INTRODUCTION

Diversification is a strategy that takes a company into new markets with new products or services. Companies may choose a diversification strategy for different reasons. Firstly, companies might wish to create and exploit economies of scope, in which the company tries to utilize its exciting resources and capabilities in other markets. This can oftentimes be the case if companies have underutilized resources or capabilities that cannot be easily disposed or closed. Using a diversification strategy, companies may therefore be able to utilize all its capabilities or resources, and able to attract new business from market segments not catered to earlier. Secondly, managerial skills found within the company may be successfully used in other markets, where the dominant logic and managerial procedures of management can be successfully transferred to other markets. Thirdly, companies pursuing a diversification strategy may be able to crosssubsidize one product with the surplus of another. This way, companies with a very diverse portfolio of products catering to different markets may

potentially grow in power, and be able to withstand a prolonged period of price competition etc. When having subsidized one product for a substantial period of time, the company might possibly be able to win a monopoly, making it the only supplier in the respective market. Fourthly, companies may also want to use a diversification strategy to spread financial risk over different markets and products, so that the entire success of the company is not reliant on one market or product only. There may however be other reasons for companies to use a diversification strategy than the four listed above, and companies may very well benefit from a diversification strategy for other reasons. However, it is important for companies to realize the possible danger of diversifying its scope of operations to much. Companies might risk neglecting its core capabilities and become too diversified, where too many different products supplied to different markets might have negative effects on products and services, where e.g. product quality or uniqueness might suffer due to the shift in focus on different products and markets. The diversification strategy can be split into two different types: Related diversification

Unrelated diversification

Please click the links above to read more. I have noticed many concept pages for China as an investment. For investors, however, India may be a better choice as there is less of a correlation with the developed world. China was a good investment story several years ago, but may be too much of a speculative bubble at this time. If you are new to investing in emerging markets, I would wait until after the 2008 Beijing Olympics before getting into China and only then via a closedend fund such as the Templeton Dragon Fund (TDF) or others of similar styles. One way of getting a grasp of a country's level of domestic demand versus export demand is using the Trade-to-GDP ratio. A low ratio indicates that the local economy consumes a proportionally larger amount of goods and services, whereas a high ratio indicates an economy that is more exportdriven.

MUTUAL FUNDS VERSUS INDIVIDUAL COMPANIES

When investing in emerging markets, the question is whether to go with a closed-end or mutual fund, or to select individual companies that trade on overseas markets. Closed-end funds are often the only way to get involved in the newest of emerging markets (e.g., Vietnam) and trade on exchanges like stocks (i.e., can be bought or sold during the day, may be shorted). The disadvantage is that the price can differ from the Net Asset Value due to demand-supply considerations. Buying at a discount to the NAV is not always advisable since it may indicate a lack of liquidity or that the fund is out-of-favour for good reasons. Over the past several years Indian companies have become listed on U.S. exchanges, usually as American Depository Receipts (ADRs) and provide albeit narrow exposure to the Indian market. For example, one can buy Tata Motors (TTM), an ADR which gives exposure to the growing demand for automobiles by Indian consumers. With recently announced plans to set up production facilities in Thailand, TTM will also provide investors with exposure to another emerging market. The growing worldwide reach of Indian companies will also provide investors with one might call "back-

investing". If Tata is successful with their plans to purchase the Land Rover and Jaguar units from Ford, shareholders in TTM will gain additional exposure to western, developed world markets. Infosys Technologies Ltd (INFY) is an Indian company that is a play on the global outsourcing movement. They also have plans to move into Southeast Asian countries which will give shareholders further exposure to other emerging markets. The India Fund (IFN) provides exposure to some of India's best companies and passes through dividends, giving a very nice dividend yield, unlike most U.S. mutual funds.

INDIAN APPAREL AND TEXTILE INDUSTRY

HISTORY

The history of apparel and textiles in India dates back to the use of mordant dyes and printing blocks around 3000 BC. The foundations of the India's textile trade with other countries started as early as the second century BC. A hoard of block printed and resist-dyed fabrics, primarily of Gujarati origin, discovered in the tombs of Fostat, Egypt, are the proof of large scale Indian export of cotton textiles to the Egypt in medieval periods.

During the 13th century, Indian silk was used as barter for spices from the western countries. Towards the end of the 17th century, the British East India Company had begun exports of Indian silks and several other cotton fabrics to other economies. These included the famous fine Muslin cloth of Bengal, Orissa and Bihar. Painted and printed cottons or chintz was widely practiced between India, Java, China and the Philippines, long before the arrival of the Europeans.

