New products for new markets - Strategic Management

Diversification : Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

A further generalisation can be made about synergy in diversification. It is likely to be higher in horizontal or vertical diversification than in unrelated diversification. These terms are illustrated in Figure. Vertical diversification is integration backwards towards the raw material or forwards to the ultimate consumer.Horizontal diversification is moving towards activities on the same level in the chain, but which have common consumers or distribution channels. Unrelated diversification is moving into something which has nothing in common with the present business. Each is subject to a different pattern of risks.

Types-of-diversification

Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations. When the new venture is strategically related to the existing lines of business, it is called concentric diversification. Conglomerate diversification occurs when there is no common thread of strategic fit or relationship between the new and old lines of business; the new and old businesses are unrelated.

Synergy


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Strategic Management Topics