There are three types of diversification: concentric, horizontal, and conglomerate.

Concentric diversification[edit source | editbeta]

This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product that helps the particular company to earn profit. For instance, the addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technological-related concentric diversification. The company could seek new products that have technological or marketing synergies with existing product lines appealing to a new group of customers.This also helps the company to tap that part of the market which remains untapped, and which presents an opportunity to earn profits.

Horizontal diversification[edit source | editbeta]

The company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain market segments. For example, a company that was making notebooks earlier may also enter the pen market with its new product.

When is Horizontal diversification desirable?[edit source | editbeta]

Horizontal diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability.

Another interpretation[edit source | editbeta]

Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. For example, Avon's move to market jewelry through its door-to-door sales force involved marketing new products through existing channels of distribution. An alternative form of that Avon has also undertaken is selling its products by mail order (e.g., clothing, plastic products) and through retail stores (e.g.,Tiffany's). In both cases, Avon is still at the retail stage of the production process.

Conglomerate diversification (or lateral diversification

The company markets new products or services that have no technological or commercial synergies with current products but that may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons for adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger. Though this strategy is very risky, it could also, if successful, provide increased growth and profitability.

Companies that follow single- or dominant-business strategies have low levels of diversification. A single business is a company where more than 90% of its revenues are generated by the dominant business. A dominant business is a company that generates between 70 and 95% of their sales within a single category. Companies classified as dominant businesses also tend to be vertically integrated to some extent, with many having begun as a single business and evolving over time into a dominant business through vertical integration (a topic that will be discussed later in this course).

A diversified company is one that earns at least 30% of its revenues from sources outside of the dominant business and whose units are linked to each other by the sharing of resources, and by product,technological, and distribution linkages. Moderately Diversified companies also earn at least 30% of their revenues from the dominant business and all business units share product, technological, and distribution linkages. Unrelated diversified companies generate at least 30% of their total revenues from the dominant business but there are few linkages between key value-creating activities. As has been mentioned earlier in our discussion of diversification, some companies that have pursued unrelated high diversification strategies are restructuring to focus on a less diversified mix of businesses that may reflect an inability to manage high levels of diversification. This is because of the recognition that a lower level of diversification would improve the match between the companys core competencies and environmental opportunities and threats

Levels and Types of Diversification

Low levels of Diversification

Single Business: More than 95% of the revenue comes from a single business. Dominant business: Between 70% and 95% of revenue comes from a single business.

Moderate to High Levels of Diversification

Related Constrained: Less than 70% revenue comes from the dominant business, all the businesses share product, technological and distribution linkage. Related Linkage: Less than 70% revenue comes from the dominant business, and there are only limited links between businesses.

Very High Levels of Diversification

Unrelated: Less than 70% revenue comes from the dominant business, and there are no common links between businesses.

At a more specific level Limited Diversification single business: > 95% of sales in single business dominant business: 70% to 95% in single business

Related Diversification related-constrained: all businesses related on most dimensions related-linked: some businesses related on some dimensions

Unrelated Diversification businesses are not related

Example of companies that use related diversification: IBM IBM was originally known as the market leader in hardware and software in the world. IBMs expertise in managing the business and then be seen as an opportunity to get into the business of technology and business service providers. So, since 1991 IBM established the IBM Global Services, which is jasabisnis and technology providers. IBM Global Services is comprised of two main divisions namely Global Business Services (GBS) and Global Technology Services (GTS). If GBS is consultant service management, system integration to management applications, then the GTS an infrastructure provider services such as outsourcing and so forth.

examples of companies that use unrelated diversification: Mitsubishi Mitsubishi, in fact, is an excellent example of one of the original keiretsu. Mitsubishi started in 1870 as a shipping company. Today, this global giant has hundreds of companies under its loose umbrella, some of which do not carry the Mitsubishi brand name. According to Mitsubishi, the companies conduct their business activities independently but they cooperate in areas of common interest. Two of these companies, Mitsubishi Electric and Mitsubishi Motors, are useful in exploring the original questions posed about Japanese super-brands. Mitsubishi Electric by itself is in the top 200 of Fortune magazines Global 500 Worlds Largest Corporations. Mitsubishi Motors is a major corporation in its own right, with over 30,000 employees, 50 subsidiaries, and products sold in more than 160 countries.

