Diversification involves expanding a firm's business activities beyond its current products and markets. It allows firms to grow rapidly by entering new business fields. There are three main ways firms diversify: acquisitions, internal startups, and joint ventures. Diversification can be related, where new businesses are related to the firm's existing value chains, or unrelated where the businesses are completely different. Examples of related diversification include Johnson & Johnson expanding into different healthcare products, while General Electric and Virgin have diversified into both related and unrelated industries.

1. Business Diversification
Diversification Strategy
Presented by:
Farman Tahseen
Farman.tahseen@yahoo.com
02/17/16 1

2. Introduction
• What is diversification?
• Why do firms diversify?
• How do firms enter a new business?
• Types of diversification
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3. 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.
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4. What is diversification?
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
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5. What is diversification?
Current
product X
Firm
Supplier Supplier
SupplierSupplier
Supplier
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6. What is diversification?
Firm
Client Client
ClientClient
Client
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7. Why do firms diversify?
Diversification allows the firm to grow rapidly by expanding
operations into new business fields.
Why is (rapid) growth beneficial?
 Economies of scale (the cost per unit of production decreases as volume of
product increases).
 Lower average unit costs (running at full capacity).
 More bargaining power with suppliers and customers.
 Exploiting differences between diverse geographical areas.
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8. Why do firms diversify?
Example: Tiscali (1998-2009)
* ADSL (Asymmetric Digital Subscriber Line)
1998
Internet (free) access
1999
Market entry
Market development
2003 2009
Product development
Diversification
Acquisitions in the EU
Fixed phone
lines, ADSL
Virtual Mobile
Network Operator
Telecom in Italy and the UK
8

9. Example: Tiscali (2009-2011)
2009
Product development
Diversification
Fixed phone
lines, ADSL
Virtual Mobile
Network Operator
Telecom in Italy and the UK
2011
UK division sold in 2009
Why do firms diversify?
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10. How do firms enter a new business?
1. Acquisitions of other companies that already operate in
another business.
2. Internal start-ups by developing own business ideas,
allocating capital and other resources, and venturing into a
new business.
3. Joint ventures by partnering with other companies that
already operate in another business and sharing assets,
employees, know-how, etc.
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11. How do firms enter a new business?
Acquisition Joint ventureInternal start-up
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12. Types of diversification
Two types of diversification:
1. Related: when the value chains of two businesses that are
managed within the same firm (i.e., the same company or
company group).
2. Unrelated: when the value chains of two businesses do not
share any linkage, i.e., they are completely different and they do
not offer any opportunities for competitive advantage if
managed within the same firm.
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13. Examples – Related
Johnson & Johnson
Consumers products
Baby care
Skin and hair care
Wound care
Oral care
Women's care Medicines
Nutritionals Vision care
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14. Examples – Unrelated
General Electrics
Appliances
Consumer products Energy
Financial services
HealthcareAviation

15. Examples – Unrelated
Virgin
Radio
Travel agent
Telecom and media
Radio
Airlines
Railways
Megastore
Soft drinks

16. 02/17/16 16Business Diversification
Thank you