems. Philips developed the electric shaver. and later to television. lighting semiconductors. 50 subsidiaries. which offered a better picture quality. which led to the development of the Philipshave electric shaver. and Chungli (all in China) in Asia. in fact. Kleisterlee has been seen as a Philips man following a traditional Philips career path that had been embraced by company employees until 1980s. The Philips brands include Philips. Currently. examples of companies that use unrelated diversification: Mitsubishi Mitsubishi. In the 1970s.

portable radios. founder Koo In-Hwoi established Lak-Hui Chemical Industrial Corp. Philips offers consumers products. LG Display. Seoul. LG entered into a joint venture with Nortel Networks. In fact. History In 1996 LG formed a joint venture with IBM. multimedia projectors . Associated companies ♣ GS Group ♣ LS Group ♣ LIG Group Group families Electronics industries ♣ LG Electronics ♣ LG Display ♣ LG Innotek ♣ LG Micron ♣ Hiplaza . In 1952. LG Corp. semiconductors. digital TV. Goldstar produced South Korea’s first radio. PC monitors. LG also owns the domain name LG. the abbreviation of “Lucky Goldstar”. X-rays. CD rewriteable drives. chemicals. PC audio. Real Flat That has been. creating LG-Nortel Co. Both companies Lucky and Goldstar merged and formed LG. In 1995. Many consumer electronics were sold under the brand name GoldStar. but most associated with its Lucky and Perioe toothpaste.Yeongdeungpo-gu. irons. VCRs. in a recent interview. Lak-Hui (pronounced “Lucky”.. home and body care products > vacuum cleaners. and other products.. LG Chem merged with LG Petrochemical Since 2001 LG has two joint ventures with Royal Philips Electronics: LG Philips Display and LG. (currently LG Electronics Inc. namely LGCI. clock radios. Hitachi-LG Data Storage. projection TV. Since 2009.) in 1958. broadband net work and so on. to better compete in the Western market. and he has worked with the company for three but Philips sold off its shares in late 2008. Super Audio CD. (Korean: LG 법법) is the second largest South Korean conglomerate company. Its professional product include connectivity lighting medical systems such as magnetic resonance imaging. Internet audio players. shelf systems. among others. On 1 April 2000. Ltd. which makes optical data storage devices like DVD-ROM drives.Philips LCD. Kleisterlee mentioned that the company is presently concentrating on its initial core activities with a focus on its key areas of profitability this is a different type of restructuring from earlier attempts.In 2005. More recently. Mr Groenewegen contends that the perception among employees and the industry is that Philips. According to Martien Groenewegen. ultrasound equipment. LG has a joint venture with Hitachi. CD writers. PC cameras. the company was renamed “LG”. home theatre systems. currently LG Chem) became the first Korean company to enter the plastics industry. while some other household products (not available outside South Korea) were sold under the brand name of Lucky. historically Philips proven path to success. Ltd. under Kleisterlee’s leadership. such as security systems. professional TV. LG has owned the LG Twins baseball club since 1989. LG Chem and LG Household & Health Care and in July 2007. will have a strong product orientation and that it would support an environment in which product innovation will constitute a primary focus of the company. LG acquired American television manufacturing company Zenith in 1999. headquartered in the LG Twin Towers in Yeouido-dong. As the company expanded its plastics business. such as communications products (cordless phones. when the company pursued wrong activities. This joint venture was later terminated. it established GoldStar Co. The Lucky brand was famous for its line of hygiene products such as soapsand HiTi laundry detergents. LG Telecom and LG Chem in over 80 countries. LG produces electronics. LG Chemical was split into three separate companies. Kleisterlee is perceived by present and former employees as taking the company back to its original path to success. and telecommunications products and operates subsidiaries like LG Electronics. CD recorders /players. LG Corp. DVD drives. DVD players and recorders. fax machines). manufacturing technologies. mobile phones. former research and development engineer with Philips. the company associates the letters LG with the company tagline “Life’s Good”. satellite receivers. automotive products. in 1947. kitchen appliances shavers oral healthcare products and lighting products. electronics — Flat TV. etc.

