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The Importance of Diversification - Essay Example

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Three growth strategies that the company can pursue are market development, diversification, and product development. Market penetration involves increasing the market share of the company in its domestic market. The firm can increase its market share by offering its customers a better value proposition…
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The Importance of Diversification
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Diversification involves adding new products from different industries (Investopedia, 2013). For instance Tuscan Treasures can add to its product line the sale of vacation packages and cruise trips. In 2011 the global tourism industry generated revenues exceeding one trillion dollars (Berwyn, 2012). The use of a diversification strategy lowers the business risk of the company, while at the same time increasing its income streams. The third growth strategy the firm must use is product development. The company can introduce its own line of decorative products. These products are going to be unique and different because they will be made using banana ply paper as the raw material. Banana ply paper is a renewable source that comes from the trunks of the banana trees. The owner of the patent is the company Papyrus Australia. This company offers licensing agreement to companies interested in sponsoring its product to become business partners. Decorative products are a complimentary product to furniture that will increase the overall revenues of the firm. It is important to properly market the new green product through different marketing channels such as the internet, television, satellite radio, and mobile technology.
The company is suffering from profitability problems. There are a variety of factors that could be causing the firm’s inability to generate profits. Profitability issues typically involve either declining sales or increasing costs. The company’s sales must be sufficient to cover all fixed and variable costs. If the expenses of the company exceed its revenues the company will incur in net losses. The firm must determine its breakeven cost to ensure the sales projections of the company exceed that number. A way to boost the sales of the company is by investing in advertising. The poor profitability of the company may be associated with high costs. The company must perform a cost analysis to evaluate the payroll obligations of the company. The analysis should provide information regarding whether the company is overpaying its employees and to determine if the firm could operate with a smaller workforce. Investment in new technologies can increase the efficiency and profitability of the business. New technology can also reduce labor costs. A second element of the cost structure of the company that must be evaluated is its materials costs. The market must be analyzed to determine if a suitable supplier of Italian furniture is available that offers lower prices than the firm’s current suppliers. Lowering materials costs will reduce the cost structure of the firm and raise profitability. Another reason the profitability of the company may be suffering is a lack of productivity. Low employee morale or a lack of motivation can hinder the productivity of the workers. The managers of the company are responsible for motivating the staff. A way to increase the motivation of the workers is by offering intrinsic and extrinsic rewards. An example of an intrinsic reward is a manager telling a subordinate they did a great job during a work day. Offering positive reinforcement can increase the confidence of the workers. Giving financing incentives such as a Christmas bonus is an example of an extrinsic reward. Part C The downsizing initiative of the firm must be well planned and executed in an effective manner. The company must keep the information about the strategy internal to avoid hurting ...Download file to see next pagesRead More
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