STRATEGIC MANAGEMENT

TOPIC-DIVERSIFICATION
WHAT IS DIVERSIFICATION ?

• Diversification strategies are used to extend the company’s

product lines and operate in several different markets. The
general strategies include vertical and horizontal
diversification.
• Diversification strategies help to increase flexibility and
maintain profit during depressed economic periods.
 VERTICAL DIVERSIFICATION

• A vertical diversification strategy lets a firm to add similar

products to an already established business. For example, when
a computer company producing personal computers using
towers starts to produce laptops. The technical knowledge for
new venture comes from its current field of skilled employees.
• Vertical diversification strategies are rampant in the food
production industry. For example, a ketchup manufacturer
starts producing salsa, using its current production
facilities.
EXAMPLES:

Target Corporation

An example of a company that is vertically integrated is

Target Corporation, which has its own store brands and 
manufacturing plants. They create, distribute, and sell their
products- eliminating the need for outside entities such as
manufacturers, transportation, or other logistical necessities.
ZARA-

Another popular example of Vertical diversification and its

successful implementation is the hugely popular globally
renowned clothing brand ZARA.
• The company manufactures the merchandise in its own units
and design also is done in-house.
• Due to such an integrated the company has the fastest
inventory turnover compared to its peers which enable the
company to achieve superior profits and keep a competitive
advantage in the clothing brand industry.
 HORIZONTAL DIVERSIFICATION

• Horizontal diversification allows a firm to start exploring

other zones in terms of product manufacturing.
• If your company decides to add products or services that are
unrelated to what you offer currently, but may meet some
more needs of your existing customers, this is known as
horizontal diversification.
• Companies depend on current market share of loyal
customers in this strategy. For e.g. when a television
manufacturer starts producing refrigerators, freezers and
washers or dryers, it uses horizontal diversification.
• The company has to leverage on the brand loyalty
associated with current products. This is dangerous since
new products may not achieve the same favor as the
company’s other products.
Walt Disney

Walt Disney Company successfully diversified

from its core animation business to theme
parks, cruise lines, resorts, TV broadcasting,
live entertainment, and more.
 
 WHY DO COMPANIES DIVERSIFY

Companies Diversify:
• For growth in business operations to achieve greater profitability
through expansion
• To ensure maximum utilization of the existing resources and
capabilities
• As a defense mechanism to protect a company from strong
competition
• Allows a company to minimize the risk of an industry downturn
 CONCLUSION

A diversification must be a well thought out step for an

entity. It can boost the growth of the firm thereby leading it
towards wealth maximization. However, it can also prove to
be a costly failure for certain entities. A detailed analysis of
the potential market must be conducted before opting for
diversification.