The Need for Diversification Strategy - Essay Example

? Foreign Market Entry & Diversification of the of the Foreign Market Entry & Diversification Introduction Diversification is known as the process by which a company spends to offer new products and enter new markets, by way of corporate acquisitions or investing directly in new business. There are two types of diversification depending on whether there is any relationship between new and old business of the company .The reason that companies are diversified is the search for synergies or a reduction in the overall business risk. Diversification is one of four marketing strategies defined in the Ansoff matrix. The paper discusses the need for diversification strategies of the companies that adopt means and methods to excel in their respective industry and reap untapped profits from the market. Specifically speaking about the diversification strategies of Amazon and Campbell Soup Company, the discussion assesses the company overview and performance along with the outcomes of their implied diversification strategies. Discussion The diversification strategy is that the company adds new products and simultaneously existing markets. This access to new activities, either by internal or external growth the company does operate in competitive environments, new result is a set of physical and organizational changes affecting the structure of the company and represents a clear break with its past history Kenny, G., (2009). 1. A combination vertical merger implies that control various stages of production the same product. 2. A horizontal combination is one formed by companies in an industry that develop same products. Part 2 & 3 To address these two parts of the assignment we are taking example of Amazon and are going to describe its diversification strategy for entering in the foreign market Overview It was Jeffrey Bezos after leaving his job as a programmer on Wall Street, has set the objective to build the best online store in the world (not the first, the best) with an obsessive idea: given to the buyer as the best trading experience. And he founded in 1994 with based in a garage in Seattle - USA, the company Amazon as the first virtual library on the Web. Today is an online retailer of books, music and more, offering services that traditional retailers cannot offer low prices, selections and large well-documented information about the products. According to Bezos, the future of the electronic sale is in the identification of supply, for example, the buyer is setting out the products that best fit your tastes based on their previous purchases .Their policies are strategic expansion and diversification, since Amazon does not want its brand associated with a product category, but is associated with the idea that works for customers. Assessing the Success Amazon successfully adopts the strategy of vertical diversification and effectively collaborates with the suppliers, customers and all other stake holders who are related with the company. Indeed, Amazon was the first to explicitly numbered line every step of the process and accompanies their clients to visit them. Amazon created the Amazon's Publisher's Advantage with other publishers. Amazon has managed to revolutionize the market, thanks to a surprising relationship management with the customer and the supplier (Doebeli, M., 2011). Amazon follows the principles of convenience and peace of mind by ensuring customers the security of purchases. It was the first site to accept online credit card (explaining in detail its operation) and for customers who are still wary, offers e-mail or fax as an alternative method to provide the information in your credit card. Amazon has done an excellent job in recruiting and satisfaction of stakeholders: publishers, distributors and other online retailers. Since all find it easy to operate with Amazon, the overall customer experience improves substantially. The secret lies in attracting Amazon customer information to learn more and grow faster. For the first time since its creation, Amazon.com was able to gain a full fiscal year and yet a week ago has been dropping their action (Wolf, R., 2004). Another strategy of diversification relates to the concentric diversification. this strategy is the recent action of Amazon Inc. to sell PCs through its online store, but instead of keeping computers in its warehouses, Amazon simply transmit orders from computers to the company selling wholesaler to Amazon so that minimize their own risk in this initiative to diversify. Part 4 When a company goes for diversification it has to face a number of challenges and hurdles, these challenges may vary from one country other and from one sector to other. Broadly there are some major challenges that usually come across to an organization in the process of diversification such challenge includes; regulatory challenges, employee arrangement challenges, ethnic, cultural and socio economic challenges. Organization may guard themselves against the negative implication of such challenges by adopting regional strategies and by setting organization practices that suits the local environment most. In addition, recruiting of locals also help organization to protect themselves against the risk of such challenges. Part 5 To address this answer we have presented a real time example of poor diversification Unsuccessful Diversification at Campbell Soup Company Campbell Soup’s core operations include manufacturing and manufactures and markets foods and simple meals, including baked snacks, soups and sauces, and hale and hearty beverages. The marketing of products is done in U.S. The company employees around 18,400 people and Head quartered in Camden, New Jersey. By the end of year, Jul. 2010, company recorded sales revenue of around USD 7,676 million, which was an increase of 1.2% in comparison to year 2009. The decrease was caused by the mix of lower volume and unfavorable movement in currency. In FY 2009, the company made an operating profit and net profit of around USD 1,348 million and USD 844 million respectively. Operating profit and net profit increased by 13.8% and 14.7% respectively The diversification plan which started in 1970s organized the business for long-term growth. Campbell understood that the solution to growth in this established market was through diversification. In June 1980, the company started use of debt and entered debt market with a $100 million ten year loan. McGovern promoted increased stress on marketing and new product development to reduce production-oriented focus. His support of NPD and line extensions may have been over enthusiastic. In all, Campbell brought 334 new products in 1980s. This included numerous costly blunders, like the 1984 collapse of Pepperidge Farm's Star Wars cookies. In 1985, the business decided to curb on new product ventures and McGovern re-established his objectives and revisited the company's centre of attention to efficiency and product quality. It became gradually clearer that McGovern's plan was meant to be unsuccessful. Acquisitions and group formations continued but at a slower rate. Johnson applied a back to basics approach that called for dire reformation. Following are the outcomes of the unsuccessful diversification strategy: 1. The diversification strategy was over enthusiastic. 2. Use of debt for diversification has left the company with high debt ratio 3. Poor product acquisitions lead to harm of reputation and brand image due to product recalls Part 6 Organizations may ensure an ethical conductive environment by following the regulatory requirements of the country in which it operates its business. However, fair practices may also play critical role in the overall development of ethical environment. Conclusion Finally, it may be concluded that diversification is a useful techniques in mitigating the risk and in enhancing the market share in the foreign markets. A number of advantages and disadvantages are associated with the diversification strategy. Therefore, in depth research of all factors is very essential in ensuring the success of diversification. References Markides, C., (1995), Diversification, Refocusing, and Economic Performance; MIT Press, retried from < http://books.google.co.uk/books?id=31o9Jnh8UUgC&dq=diversification&source=gbs_navlinks_s>, 13th November, 2013 Kenny, G., (2009), Diversification Strategy: How to Grow a Business by Diversifying Successfully; Kogan Page Publishers, retrieved from < http://books.google.co.uk/books?id=PRrbeA_e0egC&dq=diversification&source=gbs_navlinks_s>, 13th November, 2013 Doebeli, M., (2011), Adaptive Diversification (MPB-48); Princeton University Press, retrieved from < http://books.google.co.uk/books?id=-TCnnojj6hcC&dq=diversification&source=gbs_navlinks_s>, 13th November, 2013 Wolf, R., (2004), Synergy is the only justification for a firm's diversification. Discuss; GRIN Verlag, retrieved from < http://books.google.co.uk/books?id=eXdQtU4cnJAC&dq=diversification&source=gbs_navlinks_s>, 13th November, 2013 Read More