The diversity of fibers found in the country, intricate weaving on its state-ofart manual looms and its organic dyes has attracted buyers from all across the world for centuries. Before the introduction of mechanized ways of spinning in the early 19th century, all Indian silks and cottons were hand

spun and hand woven, a highly popular fabric, called the khadi. Independent India saw the development and building up of textile strength, diversification of its product range, and its emergence, once again, as an important player in the world industry. The Indian Textile Industry Overview Today, the Indian apparel and textile industry employs around 35.0 million people (and is the 2nd largest employer), yields 1/5th of the total export earnings and contributes 4 % to the GDP thereby making it the largest industrial sector of the economy. The sector aims to grow its revenue to US$ 85bn, its export figures to US$ 50bn and employment to 12 million by the year 2010 (Texmin 2005). The Indian textiles industry that already has an overwhelming presence in the economic life of the country, has been given a further boost with the scrapping of quotas in global trade of textiles and clothing. In the post quota period, the size of industry has expanded from US$ 37 billion in 2004-05 to US$ 49 billion in 2006-07. During this period, while the domestic market has grown from US$ 23 billion to US$ 30 billion, exports has increased from around US$ 14 billion to US$ 19 billion.

As a matter of fact, the apparel and textile is the largest foreign exchange earning sector in the country. Being a direct employment provider to over 35 million people and and with continuing growth momentum, the role of this sector in Indian economy is bound to increase. Indian Exports of Apparel & Textile Facts & Figures Exports increased from US$ 14 million (2004-05) to US$ 17 million (2005-06) 21.77 % increase. With continuing growth, the total exports has increased to US$ 19.62 billion (2006-07). Current share in world export of textiles 3.5 - 4 %. Current share in world clothing export 3 %. Major export market Europe (22% share in textiles & 43% share in apparel). Single largest buyer US ( 10% share in textiles and 32.65 share in apparel). Other major export markets include - UAE, Saudi Arabia, Canada, Bangladesh, China, Turkey and Japan.

 Largest export segment Readymade Garments (45% share in textile exports and 8.25 share in India's total exports). Readymade garments sector has benefited significantly with the termination of Multi-Fiber Arrangement (MFA in January 2005. Exports of readymade garments are expected to touch US$ 14.5 billion with a cumulative annual growth rate of 18-20% (Apparel export Promotion Council). Product-wise Export Share 2005-06 Commodities (Million US$) Readymade Garments Cotton Textiles Man-made Textiles Wool & Woolen Textiles Silk Textile Total Add handicraft, Coir & Coir Manufacturers and Jute Total
13065.24

6038.69 3290.31 1948.72 66.57 406.82 11751.11

SECTOR-WISE ANALYSIS
Accounts for around 45% of the countrys total textiles exports. The exports

amounted to US$ 7.75 billion (2005-06), recording an increase of 28.69 % over exports Readymade garments during

2004-20

During the first quarter of 2006-07 the exports have amounted to US$ 2.17 bill

recording an increase of 15.70% over the exports during the corresponding period 2005-06.

Cotton Textiles i.e. yarn, fabrics and made-ups (Mill made / Powerloom / Handlo

account for more than 2/3rd of our exports of all fibers/yarns/made-ups. The exports w Cotton including handlooms textiles 2004-05.

amounted to US$ 4.49 billion, recording a healthy increase of 26.78% over the exp

During the first quarter of 2006-07 the cotton textiles including exports of handlo

have amounted to US$ 1.25 billion, recording an increase of 25.70% over the exp during the corresponding period of 2005-06.

During 2005-06, man-made textile exports have amounted to US$ 2 billion, wh reflects Man-made textiles a decline of 2.47% over the exports during the

2004

During the first quarter of 2006-07, exports have amounted to US$ 0.52 billion, wh

reflects an increase of 13.15% over the exports during the corresponding period of 20 06. Silk textiles

During 2005-06, the exports of silk textiles were amounted to US$ 0.69 billion, record

an

increase

of

16.37%

over

the

exports

during

2004

During the first quarter of 2006-07 the export figures were to US$ 0.165 billion, wh

reflects an increase of 4.23% over the exports during the corresponding period of 20 06.

The woolen textile exports during 200405, were US$ 0.42 billion, recording an incre of Woolen textiles 0.114 billion that reflects an increase of 11.96% over the exports during corresponding period of 2005-2006. 23.4% as compared to the corresponding period of

2003

During the first quarter of 2006-07 the export of woolen textiles have amounted to U

REMEDIAL MEASURES
The textile exporting community of the country is looking to reduce dependency on the US market and is focusing towards the European market for attaining further growth and to fight currency pressure. This is because of the fact that even though the rupee strengthens itself to Rs. 39.54 against the dollar, the Euro-rupee equation is comparatively at a higher exchange price of Rs. 56. While many exporters are in talks with European buyers to increase revenues from the European market, keeping long-term interests in mind, they are also hoping to ramp up domestic operations, improve production and manufacturing efficiencies. For example, some companies are trying to convince their existing clients in Europe to shift from paying in dollars to Euros. Some companies are also pondering over market diversification with more emphasis on Europe. According to industry experts, these are only short-term benefits and will not be beneficial to small and medium enterprises to cope up with the appreciation of rupee.

