1. DIVERSIFICATION STRATEGIES

2. WHY To spread the business risk of being in a single industry
Bijay KC, SAIM College
WHY
To spread the business risk of being in a single industry
Ups and downs in the environmental and industry factors affect the industry
Shareholders get high returns constantly despite of the fluctuations in the market trend of a particular industry

3. TYPES OF DIVRSIFICATION
Bijay KC, SAIM College
TYPES OF DIVRSIFICATION
Diversification into related business: (Concentric Diversification)
Value chains fit strategically across the businesses.
e.g. Hotels, restaurants, travel agents, trekking, tours
Diversification into unrelated business: (Conglomerate)
Value chains are completely different across the businesses

4. DIVERSIFICATION INTO RELATED BUSINESS
Bijay KC, SAIM College
DIVERSIFICATION INTO RELATED BUSINESS
Transferability of technical and other
know-how
Lower cost by combining activities into common operation
Exploitation of common brand name
Creating valuable resource strengths and capabilities

5. DIVERSIFICATION INTO RELATED BUSINESS
Bijay KC, SAIM College
DIVERSIFICATION INTO RELATED BUSINESS
A firm needs to go for diversification when
The industry growth is slow or zero
Sales can be increased substantially
Competitive price advantage can be obtained
Technical and other knowhow can be enhanced
Core competence can be strengthened

6. DIVERSIFICATION INTO UNRELATED BUSINESS
Bijay KC, SAIM College
DIVERSIFICATION INTO UNRELATED BUSINESS
Companies go for unrelated business when:
The other company’s assets are undervalued
The other company is in financial distress
The other company has high growth potential but is short of investment capital
The other company has inefficient management

7. DIVERSIFICATION INTO UNRELATED BUSINESS
Bijay KC, SAIM College
DIVERSIFICATION INTO UNRELATED BUSINESS
Increases revenue and helps shareholders to earn consistent high returns
The existing industry has slow or no growth
The sales across businesses are countercyclical
The organization has strong management team and experience
Financial synergies can be achieved between the acquiring and acquired firms

8. PROBLEMS Diversification into unrelated business has mostly failed
Bijay KC, SAIM College
PROBLEMS
Diversification into unrelated business has mostly failed
It is difficult to manage dissimilar business activities effectively
Core competencies and activities can be diluted
Vested interest of management can prevail
‘Stick to the knitting’ (In search of Excellence)