Diversification.pptVIP

* University of Cagliari, Faculty of Economics, a.a. 2012-13 Business Strategy and Policy A course within the II level degree in Managerial Economics year II, semester I, 6 credits Lecturer: Dr Alberto Asquer aasquer@unica.it Phone: 070 6753399 Business Strategy and Policy Lecture 6 Diversification Strategy Introduction 1. What is diversification? 2. Why do firms diversify? 3. How do firms enter a new business? 4. Where do firms diversify? - - - - - - - - - - - - - 5. Summary 1. What is diversification? Diversification consists of expanding the range of business activities carried out by a firm away from the present product line and market structure Diversification involves: Search and selection of new business areas Formulation and implementation of an entry strategy Search and activation of synergies between business areas Definition of priorities for the allocation of resources among business areas 1. What is diversification? Diversification through the development of new products delivered in new markets (Ansoff, 1957) Current product X New product X1 Another new product X2 New product Y .... Current market A New market A1 Another new market A2 .... Market penetration Product development Market development Diversification 1. What is diversification? Diversification may be also directed towards the input market, often through the acquisition of a supplier (upstream vertical integration) Output market Current product X Firm Input market Supplier Supplier Supplier Supplier Supplier Upstream integration e.g., oil refinery into oil extraction 1. What is diversification? Diversification may be also directed towards the output market, often through the acquisition of a supplier (downstream vertical integration) Firm Output market Client Client Client Client Client Downstream integration e.g., movie makers into movie distribution 2. Why do firms diversify? Diversification allows the firm to grow rapidly by expanding operations into new b