As per industry statistics, the European market cannot offer as much volumes as the American market fetches. Secondly, there will always be a resistance to the incremental prices, which exporters can enforce upon their foreign clients. Hence, targeting the burgeoning domestic market, which has significant growth potential should be the long-term strategy for the Indian textile sector. Besides this, while some bigger companies have managed to plug losses by hedging, it is time for the smaller companies too, to look at this option, as the textile industry has had to grapple with issues such as job cuts and profit losses this year.

OBJECTIVES Why Diversification? The two principal objectives of diversification are improving core process execution, and/or enhancing a business unit's structural position. The fundamental role of diversification is for corporate managers to create value for stockholders in ways stockholders cannot do better for themselves1. The additional value is created through synergetic integration

of a new business into the existing one thereby increasing its competitive advantage.

FORMS AND MEANS OF DIVERSIFICATION

Diversification typically takes one of three forms:
Vertical integration along your value chain

Horizontal diversification moving into new industry Geographical diversification open up new markets Means of achieving diversification include internal

development,acquisitions, strategic alliances, and joint ventures. As each route has its own set of issues, benefits, and limitations, various forms and means of diversification can be mixed and matched to create a range of options. Description

This paper studies the nature and pattern of diversification in 252 private manufacturing com

the Indian corporate sector from 1995 to 2004. Using Rumelt's methodology of diversificat

found that Dominant Business (DB) is the most popular strategy among Indian compa

Unrelated Business (UB) is the least preferred one. Among the sub-categories, Dominant C

(DC) and Related Constrained (RC) are the most favored strategies. Indian companies foll pattern of diversification, the forward pattern being Single Business (SB) to DB and DB

Business (RB), and the backward pattern being UB to RB and RB to DB. Thus, Indian com

not leave their core businesses even while diversifying which results in a comparatively slo the diversification process.

Sustaining growth is a key challenge to business leaders in an enterprise. The business envi

changing fast and to keep pace with the volatile business conditions and growing com business needs to pursue growth strategies. A growth strategy is one, which is marked by an

the level of objectives of a business, much higher than its past achievement level. The mo

indicator of a growth strategy is to raise the market share and or sales objectives significantl 1980; Secchi and Boltazzi, 2005).

Every company passes through five stages in its life, namely, emergence, growth,

regeneration and decline (James, 1973). If a company wants to delay the last phase, it m

growth strategies. Organizations that do not grow are pushed out of their business arenas by c and other new entrants. Many a time, the environment also offers favorable opportunities to

government provides concessions and incentives for growth in industries in certain areas. Fo

government provides concessions to priority sector industries and those established in backw

These opportunities stimulate companies to grow and growth helps create economies of scale scope, serves as a motivational force for managers,

Keywords

Nature and Pattern of Diversification in the Indian Corporate Sector, Dominant Business

leaders, growing competition, market share, growth strategies, joint ventures, licensing a

foreign markets, portfolio of products, administration, corporate sector, Indian companie policy,Industrial Classification, component businesses, DB strategy.

Motives to Diversify

In some instances, managers may be motivated to diversify their companies even if the incentives and a lack of resources should constrain any inclination toward diversification. motives for diversification include:

Reduction of managerial risk

Diversification may enable managers to reduce employment risk (the risks related to the lo jobs or a reduction in compensation) because by diversifying the company (by adding a

additional businesses) managers may be able to diversify their employment risk if profitabilit decline significantly as a result of the diversification.

Desire for increased compensation

Diversification also may enable managers to increase their compensation because of positive between diversification, company size, and executive compensation.

This positive correlation may exist because diversification generally results in an incr

complexity and size of the overall company, and large companies are more difficult to ma consequence, managers of large companies generally are compensated more highly than are small companies.

Managers may be motivated to increase overall company diversification even when the inc

resources are absent. If this happens, internal and external governance mechanisms generall

play to discourage diversification that is motivated solely by managerial self-interest. Unfortun

mechanisms are not perfect and may give incentives to managers to take strategic actions (to

level of company diversification) that are counter-productive (resulting in lower-th

performance). For example: Spin-off companies may not realize productivity gains. Busine

are spun off may have unrecognized interdependent linkages with business units that re company.

Ultimately, the appropriate level of diversification should be determined by the market and b

company resources and capabilities. One signal that the company may be overdiversifi

operating diversified businesses reduces rather than improves the overall performance of the co

Therefore, diversification strategies can be used to enhance a company's strategic competit enable it to earn above-average returns. However, positive outcomes from diversification only when thecompany achieves the appropriate level of diversification, given its resources,

and core competencies, and taking into account the external environmental opportunities and th

Reasons for Diversification

Companies may implement diversification strategies to enhance or increase the strategic com

of the overall organization. If they are successful, the value of the company increases. V

created through either related or unrelated diversification if the strategies enable the compa

businesses to increase revenues and/or decrease costs when implementing their respective bu strategies.

Companies may also implement a diversification strategy to gain market power relat

competitors. Companies may implement diversification strategies that are either value neutra

devaluation of the company. They may attempt to diversify to neutralize a competitor's mark

to reduce managers' employment risk (i.e., the risk of CEO being unemployed when a domin

company fails as compared to this risk when a single business fails but is only one part of a

company) or to increase managerial compensation because of the positive relationshi diversification, company size, and compensation.

