Corporate strategy and diversification.docx - Corporate...
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Corporate strategy and diversificationCorporate strategy directions•Diversificationinvolves increasing the range of products or markets served by an organisation.•Related diversification involves expanding into products or services with relationships to the existing business.•Conglomerate (unrelated) diversification involves diversifying into products or services with no relationships to existing businesses.Market penetration implies increasing share of current markets with the current productrange.This strategy:•builds on established strategic capabilities; •means the organisation’s scope is unchanged;•leads to greater market share and increased power vis-à-visbuyers and suppliers;•provides greater economies of scale and experience curve benefits.Constraints on market penetrationRetaliation fromcompetitorse.g. price wars‘Economic constraints e.g. market downturn, public sector funding crisisLegalconstraintse.g. restrictions imposed by regulators
•Consolidationrefers to a strategy by which an organisation focuses defensively on their current markets with current products.•Retrenchmentrefers to a strategy of withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business.Product development is where an organisation delivers modified or new products (or services) to existing markets.This strategy:•involves varying degrees ofrelated diversification(in terms of products);•can beexpensiveandhigh risk;•may require new resourcesand strategic capabilities;typically involvesproject management risksMarket development involves offering existing products to new markets.This strategy involves:•new users (e.g. extending the use of aluminium to the automobile industry);•new geographies (e.g. extending the market to new areas – international markets being the most important);•meeting the critical success factors of the market;•