What do you understand by diversification as a growth strategy? Explain the two types of diversification.

Question - What do you understand by diversification as a growth strategy? Explain the two types of diversification. Illustrate your point with the help of two examples for each type of diversification.

Answer - Diversification is about adding new products and services so that it develop benefits for an organisation by providing a competitive advantage (Castaldi and Giarratana, 2018, p.354, (3)). Diversification strategy is about implicating new planning and innovation in product, service, branding activities and other sectors as creativity or innovation are the key factors that differentiate an organisation from others so that significant value is created among customers and other stakeholders. Thus, the diversification strategy causes business growth. However, the diversification strategy is needed to be implicated strategically so that it can be effective else this can be risky.

The most common two types of diversification are concentric diversification and horizontal diversification. The concentric diversification strategy is about the introduction of a new product that is related to the existing products (Masruro et al., 2020,p.5(5)). In order to have growth diversification plays a key role. However, the introduction of a new product that is not related to the existing ones is quite risky as the customers may not appreciate the whole new product. For instance, Premier Inn is a leading UK based hotel and the parent organisation is Whitbread has entered into a new market of Germany with their new product that is their German cuisine with the British twists. Hence, they have used concentric diversification as this organisation has introduced their products that are related to their existing products which are their quality food ranges. Hence, the organisation is growing significantly in Germany having a strong customer base and they have opened 32 hotels (Whitbread, 2022a).

Horizontal diversification is about the introduction of the new production order to generate new value and capture the configuration that is required for business model diversification (Geissdoerferet al., 2018, p.169(1)). However, here the new products are not fully related to the existing product line and cater to the existing customers. Hence, in any case, it is quite similar to product development. However, this kind of diversification is beneficial for an organisation as here an organisation serve the new product to their customers who are already loyal towards the organisation so that the risk is low here. For instance, Aston Martin has targeted to launch their EVs as a new product line as they do not have any existing products in the EV section (BBC, 2022). However, Aston Martin has planned to launch it in the UK initially that defines their existing market. Hence, this way the organisation is using horizontal diversification.

What do you understand by diversification

Related :-

Q How does hedging arrangement reduce foreign currency risk exposure how does hedging arrangement reduce foreign currency risk exposure - HI6025 - How does it reduce the foreign currency risk exposure

Q Provide explanation for capitalising the expenses provide explanation for capitalising the expenses - discuss and explain if an entity is considering revaluing its exploration and evaluation assets.

Q Determine the interest rate implicit in the lease determine the interest rate implicit in the lease - HI6025 - Calculate the basic EPS for ABC Ltd for the year ending 30 June 2023

Q Calculate beta for stock G calculate beta for stock g - Use the single index model to compute the covariance between stocks G and H

Q What the minimum risk combination of two assets what the minimum risk combination of two assets - If the assets are perfectly negatively correlated, what is the minimum risk combination of the two assets?

Q Has any goodwill been acquired has any goodwill been acquired - discuss the potential for including associated legal fees into the cost of acquiring RedCarpet

Q Treatment for assets that are not qualifying assets treatment for assets that are not qualifying assets - Explain the qualifying asset and how do we treat exchange rate differences

Q Derive the standard version of CAPM derive the standard version of capm - Does the multi-index model predict returns better than the single-index model? Explain

Q Explain the momentum effect explain the momentum effect - determine if stock prices respond efficiently to information. What did Fama find?

Q Explain the test by Litzenberger and Ramaswamy explain the test by litzenberger and ramaswamy - Explain the test by Litzenberger and Ramaswamy of the Post-Tax (i.e. after-tax) form of CAPM