Motives to enhance strategic competitiveness: economies of scope (related diversification) through activity-sharing and the transfer core competencies market power motives (related diversification) by vertical integration or blocking competitors through multipoint competition financial economies motives (unrelated diversification) to improve efficiency of capital allocationthrough an internal capital market or by restructuring the portfolio of businesses Motives that are value-neutral with respect to strategic competitiveness: to avoid violations of antitrust regulations to take advantage of tax incentives to overcome low performance to reduce the uncertainty of future cash flows to reduce overall company risk to exploit tangible resources to exploit intangible resources

Failure to Diversify What does it mean to diversify? It means to vary or spread risk. When one hired a broker or investment advisor and pays him an annual fee to manage an account, a consumer should expect that his investments are diversified. Why is that so important? Its important because you want to spread your risk. Risk of what? Risk that the investments will lose value. What do I mean by this?

Lets assume that you give a broker $500,000 and you tell him that this is your nest egg to retire on in 10 years. You tell the broker that you cannot afford to lose the money because after you receive your social security check, this money is all you have in the world. If the broker invested all of your money is high risk stocks and securities, you could certainly stand to gain a lot of money. But what could also happen? Right ! You could LOSE a lot of money. How would you feel if your $500,000 investment dropped down to $250,000 during that 10 year period? Im sure not well. The point is, an account should be diversified (or placed into many different investments). Investing in a high risk security is not necessarily negligent so long as its a very small part of this hypothetical persons strategy. High risk investments should usually be balanced with low risk investments. This is so that your particular account wont plummet if the market drops in a major way. Diversification can happens in many ways. Examples include: A good mix of stocks and bonds Diversification of funds within a mutual fund

 Diversification of funds within a variable annuity Diversification of stocks withing a certain sector Failing to diversify can result of major losses of your account. If you prefer to have all of your eggs in one basket and feel that this is a good strategy for you, then you would not have a diversification claim. However, if you desire to preserve your capital and obtain small income, then you should ensure that your account is diversified.

Diversification via Acquisition: Creating Value During the past 25 years an increasing proportion of U.S. companies have seen wisdom in pursuing a strategy of diversification. Between 1950 and 1970, for example, single-business companies comprising the Fortune 500 declined from 30% to 8% of the total. Acquisition has become a standard approach to diversification. In recent years the productivity of capital of many multibusiness companies has lagged behind the economy. Nevertheless, diversification through acquisition remains popular; between 1970 and 1975, acquired assets of large manufacturing and mining companies averaged slightly more than 11 % of total new investment in those companies, and most of that activity was diversifying acquisition.1 In the past few years the pace of activity has been slower than in the hectic 19671969 period, but the combination of high corporate liquidity, depressed stock prices, and slow economic growth has meant that for many companies acquisitions are among the most attractive investment alternatives. Since mid-1977, hardly a week has gone

by without at least one major acquisition being announced by a diversifying corporation. In light of this continuing interest and the apparent economic risks in following such a strategy, we present a review of the theory of corporate diversification. We begin by discussing seven common misconceptions about diversification through acquisition. We then turn to the basic question facing companies wanting to adopt the strategy: How can a company create value for its shareholders through diversification? Our consideration of value creation leads to an examination of the potential benefits of the alternatives availablerelated-business diversification and unrelated-business diversification. Businesses are related if they (a) serve similar markets and use similar distribution systems, (b) employ similar production technologies, or (c) exploit similar science-based research.2 Common Misconceptions There are seven common misconceptions about diversification through acquisition that we can usefully highlight in the context of recent history. They relate to the economic rationale of this strategy and to the management of a successful diversification program.

1. Acquisitive diversifiers generate larger returns (through increased earnings and capital appreciation) for their shareholders than

nondiversifiers do. This notion gained a certain currency during the 1960s, in part because of the enormous emphasis that securities analysts and corporate executives placed on growth in earnings per share (EPS). Acquisitive diversifiers that did not collapse at once from ingesting too many businesses often sustained high levels of EPS growth. However, once it became apparent that a large proportion of this growth was an accounting mirage and that capital productivity was a better indicator of managements performance and a businesss economic strength, the market value of many acquisitive companies plunged. Many widely diversified companies have had low capital productivity in recent years. Exhibit I shows the performance of a sample originally selected by the Federal Trade Commission in 1969 as representative of companies pursuing strategies of diversification and not classifiable in standard industrial categories. While the average return on equity of the sample was 20% higher than the average of the Fortune 500 in 1967, it was 18% below the Fortune average in 1975. Even the surge in profits in 1976 and 1977 and the impact of nonoperating, accounting profits in several

corporations failed to bring the sample average up to the Fortune average. What is even more telling than the return on equity figures is that the samples return on assets was 20% or more below the Fortune500 average throughout the ten-year period. Incentives for Diversification

However, not all companies diversify to increase the value of the overall company. Some attempts at diversification are implemented to prevent the value of the company from decreasing.

