Firms diversify because there may be new technological or economic opportunities
ID: 347535 • Letter: F
Question
Firms diversify because there may be new technological or economic opportunities in another industry, or a firm could enter a complementary industry, keeping a similar market base or production line. Leveraging one’s core competencies by applying them to additional businesses, allows the firm to make the most of their competitive advantage. If the firm is a cost leader, it may be able to reduce costs for an acquired firm as well.
Proctor and Gamble has been and continues to shed some of its brands - what does this say about their prior diversification strategy?
Explanation / Answer
The company has been doing this to improve their intensive growth strategy. The company started to provide the customers' soaps and candles but very soon they realized that they can make use of their customer base to sell more products in different brand names. They have a huge product line today and it is one of the most trusted brands in the world. They are linking their main business unit to smaller units to create a similar kind of impact on the market. They already have gained the market share so they just need to concentrate on creating value for the customers and sell more products. one of the smaller business units they have was beauty and grooming in the initial days but they are generating half of their revenue from this business now. This is the kind of influence they have on every single product they sell in the market. In the history of the company, the company has not failed even once with their acquisition or diversification strategy. They have always seen success with their actions in this strategy. The company was not very aggressive before they opted for diversification but now the scenario is totally different. With the integration of various business units under the same roof, the company has to make sure that they maintain the competitive advantage. To achieve this they need to be very aggressive in their approach. The company never tried really hard to penetrate foreign markets but the diversification made them take those steps and explore opportunities and risks that are available across the globe. The company has successfully handled the strategy and it is still continuing to grow at a good pace every year.
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