This is one example of company with related-linked strategy: Royal Philips is the worlds third largest consumer electronics firms, following market leaders Matsushita and Sony. The Philips brands include Philips, Norelco, Marantz and Magnavox. The company was established in 1891 in Eindhoven, in the southern region of the Netherlands, primarily as a manufacturer of incandescent lamps and other electrical products. The company first produced carbon filament lamps and, by the turn of the century, it had become one of the largest producers in Europe. Later, the company diversified into many other areas such as electronics small appliances, lighting semiconductors, medical systems and domestic care products, among others. The company headquarters moved to Amsterdam in the 1980s, but its lighting division continues to occupy the center of Eindhoven. Around the early 1900s, Philips started to diversify its offerings to radio valves and X-rays equipment, and later to television. Later in the century, Philips developed the electric shaver, and invented the rotary heads, which led to the development of the Philipshave electric shaver. Philips also made major contributions in the development of television pictures, its research work leading to the development of the Plumbicon television camera tube, which offered a better picture quality. It introduced the compact audio cassette in 1963 and produced its first integrated circuits in 1965. In the 1970s, its research in lighting contributed to the developments of the PL and SL energy savings lamps. More recent Philips innovations are the Laser Vision Optical Disc, the Compact Disc, and Optical Telecommunication Systems. Philips expanded in the 1970s and 1980s, acquiring Magnavox (1974) and Signetics (1975), the television business of GTE Sylvania (1981) and the lamps division of Westinghouse (1983). Currently, Philips operates in more than sixty countries, with more than 186,000 employees, and is market leader in many regions for a number of product categories for example, lighting, shavers and LCD displays. In the 1990s Philips carried out a major restructuring program and changed from highly localized production to globalize production; this change translated into a more efficient concentration of manufacturing from more than 100 manufacturing sites to 36, and to 14 sites for productions; Juarez and Manaus in Latin America; Bruges, Dreux, and Hasselt in Western Europe; and Beijing, Suhzou, Shenzen, and Chungli (all in China) in Asia. Another important change was the appointment of Gerard Kleisterlee as president of Philips and Chairman of the Board of Management in 2001. Kleisterlee has been seen as a Philips man following a traditional Philips career path that had been embraced by company employees until 1980s. He was trained locally, at the Eindhoven Technical University, in electronic

engineering, and he has worked with the company for three decades. According to Martien Groenewegen, former research and development engineer with Philips, Kleisterlee is perceived by present and former employees as taking the company back to its original path to success. In fact, in a recent interview, Kleisterlee mentioned that the company is presently concentrating on its initial core activities with a focus on its key areas of profitability this is a different type of restructuring from earlier attempts, when the company pursued wrong activities. Mr Groenewegen contends that the perception among employees and the industry is that Philips, under Kleisterlees leadership, will have a strong product orientation and that it would support an environment in which product innovation will constitute a primary focus of the company. That has been, historically Philips proven path to success. Philips offers consumers products, such as communications products (cordless phones, mobile phones, fax machines), electronics Flat TV, Real Flat TV, digital TV, projection TV, professional TV, DVD players and recorders, Super Audio CD, VCRs, satellite receivers, CD recorders /players, home theatre systems, Internet audio players, shelf systems, portable radios, clock radios, PC monitors., multimedia projectors , PC cameras, PC audio, CD rewriteable drives, DVD drives, among others; home and body care products > vacuum cleaners, irons, kitchen appliances shavers oral healthcare products and lighting products. Its professional product include connectivity lighting medical systems such as magnetic resonance imaging, ultrasound equipment, X-rays, semiconductors, and other products, such as security systems, manufacturing technologies, automotive products, broadband net work and so on.

LG Corp. (Korean: LG ) is the second largest South Korean conglomerate company, headquartered in the LG Twin Towers in Yeouido-dong,Yeongdeungpo-gu, Seoul. LG produces electronics, chemicals, and telecommunications products and operates subsidiaries like LG Electronics, LG Display, LG Telecom and LG Chem in over 80 countries. LG Corp. founder Koo In-Hwoi established Lak-Hui Chemical Industrial Corp. in 1947. In 1952, Lak-Hui (pronounced Lucky, currently LG Chem) became the first Korean company to enter the plastics industry. As the company expanded its plastics business, it established GoldStar Co., Ltd., (currently LG Electronics Inc.) in 1958. Both companies Lucky and Goldstar merged and formed LG. Goldstar produced South Koreas first radio. Many consumer electronics were sold under the brand name GoldStar, while some other household products (not available outside South Korea) were sold under the brand name of Lucky. The Lucky brand was famous for its line of hygiene products such as soapsand HiTi laundry detergents, but most associated with its Lucky and Perioe toothpaste. In 1995, to better compete in the Western market, the company was renamed LG, the abbreviation of Lucky Goldstar. More recently, the company associates the letters LG with the company tagline Lifes Good. Since 2009, LG also owns the domain name LG.com. History In 1996 LG formed a joint venture with IBM. This joint venture was later terminated. On 1 April 2000, LG Chemical was split into three separate companies, namely LGCI, LG Chem and LG Household & Health Care and in July 2007, LG Chem merged with LG Petrochemical Since 2001 LG has two joint ventures with Royal Philips Electronics: LG Philips Display and LG.Philips LCD, but Philips sold off its shares in late 2008.In 2005, LG entered into a joint venture with Nortel Networks, creating LG-Nortel Co. Ltd. LG has a joint venture with Hitachi, Hitachi-LG Data Storage, which makes optical data storage devices like DVD-ROM drives, CD writers, etc. LG has owned the LG Twins baseball club since 1989. LG acquired American television manufacturing company Zenith in 1999. Associated companies GS Group LS Group LIG Group Group families Electronics industries LG Electronics LG Display LG Innotek LG Micron Hiplaza