Low Performance

When companies are able to earn above-average or superior returns in a single business, they have little incentive to diversify. However, low performance may provide an incentive for diversification, as a lowperforming company may become more risk seeking in an effort to improve overall company performance. On the other hand, it has been shown that lower returns are related to greater (not lower) levels of diversification.

In response to low returns (or poor performance), companies often choose to seek greater levels of diversification. At some point, however, poor performance slows the pace of diversification, often resulting in restructuring divestitures of businesses to lower the level of company diversification. As Figure 5.5 illustrates, companies exhibiting low performance in their dominant businesses often to implement some point, relatedresult in

constrained diversification strategies which,

increased performance. In search of even higher performance, relateddiversified companies may continue to diversify, but elect to acquire unrelated businesses. Because the company's core competencies do not create value in unrelated businesses, company performance decreases.

Uncertain Future Cash Flows

Companies also may implement diversification strategies when their products reach maturity (in the product life cycle) or are threatened by external factors that the company cannot overcome.

Thus, companies may view diversification as a survival strategy. For example tobacco companies like ITC are diversifying because of future demand uncertainty that resulted from attacks on smoking and the ban on events sponsorships.

Uncertainty can also be derived from supply sources as well as demand conditions.

Company Risk Reduction

As you will recall from the discussion earlier in this chapter, companies that diversify in pursuit of economies of scope take advantage of linkages between primary value-creating activities to realize synergy from sharing.

Synergy exists when the value created by business units working together exceeds the value the units create when working independently. However, these linkages--and the interrelatedness or interdependencies that result-produce joint profitability between business units and the flexibility of the company to respond may be adversely affected, increasing the risk of failure.

To eliminate this risk, companies may do one of two things: (1) operate in more certain environments to reduce the level of technological change and choose not to pursue potentially profitable, yet unproven product lines or (2) constrain or reduce the level of activity-sharing, thus foregoing the potential benefits of synergy

However, these decisions could lead to further diversification to diversify into industries where more certainty exists or to additional, but unrelated diversification

Business-Level Strategies

There are four generic strategies that are used to help organizations establish a competitive advantage over industry rivals. Firms may also choose to compete across a broad market or a focused market. We also briefly discuss a fifth business level strategy called an integrated strategy.

1. Cost Leadership Organizations compete for a wide customer based on price. Price is based on internal efficiency in order to have a margin that will

sustain above average returns and cost to the customer so that customers will purchase your product/service. Works well when product/service is standardized, can have generic goods that are acceptable to many customers, and can offer the lowest price. Continuous efforts to lower costs relative to competitors is necessary in order to successfully be a cost leader. This can include:

Building state of art efficient facilities (may make it costly for competition to imitate) Maintain tight control over production and overhead costs Minimize cost of sales, R&D, and service.

Porter's

Forces

Model

Earlier we discussed Porter's Model. A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, suppliers' power, substitute products, and buyers' power.

 Rivalry Competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits (Airlines). Customers Powerful customers that force firms to produce goods/service at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then loose much of their buying power. Suppliers Cost leaders are able to absorb greater price increases before it must raise price to customers. Entrants Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs. Substitutes Low cost leaders are more likely to lower costs to entice customers to stay with their product, invest to develop substitutes, purchase patents. How to Obtain a Cost Advantage?

Determine and Control Cost Reconfigure the Value Chain as Needed

Risks Technology Imitation Tunnel Vision Value Chain A framework that firms can use to identify and evaluate the ways in which their resources and capabilities can add value. The value of the analysis lays in being able to break the organization's operations or activities into primary (such as operations, marketing & sales, and service) and support ( staff activities including human resources management & procurement) activities. Analyzing the firm's value-chain helps to assess your organizations to what you perceive your competitors value-chain, uncover ways to cut costs, and find ways add value to customer transactions that will provide a competitive advantage.

2. Differentiation - Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest

price. This is done through high quality, features, high customer service, rapid product innovation, advanced technological features, image

management, etc. (Some companies that follow this strategy: Rolex, Intel, Ralph Lauren)

Create Value by: Lowering Buyers' Costs Higher quality means less breakdowns, quicker response to problems. Raising Buyers' Performance Buyer may improve performance, have higher level of enjoyment. Sustainability Creating barriers by perceptions of uniqueness and reputation, creating high switching costs through differentiation and uniqueness.

Risks of Using a Differentiation Strategy Uniqueness Imitation Loss of Value

Porter's Five Forces Model Effective differentiators can remain profitable even when the five forces appear unattractive. Rivalry Brand loyalty means that customers will be less sensitive to price increases, as long as the firm can satisfy the needs of its customers (audiofiles). Suppliers Because differentiators charge a premium price they can more afford to absorb higher costs and customers are willing to pay extra too. Entrants Loyalty provides a difficult barrier to overcome. Substitutes (trans. 4-26) Once again brand loyalty helps combat substitute products.

