The related linked diversification strategy

oRelated Linked Diversification Strategy: firm generates more than 30% of its revenue outside a dominant business (less than 70% comes from dominant) and​.
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The CAGR Western software companies had not historically introduced localized versions of software in China.

Related Diversification

So, in order to capture the market Microsoft had to introduce the software in local versions. Localization is the concept of adaptation of software to specific locales. It is a complicated process, which involves various tasks. Microsoft in signed its first OEM agreement in Taiwan, home of over 3, PC systems and component manufacturers, before opening an office in Five years later Microsoft opened an office in China.

A small company can often create or enter a market area and do well with an innovative product. As the market matures, however, the necessity for a strong service organization becomes important. The smaller firm might then consider joining forces with a larger firm which has a service organization that can be adapted to the involved product. Typical example is the Bluetooth technology of Blackberry. Godrej is marketing the mosquito repellent Good knight and mango juice Jumpin, which are typical products of small entrepreneurs.

One type of resources that is often easily exchanged is excess capacity.


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Related diversification can sometimes provide economies of scale. Two smaller consumer product firms, for example, may not be able to afford an effective sales force, new product development or testing programme, or warehousing and logistics systems. However, the two firms together may be able to operate at an efficient level. Similarly, two firms when combined may be able to justify an expensive piece of automated production equipment. Even related diversification can be risky.

There are three major problems. Strategists delude themselves that there is a synergistic justification not on the basis of judgement supported by a thorough external and self-analysis, but by manipulating semantics.

Diversification, related and unrelated

Second, potential synergy may exist but is never realized because of implementation problems. Third, possible violations of antitrust laws in the west and MRTP Monopolies and Restrictive Trade Practice law in India create an additional risk when an acquisition or merger is involved. Ironically, as the degree of relatedness and the synergy potential increase so does the possibility of an antitrust or MRTP problem.

Jet Airways and Sahara deal is a typical example. Jet Airways has extended its service to the mass market under Jet Lite. Similarly, Kingfisher acquired Air Deccan and symbolically kept the Kingfisher logo in the wings and POS outlets in the country, which includes all post offices and petrol pumps. Reliance entered into retailing by allocating Rs25, crore in a phased manner is a typical example.

Unrelated diversification can balance the cash flows of SBU entities.

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A firm, which has many SBUs that merit investment might buy or merge with a cash cow to provide a source of cash. The acquisition of the cash cow may reduce the need to raise debt or equity over time, although if the cash cow is acquired, resources will need to be expected. The reservation system is a remarkable attempt to reposition the image of the Indian industry. One approach is to enter high growth business areas. According to life style consumption study by Edelweiss Securities, organized retail trade in India is now finding its feet.

Its share in the total retail pie is set to increase from the current 2 per cent to about 10 per cent by This will translate into approximately Rs1, billion of retail trade by Figure 8. The study further says retail space is expected to increase from 10 million sq.

related linked diversification strategy, only

Significant growth in organized retailing during the next three years is expected in the metros and mini-metros through better performance of the existing stores, as well as opening of new stores. Rumelt, , p. Indivisibilities occurring at different levels of output in the respective production stages may require an extremely large final output if potential economies of scale are to be fully exploited. Also, the dominant-vertical firms had the lowest average return on capital employed of any strategic category Rumelt, , p. Petroleum is an obvious exception.

Xerox operates in a highly technological environment, but was a dominant product firm in In distinguishing between science-based and non-science-based industries, the following industries were classed as science-based in each case; aerospace, chemicals, pharmaceuticals, engineering light, heavy and electrical.

The following industries were treated as non-science-based; food, drink, tobacco, petroleum, metals, materials and minerals, vehicles excluding aircraft , textiles and clothing, glass, shipbuilding, paper and packaging printing and publishing. Amey bases his use of the T-ratio on the fact that one reason commonly cited for the apparent growth of diversification has been the tremendous increase in the amount of organised research carried on within firms , p.


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    5. See Sutton and Grant for further discussion. The other variables were firm sales, after tax profits and patents per scientist and engineer. Neil M. Kay There are no affiliations available.

    Diversification Strategies – Mastering Strategic Management

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