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Strategy

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Venkatesh Kg
Venkatesh Kg

This document discusses unrelated diversification strategies for companies. It provides examples of large conglomerates that have diversified into unrelated industries, such as Berkshire Hathaway, Virgin, Reliance Industries, and General Electric. Factors that influence the choice of unrelated diversification strategies include financial robustness, industry profitability, co-insurance effects between firms, firm characteristics and strategies, and the general economic environment. The document recommends that companies carefully analyze market potential and compatibility when diversifying into new, unrelated industries to create value through economy of scope and addressing potential gaps compared to competitors.

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Unrelated Diversification Submitted by: ANUJ KHANDELWAL VENKATESH K G MANPREET KAUR ENA SEHGAL CHINTAN PARESH BHUVA
Unrelated Diversification: Don’t put all your eggs in one basket! • Diversifying into completely different industry from the firm’s current operations.These may • By building a portfolio of stocks, an investor can minimize the chances of suffering huge loss. Some organizations and executives take a similar approach. Rather than trying to build a synergy across businesses, they seek greater financial stability for their firms by owning an array of companies. • Warren Buffet’s Berkshire Hathway,Virgin Conglomerate, Reliance Industries, General Electric,Tata Sons are some of the examples.
Factors Influencing Choice of Unrelated Diversification Strategies • Financial Robustness: Risk aversion due to diversification into multiple companies • Industry Profitability: Current needs of the market & Future prospects of the industry. • The Co-insurance Effect:The lesser performing firm get financial support from other firms in the conglomerate. • Firm Characteristics & Strategies: Organization processes and compatibility between the firms. • General Economic Environment: Availability of resources and institutions have a significant impact on a company’s strategy, it also influences the choice and the direction of corporate diversification.
Analysis •Turbulent Market Condition: During turbulent market situation, since conglomerate having monopoly in various verticals would further fuel this. So fragmentation of this has to be promoted. •Unrelated diversification can be considered if their exist organizational process fit between the existing firm and the considered firm. •For a few conglomerate, its internal structure might show the transfer of funds from the parent firm to the acquiring firm to maintain the operation of the acquired firm.This might look illogical because the parent firm is effectively loosing money. However the strategy might be different like getting tax benefit, better future prospects of the acquired business.
Recommendation • Group BrandValue: For a developing nation, a group’s brand value helps it to reach a wider audience. • Alignment of organizational process with the choice of business has to taken care. • Before doing unrelated diversifying to a new industry/ vertical, care has to be taken such that it has good market potential and maintains good compatibility with the existing firm. • While doing unrelated diversification, economy of scope can be considered so that the resources can be shared and creates synergy. • For unrelated conglomerates to create more value, proper analysis has to be done to see what competitors are doing and what is the present potential gap.
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Strategy

  • 1. Unrelated Diversification Submitted by: ANUJ KHANDELWAL VENKATESH K G MANPREET KAUR ENA SEHGAL CHINTAN PARESH BHUVA
  • 2. Unrelated Diversification: Don’t put all your eggs in one basket! • Diversifying into completely different industry from the firm’s current operations.These may • By building a portfolio of stocks, an investor can minimize the chances of suffering huge loss. Some organizations and executives take a similar approach. Rather than trying to build a synergy across businesses, they seek greater financial stability for their firms by owning an array of companies. • Warren Buffet’s Berkshire Hathway,Virgin Conglomerate, Reliance Industries, General Electric,Tata Sons are some of the examples.
  • 3. Factors Influencing Choice of Unrelated Diversification Strategies • Financial Robustness: Risk aversion due to diversification into multiple companies • Industry Profitability: Current needs of the market & Future prospects of the industry. • The Co-insurance Effect:The lesser performing firm get financial support from other firms in the conglomerate. • Firm Characteristics & Strategies: Organization processes and compatibility between the firms. • General Economic Environment: Availability of resources and institutions have a significant impact on a company’s strategy, it also influences the choice and the direction of corporate diversification.
  • 4. Analysis •Turbulent Market Condition: During turbulent market situation, since conglomerate having monopoly in various verticals would further fuel this. So fragmentation of this has to be promoted. •Unrelated diversification can be considered if their exist organizational process fit between the existing firm and the considered firm. •For a few conglomerate, its internal structure might show the transfer of funds from the parent firm to the acquiring firm to maintain the operation of the acquired firm.This might look illogical because the parent firm is effectively loosing money. However the strategy might be different like getting tax benefit, better future prospects of the acquired business.
  • 5. Recommendation • Group BrandValue: For a developing nation, a group’s brand value helps it to reach a wider audience. • Alignment of organizational process with the choice of business has to taken care. • Before doing unrelated diversifying to a new industry/ vertical, care has to be taken such that it has good market potential and maintains good compatibility with the existing firm. • While doing unrelated diversification, economy of scope can be considered so that the resources can be shared and creates synergy. • For unrelated conglomerates to create more value, proper analysis has to be done to see what competitors are doing and what is the present potential gap.