3. Focused Low Cost- Organizations not only compete on price, but also select a small segment of the market to provide goods and services to. For example a company that sells only to the U.S. government.

4. Focused Differentiation - Organizations not only compete based on

differientation, but also select a small segment of the market to provide goods and services.

Focused Strategies - Strategies that seek to serve the needs of a particular customer segment (e.g., federal gov't). Companies that use focused strategies may be able serve the smaller segment (e.g. business travelers) better than competitors who have a wider base of customers. This is especially true when special needs make it difficult for industry-wide competitors to serve the needs of this group of customers. By serving a segment that was previously poorly segmented an organization has unique capability to serve niche. Risks of Using Focused Strategies: Maybe out focused by competitors (even smaller segment) Segment may become of interest to broad market firm(s)

5.

Using

an

Integrated

Low-Cost/Differentiation

Strategy

This new strategy may become more popular as global competition

increases. Firms that use this strategy may see improvement in their ability to: Adaptability to environmental changes. Learn new skills and technologies More effectively leverage core competencies across business units and products lines which should enable the firm to produce produces with differentiated features at lower costs. Thus the customer realizes value based both on product features and a low price. Southwest airlines is one example of a company that does uses this strategy.

However, organizations that choose this strategy must be careful not to: becoming stuck in the middle i.e., not being able to manage successfully the five competitive forces and not achieve strategic competitiveness. Must be capable of consistently reducing costs while adding differentiated features.

Core Competence A core competence is the result of a specific set of skills or production techniques that deliver value to the customer. Such competences enable an organization to access a wide variety of markets. Executives should estimate the future challenges and opportunities of the business in order to stay on top of the game in varying situationsIn 1990 with their article titled "The Core Competence of the Corporation", Prahalad and Hamel illustrated that core competencies lead to the development of core products which further can be used to build many products for end users. Core competencies are developed through the process of continuous improvements over the period of time. To succeed in an emerging global market it is more important and required to build core competencies rather than vertical integration. NEC utilized its portfolio of core competencies to dominate the semiconductor,

telecommunications and consumer electronics market. It is important to identify core competencies because it is difficult to retain those competencies in a price war and cost cutting environment. The author used the example of how to integrate core competences using strategic architecture in view of changing market requirements and evolving technologies. Management must realize that stakeholders to core competences are an asset which can be utilized to integrate and build the competencies.[ Competence building is an outcome of strategic architecture which must be enforced by top management in order to exploit its full capacity In Competing for the Future, the authors Prahalad and Hamel show how executives can develop the industry foresight necessary to adapt to industry changes, discover ways of controlling resources that will enable the company to attain goals despite any constraints. Executives should develop a point of view on which core competencies can be built for the future to revitalize the process of new business creation. The key to future industry leadership is to develop an independent point of view about tomorrow's opportunities and build capabilities that exploit them.[ In order to be competitive an organization needs tangible resources but intangible resources like core competences are difficult and challenging to achieve. It is

even critical to manage and enhance the competences with reference to industry changes and their future. For example, Microsoft has expertise in many IT based innovations where for a variety of reasons it is difficult for competitors to replicate Microsoft's core competences. In a race to achieve cost cutting, quality and productivity most of the executives do not spend their time to develop a corporate view of the future because this exercise demands high intellectual energy and commitment. The difficult questions may challenge their own ability to view the future opportunities but an attempt to find their answers will lead towards organizational benefits.

Economic diversification Reimagining the future Two articles on attempts to move into high-tech; first, New York City THAT city will, in the course of time, become the granary of the world, the emporium of commerce, the seat of manufactures, the focus of great monied operations, predicted DeWitt Clinton, governor of New York in 1824. He was speaking about the effects of the Erie Canal, which connected the Great Lakes to the Hudson River. Originally derided as Clinton's folly, the canal helped to open up the west, allowing New York to benefit enormously from an explosion of trade. Within 15 years of the opening, New York was the busiest port in America, moving more than Boston, Baltimore and New Orleans combined. The plan to open an applied sciences university campus in New York City, reckons Seth Pinsky, who heads New York's Economic Development Corporation, is an Erie Canal moment. The city's embrace of high-tech has already begun. Tech clusters have emerged in Manhattan's Flatiron District and Brooklyn's Dumbo, home to firms like STELLAService and Etsy. Venture-capital firms and angel investors have been looking at New York more seriously than they once did.