 Hi Logistics System Air-Con Engineering Siltron Lusem Chemical industries LG Chem LG DOW Polycarbonate SEETEC LG Household & Health Care sa Knox The Face Shop CocaCola Beverage Company LG Hausys LG TOSTEM BM LG Life Sciences LG MMA Telecommunications and services LG Telecom CS Leader AIN LG Dacom LG Powercom DACOM Crossing DACOM Multimedia Internet CS ONE Partner LG CNS LG N-Sys V-ENS BIZTECH & EKTIMO Ucess Partners SERVEONE LG International TWIN WINE Geovine pixdix Korea Commercial Vehicle LG Solar Energy G2R HS Ad Twenty Twenty

This is example of company with single business strategy Company:AMD Single business: 95% or more of firm revenues comes from a single business. Advanced Micro Devices, Inc. (AMD) is a semiconductor company that designs, manufactures and markets microprocessors for the computing, communications and consumer electronics markets. The company also markets embedded microprocessors for personal connectivity devices and other consumer markets. The leading semiconductor company has manufacturing and testing facilities in the United States, Europe and Asia, and sales offices throughout the world.

please give example of company for dominant diversification ? answer: NIKE people know that nike has famous brand,nike acept production shoes,shirt and bag they also production basket ball. answer: DISNEYLAND..because disneyland also have disneyland in hongkong and they also production carton character in walt disney Wrigley is one of the worlds largest makers of chewing gum and candy. The companys well-known gums include Juicy Fruit, Wrigleys Spearmint, Big Red, Doublemint, Hubba Bubba, Freedent, Extra, Eclipse, Orbit and Excel. Wrigley also sells candies, mints and breath strips under the Life Savers, Altoids, Creme Savers, Pim Pom and Solano brands. The companys products are sold in 180 countries. In April, Mars Inc. agreed to buy Wrigley Corp. for $80 per share or $23 billion. Mars Inc. is a family owned company that produces some of the worlds leading confectionery, food and petcare products and has growing beverage and health & nutrition businesses. It is maker of candy under the Snickers, M&Ms and Milky Way brands. Wrigley will become a private company and part of Mars Inc. when the deal is completed. In 2007, the company had revenues of $5.39 billion and net income of $632 million.

A. Single Business -Examples of companies using a single business that is NOKIA only focus on its mobile products NOKIA Revenue gained 95% of Mobile Products B. Dominant Business -For example, PT Matahari Putra Prima Tbk. is a retail company in Indonesia which is the owner of the supermarket chain Hypermart. As the first quarter of 2008, Matahari Putra Prima already has 79 department stores, 38 hypermarkets, 31 supermarkets, 46 pharmacy outlets, and more than 88 family entertainment in over 50 cities in Indonesia. C. Diversification Level Moderate to Tingg: Constrained-1.Related: PT. PERTAMINA (Persero), a state that is responsible for managing the extraction of oil and gas in Indonesia. meproduksi: * Fuel Oil: * Biopertamax, Pertamax * Pertamax Plus * Biopremium, Premium, * Solar, Bio Diesel, Pertamina DEX * Kerosine * Non-oil: Minarex, HVI 90, HVI 160, Lube Base, Green Coke, Asphalt, * Gas: LPG, Fuel Gas (CNG), Vigas, LPG, CNG, Musicool * Lubricants: * Fastron is the engine lubricating oil * Prima XP SAE 20W 50 is produced by Pertamina lubricant for engines * Mesran Super SAE 20W-50 is a gasoline engine oil * LEVELS 2T Super-X. * 2T Enviro is the lubricant of vehicle 2 was with gasoline fuel * Enduro 4T * Meditran * Rored * Petrochemicals: Pure Teraphithalic Acid (PTA), Paraxyline, Benzene, Propyline, Sulfur

2. Related linked (mixed related and unrelated): Examples: PT WINGS who Producing Household Cleaners, Personal Care and Food .. This company manufactures many items not related to each other but to own less than 70% Revenue D. Diversification of Higher Level Examples of Bakrie Brothers Who Have Many businesses such as: 1.Coal: 2.Agribusiness: 3.Oil and Gas 4.Telecomunications 5.Property 6.Metal 7.Infrastructure Conglomerates Bakri Brother is because having an income of less Of the 70% of unrelated diversification strategies ..