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Diversification Strategy - Essay Example

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This paper will critically examine the argument that firms in emerging economies should pursue a diversification strategy because this corporate strategy may have a positive impact on their organization as it generally contributes to wealth creation…
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Diversification Strategy
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Download file to see previous pages This research tells that in order to survive in today’s market and especially when SMEs experience high competition from the rival companies or a decline in their profit levels, a diversification strategy will be of great importance to the continuity of the SMEs. Emerging economy firms tend to expand culturally, geographically and economically. As such, diversification may enable these firms to gain various benefits. Diversification entails three dimensions: the product, the market, and the technology of the firm. Another definition by Chandler is that diversification refers to the simultaneous departure from the present product line and the present market structure. Also, Ansoff defined diversification as entailing product, market, and change in the role of the management of the firm. During this process, a firm has to acquire new competencies, skills, and techniques both for the new market and the also for the new product. He further emphasizes that the firm has to engage in changing the role of management of the firm. Further, Grandstand defined technology diversification as a move in which the firm improves the performances or the number of functionalities of existing products through the use of new technology. Therefore, diversification can also be defined as the process by which a firm enters into a new market, without essentially leaving its obtainable products, such that it produces a new product or products. This strategy needs a change in the organization; it should also develop new technologies within the firm. In addition, Rumelt implied that there is global diversification which is defined as a strategy of locating production activities in foreign jurisdiction that are relatively diverse in terms of legal structures, national cultures, ways of doing business, planning and implementation of international manufacturing, which is a process that deals with issues that arise when SMEs firms in emerging economy locate production facilities in a particular site. ...Download file to see next pagesRead More
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