Henry Blodget, of Business Insider, notes the financing ecosystem has also gotten very well developed, from late-stage private equity right down to angel investing. Some $1.2 billion was invested by venture-capital firms in New York in 2010. The Big Apple even overtook Massachusetts in venturecapital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York's high-tech sector grew by nearly 30%. Google alone has about 1,200 engineers in the city. In this section On to New Hampshire Less of a drag Unintended issues Holder v states Reimagining the future Rolling the dice Rick Santorums ride Reprints

Related topics Business New York City Private equity Venture capital Industries Much of this growth has been organic, but there has been some help from City Hall. Since 2002 the city has set up more than 40 projects to help the biotech sector and helped create a network of incubators supporting start-ups in that area. It also established a $22m municipal entrepreneurial fund, the first of its kind outside Silicon Valley. A year ago Michael Bloomberg, a tech entrepreneur before he became New York's mayor, called on universities to pitch plans to develop and operate a new tech campus in New York in exchange for access to city-owned land and up to $100m in public money. New York received seven proposals from 17 top institutions, including Stanford University which did so much to create Silicon Valley. Almost 6,000 companies, including Google, Hewlett-Packard and LinkedIn, trace

their beginnings to Stanford. But Stanford withdrew from the competition last month, days before the mayor announced the winning proposal, which came from Cornell, an Ivy League university, and its partner Technion, an Israeli technology institute. The latter is considered to be one of the driving forces in Israel's tech industry. It helped turn Israel from a country of orchards to one of semiconductors. Some 4,000 start-up companies are located around its campus. The two bodies have plans to build a $2 billion 2m square feet (610,000 square metres) campus on Roosevelt Island, one subway stop from midtown. Cornell and Technion hope to have a temporary facility up and running as soon as this autumn and complete their permanent home by 2017. The bid had huge support from Cornell alumni, including a $350m gift from Charles Feeney, who made his fortune through the Duty Free Shopping Group. That is one of the largest donations in the history of American higher education. According to the city's analysis, over the next 30 years the campus will generate more than $7.5 billion in economic activity, with 600 companies spinning out of the new school directly; these are projected to create 30,000 jobs. Some 20,000 construction jobs will also be created, not to mention about $1.4 billion in extra tax revenue. And it should help quench the never-

ending demand for qualified engineers. The mayor has not ruled out naming additional winners. And some of the losing plans will go forward regardless. So New York could soon have several applied sciences campuses. Look out, Silicon Valley. CONCLUSIONS AND RECOMMENDATIONS The consultation recognized that crop diversification is one of the best options to increase farm income leading to food, nutrition and ecological security as well as poverty alleviation in the region. Therefore, greater attention should be paid to crop diversification by the governments of the region. Crop diversification could be approached in two complementary and interactive ways; a) horizontal diversification through expanding the crop base by substituting or adding more crops into the cropping systems as commonly practiced by many countries of the region; and b) through vertical diversification in which downstream activities are undertaken to add value, indicating the stage of industrialization of the crops and their economic returns. Vertical diversification is complementary to horizontal

diversification, and the opportunities should be exploited for product diversification and value addition to achieve highest economic returns.

 Efforts have been made by different countries to identify high specialty crops, new crops, off-season varieties and production systems, and novel varieties of crops with comparative advantage, mainly fruits, vegetables and ornamentals, to open up new opportunities for farmers. It was noted that the promotion of multipurpose species would also be useful for diversification of agro-processing on small scale at local/national level for productivity enhancement and expanded employment opportunities. Rice is the most important crop in Asia. However, in marginal areas, ricebased cropping systems have relatively low returns. Improving the current cropping systems to enhance their sustainability to the extent possible, and shifting marginal areas out of rice into other more profitable crops is seen as a solution. Alternatively, flexible cropping systems for upland farmers that feature production of more income elastic goods like horticultural products are a means of diversifying their income sources. Concerns have been expressed regarding the policies of some countries to reduce the extent of land under major perennial crops and rice; and subsequent repercussions of these will have a long-term bearing. It was noted that such crop replacements unless carefully analyzed might have adverse effects on the food and industrial product supply in the region.

 The need for improved seed and other planting material seed industries to supply quality seed and other planting materials which is so vital for crop diversification. Steps should be taken to maintain effective national and subregional seed security in the region through regional collaboration.

The high post-harvest losses of crop produce particularly in horticultural crops which annually account for 20-40 percent in most countries, if prevented, could increase yield by similar amounts. It was recommended that efforts should be made to minimize such losses. The development of links with the food industry for product diversification and value addition to meet the demands of the changing society was recommended. Serious concern was expressed of the soil fertility depletion, due to continued intensive cropping over long periods of time, which needs to be corrected. The use of organic manures as replenishments through direct application or crop rotations and insertion of green manure crops and other food legumes in the cropping systems was recommended. Due to the impending labour shortages for agriculture, the need for mechanization of field and post-harvest operations was noted. Need for

mechanization of agricultural operations and assessment of the machinery use by the agricultural sector of countries of the region was emphasized. In view of limited land, water and labour supply, the need for adoption of emerging agricultural technologies such as protected agriculture, organic farming, Integrated Plant Nutrient System (IPNS) and Integrated Pest Management (IPM) was emphasized. Efficient input supply systems through micro-irrigation and fertigation should be encouraged. The role of the private sector in the development of modern agroenterprises to infuse capital and technology into diversified cropping systems for effective commercialization for long term sustainability was advocated. The importance of diversification to value-added export oriented crops was emphasized. In that context, the need to study marketing opportunities and product standards required by importing countries, as well as price fluctuations, competitiveness etc., prior to embarking on diversification, was highlighted. Furthermore, the availability of market information was considered essential for identifying promising external markets. In general, there is no point in diversifying into a crop for which market potential is limited.