.♣ Hi Logistics ♣ System Air-Con Engineering ♣ Siltron ♣ Lusem Chemical industries ♣ LG Chem ♣ LG DOW Polycarbonate ♣ SEETEC ♣ LG Household & Health Care ♣ Ĭsa Knox ♣ The Face Shop ♣ Coca•Cola Beverage Company ♣ LG Hausys ♣ LG TOSTEM BM ♣ LG Life Sciences ♣ LG MMA Telecommunications and services ♣ LG Telecom ♣ CS Leader ♣ A•IN ♣ LG Dacom ♣ LG Powercom ♣ DACOM Crossing ♣ DACOM Multimedia Internet ♣ CS ONE Partner ♣ LG CNS ♣ LG N-Sys ♣ V-ENS ♣ BIZTECH & EKTIMO ♣ Ucess Partners ♣ SERVEONE ♣ LG International ♣ TWIN WINE ♣ Geovine ♣ pixdix ♣ Korea Commercial Vehicle ♣ LG Solar Energy ♣ G2R ♣ HS Ad ♣ Twenty Twenty This is example of company with “single business strategy” Company:AMD Single business: 95% or more of firm revenues comes from a single business. communications and consumer electronics markets. and sales offices throughout the world. (AMD) is a semiconductor company that designs. Advanced Micro Devices. Inc. manufactures and markets microprocessors for the computing. The company also markets embedded microprocessors for personal connectivity devices and other consumer markets. The leading semiconductor company has manufacturing and testing facilities in the United States. Europe and Asia.

* acept production shoes. It is maker of candy under the Snickers. Mars Inc. CNG. Vigas. PT Matahari Putra Prima Tbk. Wrigley’s Spearmint.Related: PT. Propyline. As the first quarter of 2008. Wrigley also sells candies. agreed to buy Wrigley Corp. * Gas: LPG. Sulfur . Musicool * Lubricants: * Fastron is the engine lubricating oil * Prima XP SAE 20W – 50 is produced by Pertamina lubricant for engines * Mesran Super SAE 20W-50 is a gasoline engine oil * LEVELS 2T Super-X.39 billion and net income of $632 million.because disneyland also have disneyland in hongkong and they also production carton character in walt disney Wrigley is one of the world’s largest makers of chewing gum and candy. C. The company’s well-known gums include Juicy Fruit. * 2T Enviro is the lubricant of vehicle 2 was with gasoline fuel * Enduro 4T * Meditran * Rored * Petrochemicals: Pure Teraphithalic Acid (PTA). Matahari Putra Prima already has 79 department stores. is a retail company in Indonesia which is the owner of the supermarket chain Hypermart.shirt and bag they also production basket ball. Big Red. Benzene. Pertamax * Pertamax Plus * Biopremium. Freedent. HVI 160. The company’s products are sold in 180 countries. for $80 per share or $23 billion. Single Business -Examples of companies using a single business that is NOKIA only focus on its mobile products … NOKIA Revenue gained 95% of Mobile Products B. 38 hypermarkets. Pertamina DEX * Kerosine * Non-oil: Minarex. Green Coke. HVI 90. 31 supermarkets. Extra. Premium. mints and breath strips under the Life Savers. Orbit and Excel. Lube Base. Creme Savers. when the deal is completed. In 2007. LPG. Fuel Gas (CNG). meproduksi: * Fuel Oil: * Biopertamax. Hubba Bubba. Asphalt. A. Altoids. Diversification Level Moderate to Tingg: Constrained-1. the company had revenues of $5. a state that is responsible for managing the extraction of oil and gas in Indonesia. 46 pharmacy outlets. PERTAMINA (Persero).please give example of company for ‘dominant diversification’ ? answer: NIKE people know that nike has famous brand. Mars Inc. Dominant Business -For example. Bio Diesel. Wrigley will become a private company and part of Mars Inc. Doublemint. M&Ms and Milky Way brands. and more than 88 family entertainment in over 50 cities in Indonesia. Eclipse. food and petcare products and has growing beverage and health & nutrition businesses. In April. Paraxyline. Pim Pom and Solano brands. answer: DISNEYLAND. is a family owned company that produces some of the world’s leading confectionery.

Coal: 2.Infrastructure Conglomerates Bakri Brother is because having an income of less Of the 70% of unrelated diversification strategies .2.Metal 7..Oil and Gas 4. Personal Care and Food . Related linked (mixed related and unrelated): Examples: PT WINGS who Producing Household Cleaners. .Agribusiness: 3. This company manufactures many items not related to each other but to own less than 70% Revenue D.Property 6.Telecomunications 5. Diversification of Higher Level Examples of Bakrie Brothers Who Have Many businesses such as: 1..

Sign up to vote on this title
UsefulNot useful