Hoàng Ngọc Linh – EBBA 11.

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EXCERSE 1. What are the internal incentives for choosing an unrelated diversification
strategy (at corporate-level)?

Unrelated Diversification is a form of diversification when the business adds new or

unrelated product lines and penetrates new markets. An unrelated diversification
strategy directs financial investments into sectors with good profit prospects in the
portfolio rather than pursuing expansion into the firm's existing value chain.

The unrelated diversification is based on the concept that any new business or
company, which can be acquired under favorable financial conditions and has the
potential for high revenues, is suitable for diversification. This is essentially a financial
approach; it is implemented when the research determines that this unrelated
diversification in a completely new field would bring significantly higher revenues
compared to the related diversification on the basis of similar products, services,
markets or complementing strategie.

An unrelated diversification strategy contributes to reducing business risks and

expanding the market size. For many people, diversification means increased revenue.
For others, diversification means reducing risk. Choosing an unrelated diversification
strategy so that a loss in an area will not affect to a financial disaster of the company.

Companies can adopt this strategy in the following cases

- When the sales of the company's current products or services can increase significantly
by adding new (unrelated) products or services.

- When an organization’s present channels of distribution can be used to market the

new products to current customers.

- When the company has a low growth rate

- When the consumption of goods for a new product moves in the opposite direction
with the current product of the enterprise.
- When an organization’s basic industry is experiencing declining annual sales and
profits.

- When the company's basic business tends to decrease annual output and profit.

- When a company has the capital and managerial competencies needed to successfully
compete in a new business.

- When the current market for the company's goods and services has declined

- When antitrust action could be charged against an organization that historically has
concentrated on a single industry

EXCERSE 2: Give some practical examples (of real companies) to support your
answers above.

1. According to CEO Geoffrey Booth, the Zippo is viewed by consumers as a “rugged,

durable, made in America, iconic” brand. This brand has fueled eighty years of
success for the firm. But the future of the lighter business is bleak. Zippo
executives expect to sell about 12 million lighters this year, which is a 50 percent
decline from Zippo’s sales levels in the 1990s. This downward trend is likely to
continue as smoking becomes less and less attractive in many countries. To save
their company, Zippo executives want to diversify. As of March 2011, Zippo was
examining a wide variety of markets where their brand could be leveraged,
including watches, clothing, wallets, pens, liquor flasks, outdoor hand warmers,
playing cards, gas grills, and cologne.

2. FPT Corporation was formerly known as a software development company. When

this company achieved high profits, success and reputation, they decided to
diversify their business into other areas. One of them is the education sector.
Investment in this field has helped them increase profits, have a good reputation.
And most importantly, the company has a large and high quality human resource.
They are excellent students who invited to the company