 Individual countries have developed policies, strategies and implementing mechanisms for crop diversification. These include infrastructure

development (transport, communication and markets), pricing policies, subsidies, insurance schemes, tax, tariff etc., in order to minimize risks and safeguard the interests of agricultural entrepreneurs. As the strategies adopted by different countries are innovative and diverse, sharing of such information will benefit the other countries to stabilize and sustain their crop diversification initiatives. The governments role in recognizing farmers participation in the total process of crop diversification, provision of information on new crop varieties, technologies to be used, potential yields, marketing avenues and incomes to be realized was essential for the development of successful crop diversification programmes. The need for skill development and capacity building and documentation of required information through the production of field manuals, extension leaflets etc., for use by the entrepreneurs was also considered essential. Significant changes are taking place in domestic and international demand for crop products due to improvement in income, better standard of living, and changing life styles and preference patterns such as improved horticultural and livestock products. Trade liberalization and development of

transport and communication infrastructure have opened more avenues for trade and have improved access to new and distant markets. This has created new opportunities for crop diversification in various countries. The role of FAO as facilitator in the development efforts of crop diversification undertaken by different countries, through holding of seminars and workshops, skills development programmes, information sharing, facilitating germplasm exchanges etc., was recognized. The need for the development of an information database on crop diversification for use by policy makers, farmers, consumers, and other stakeholders was an essential requisite for crop diversification. It was recommended that efforts should be made to compile this database. To facilitate all the abovementioned activities the establishment of a Network on Crop Diversification for the Region was recommended. Recognizing crop diversification as an element of poverty alleviation, income generation, equity and natural resource conservation, and to enhance this, a well designed mechanism has to be developed through the participation of international organizations and local governments to strengthen the initiative undertaken by this region.

Competitive Strategy Why Diversify? PepsiCo Case Study

Why Diversify? Why consider diversifying your business? What is diversification? Why do businesses do it? Are there different types of diversification and have any been really successful? This article will give answers to these questions and much more! Firstly what is Diversification? It is a corporate strategy to increase market penetration and thereby increasing sales and gaining market share.

Many organisations consider diversification for a range of reasons. Some valid reasons are: Not having all of your eggs in one basket If the industry becomes unattractive
Diminishing market opportunities & stagnating sales

When you spot an industry whose technologies & products complement the present business
When you can leverage existing competencies & capabilities by

expanding into businesses whose same resource strengths are key success factors & valuablecompetitive assets Opens new avenues for reducing costs Transference of a brand name to drive sales & profits Competitive pressures Diminishing growth prospects in the present business Expand into industries whose technologies & products complement present business (Dell printers)

 Leverage existing competencies & capabilities by expanding into businesses where these resource strengths are key success factors
Reduce costs by diversifying into closely related businesses economies

of scope & shared value chain Powerful brand name can be transferred to products of other businesses

There are two types of diversification: Related diversification possess competitively valuable cross-business value chain matchups horizontal integration Unrelated diversification
have dissimilar value chains, containing no competitively useful cross-

business relationships can share support activities HR etc There is also the concept of strategic fit. Without a strategic fit is highly unlikely that a diversification will work: strategic fit exists whenever one or more activities comprising the value chains of different businesses are sufficiently similar as to present

opportunities for transferring, combining, exploiting & business collaboration

PepsiCo Case Study A few years ago PepsiCo diversified. This is an interesting case study of what can be achieved with a related diversification that has a strategic fit and some future opportunities for PepsiCo. PepsiCo has used the related diversification corporate strategy as their basic approach to new businesses and acquisitions with a focus on beverages and consumer foods. Wherever possible PepsiCo has found related activities

within the value chain between the various beverage and snack food brands to reduce costs and increase profits. Some of the elements of the value chain that are shared include: Marketing Processing Research and development This has enabled PepsiCo to find a good strategic fit in most of the businesses they have acquired. In turn this has lead to a good resource fit with all businesses generating free cash flow and a minimum margin of 15% + across all units. A key advantage for PepsiCo is that customers across the globe have similar tastes and this has assisted the company in implementing global strategies and being able to execute marketing and distribution similarly in all regions. An opportunity exists for PepsiCo in the good-for-you and better-for-you markets that they are just starting to implement across their products. This change in consumer tastes worldwide provides an opportunity for PepsiCo to acquire a health food company similarly to Sanitarium in Australia. Sanitarium would fit into the PepsiCo model of being a consumer foods company with a focus on ready to eat breakfast cereals and well as being a

horizontal integration into the value chain as a related diversification. The added advantage is that Sanitatium would give PepsiCo more credibility in the GFU/BFU market and enable the company to take leadership on this issue. If you are considering diversification, hopefully these points will start you on the right direction!

Diversifications Amazon Price: $9.45 List Price: $15.95 Diversifications Amazon Price: $2.99 Diversifications Amazon Price: $27.14

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