Question
Concentric diversification and Conglomerate diversification
Answer :
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# Concentric Diversification and Conglomerate Diversification Diversification is an important growth strategy in strategic management through which a firm expands its business activities by entering new products, markets, or industries. It is generally adopted when a company wants to reduce dependence on a single product or market, utilize its resources more effectively, achieve growth, increase profitability, or spread business risks. Diversification can broadly be classified into related and unrelated diversification. Concentric diversification represents a form of related diversification, whereas conglomerate diversification represents unrelated diversification. Both strategies involve entering new areas of business, but they differ significantly in terms of strategic relationship, resource utilization, risk, and managerial requirements. Concentric diversification occurs when a firm enters a new business that is related to its existing business through technology, products, markets, distribution channels, or customer groups. The new business may not be identical to the existing business, but there is some meaningful connection between the two. The purpose is to exploit existing competencies and create synergy between the existing and new businesses. For example, a company manufacturing refrigerators may diversify into manufacturing air conditioners because both products use related technologies, manufacturing capabilities, distribution systems, and customer markets. In strategic management, concentric diversification is particularly useful when an organization possesses strong capabilities that can be transferred to another related business. The company can use its existing brand reputation, technological knowledge, marketing expertise, production facilities, distribution network, skilled employees, and customer relationships. Consequently, the firm does not have to develop every capability from the beginning. This can reduce the cost and uncertainty associated with expansion. There are several important reasons for adopting concentric diversification. First, it enables the organization to achieve growth by entering new product or market segments. Second, it allows better utilization of existing resources and capabilities. Third, it may create
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