From Single-Business to Diversification

1
From Single-Business to Diversification

• Stage 1 - Single-business serves a local or
  regional market
• Stage 2 Geographic expansion
• Stage 3 Vertical integration
• Stage 4 Growth slows so the business diversifies

2
The Growth Matrix

• Products
• Present New
• M
• a Present
• r
• k
• e New
• t
• s

Market
Product Penetration
Development Market
Diversification Development
3
Market Penetration

• Use when markets are not saturated with an
  organizations products
• Use when the usage rate of present customers can
  be increased
• Use when the market shares of the major
  competitors has been declining
• Use when the relationship between sales and
  marketing expenses is high
• Use when increased economies of scale provide the
  opportunity for competitive advantages

4
Product Development

• Use when the organization has successful products
  that are in the maturity stage of the product
  life cycle. The objective is to attract
  satisfied customers to try new, improved products
• Use when an organization competes in an industry
  that is characterized by rapid technological
  change
• Use when competitors offer better quality
  products at comparable prices
• Use if the organization competes in a high-growth
  industry
• Use when the organization has strong research and
  development capabilities

5
Market Development

• Use when channels of distribution are available,
  reliable and inexpensive
• Use when the organization is very successful in
  what it does
• Use when the organization has excess production
  capacity
• Use when the organization possesses the needed
  capital and human resources to manage the
  expanded operations
• Use when unsaturated markets exist

6
Diversification

• Use when entering new industries
• Acquire an existing company in the target
  industry
• Start a new company internally
• Form a joint venture
• Acquiring an existing company
• Quick entry into target market
• Able to hurdle entry barriers
• Technological inexperience
• Gain access to reliable suppliers
• Being of a size to match competitors in terms of
  efficiency and costs
• Get distribution access

7
Start a New Company

• Use when ample time exists to enter by starting
  from scratch
• Use if existing competitors are slow to respond
  to changes in the industry
• Use if it is more economical to start from
  scratch rather than acquiring an existing company
• Use if the organization already has most of the
  needed skills
• Use if additional capacity will not adversely
  impact the industry
• Use when the new company doesnt have to go
  head-to-head against powerful competitors

8
Joint Ventures

• Use when it is too risky to go it alone
• Use when pooling competencies of partners
  provides a stronger competitor
• Drawbacks
• Which partner will do what
• Who has effective control
• Potential conflicts
• Sourcing of components
• Control over cash flows and profits
• Whether operations should conform to one partner
  or the other