Page 128 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Advantages
(a) Business risk is scattered over diverse industries.
(b) Financial resources are invested in industries that offer the best profit prospects.
(c) Buying distressed businesses at a low price can enhance shareholder wealth.
(d) Company profitability can be more stable in economic upswings and downswings.

Disadvantages
(a) It is difficult to manage different businesses effectively.
(b) The new business may not provide any competitive advantage if it has no strategic-
fits
The differences between concentric and conglomerate diversification are summarized below:

Table 7.1: Differences between Concentric and Conglomerate Diversifications
Sl. No Concentric Diversification Conglomerate Diversification
1. The company diversifies into businesses The company diversifies into businesses
related to the existing businesses. that are unrelated to the existing businesses.
2. There is commonality in markets, No commonality in markets, products or
products or technology. technology.
3. The main objective is to increase The main objective is to increase
shareholder value through “synergy”, shareholder value through profit
which is achieved through sharing of maximization.
skills, resources and capabilities.
4. Less risky. More risky.

Caselet Diversification brings Success for ITC

or ITC Ltd., 2007-08 continued to be year of quiet growth. Just more launches in its
relatively new segment of non-cigarettes fast-moving consumer goods, and solid
Fgrowth. As in the past few years, ITC's non-cigarettes businesses continued to grow
at a scorching pace, accounting for a bigger share of overall revenues. "The non-cigarette
portfolio grew by 37.6% during 2006-07 and accounted during that year for 52.3% of the
company's net turnover," an ITC spokesman said. In fact, over the first three quarters of
2007-08, ITC's non-cigarette FMCG businesses have grown by 48% on the same period last
year, "Indicating that its plans for increasing market share and standing are succeeding".
The branded packaged foods business continued to expand rapidly, with the focus on
snacks range Bingo. The biscuit category continued its growth momentum with the
'Sunfeast' range of biscuits launching 'Coconut' and 'Nice' variants and the addition of
'Sunfeast BenneVita Flaxseed' biscuits. Aashirvaad atta and kitchen ingredients retained
their top slots at the national level, with the spices category adding an organic range. In
the confectionery category, which grew by 38% in the third quarter, ITC cited AC Nielsen
data to claim market leader status in throat lozenges. Instant mixes and pasta powered the
sales of its ready-to-eat foods under the Kitchens of India and Aashirvaad brands.
In Lifestyle apparel, ITC launched Miss Players' fashion wear for young women to
complement its range for men.
Contd...

122 LOVELY PROFESSIONAL UNIVERSITY