CORPORATE LEVEL SRTATEGY FOR DIVERSIFIED COMPANIES

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• CORPORATE LEVEL SRTATEGY FOR DIVERSIFIED
  COMPANIES

By Sanjib Chowdhury
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Diversification

• Diversified/multi-business organization
• When to Diversify
• Building Shareholder Value
• Entering New Businesses
• Related Diversification Strategies
• Unrelated Diversification Strategies

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Diversified/Multi-Business Organization

• A diversified company operates with more than one
  line of products
• Corporate strategy of a diversified company is
  the overall strategy for multiple businesses
  operating in multiple industries

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Growth Strategies

• Geographic Expansion
• Vertical integration
• Forward integration
• Backward integration
• Diversification
• Related diversification
• Unrelated diversification

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Diversification Decision

• Low growth potential in the same line of business
• High competitive and financial strength
• Opportunity to build shareholders value
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• Three tests to see if a diversification builds
  shareholders value (Michael E. Porter)
• Attractiveness test
• Cost of entry test
• Better-off test

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Ways to Diversify into A New Industry

• Start up a business in a different industry
• Start a joint venture in a different industry
• Acquire an existing company in a different
  industry

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Related Diversification

• Diversification involving a strategic fit
• Target for diversification provide complementary
  competitive advantage
• With strategic fit between value chain activities
  provide related diversification with synergy
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Types of Strategic Value Chain Activity Fit

• Technology from one strategic business unit can
  be used by other SBUs
• Share research and development between SBUs
• Use same distribution channels
• Use same suppliers
• Share know-how

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Unrelated Diversification Conglomerate

• Diversifying into businesses with no
• Complementary competitive advantage
• Value chain fit
• Synergy
• Venture into an undervalued business for future
  financial gain

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Motive for Unrelated Diversification

• If the business is in a growing industry
• If the business has high potential profitability
• If the business does not require a substantial
  amount of capital
• If the business is currently undervalued

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Building Shareholder Value By Diversification

• RELATED DIVERSIFICATION
• Build shareholders value by pursuing strategic
  fit
• UNRELATED DIVERSIFICATION
• Build shareholders value by pursuing financial
  fit