DIVERSIFICATION STRATEGIES

Diversification Strategies

Diversification Strategies - Philip Morris and Campbell Soup

Introduction

Firms expand operations by adding products, markets, stages of production and services to the current portfolio. These strategies through which firms expand are called diversification strategies. The objective of diversifying is to enter into new businesses or market in order to achieve better business results. Concentric diversification means that the company has extended business in the existing line of operations. When the new added business is not related to the current line of business, it is called Conglomerate diversification. In Conglomerate diversification, there is a strategic fit between new and old businesses.

The goal of concentric diversification is to achieve a strategic fit by adding related services or products. Synergy results if a company finds correct strategic fit. Financial synergy may be attained by adding a firm with goof financial wealth but restricted growth opportunities with a company having vast market prospective but fragile financial reserves. In conglomerate diversification, synergy is obtained through applying managerial expertise or financial resource, but its primary objective is to enhance profitability of parent firm. Diversification efforts are either external or internal. Diversification strategies can also be classified by the direction of diversification .

Unsuccessful vs. Successful Diversification

Philip Morris Company Overview

PMI or Philip Morris International is a leader in Tobacco manufacturing. Its core operations include manufacturing and sales of cigarette and related tobacco products. The marketing of products is done in around 160 countries. The company employees around 77,000 people and Head quartered in New York, U.S.A.

Campbell Soup Company Overview

Campbell Soup's core operations include manufacturing and manufactures and markets foods and simple meals, including baked snacks, soups and sauces, and hale and hearty beverages. The marketing of products is done in U.S. The company employees around 18,400 people and Head quartered in Camden, New Jersey. By the end of year, Jul. 2010, company recorded sales revenue of around USD 7,676 million, which was an increase of 1.2% in comparison to year 2009. The decrease was caused by the mix of lower volume and unfavorable movement in currency. In FY 2009, the company made an operating profit and net profit of around USD 1,348 million and USD 844 million respectively. Operating profit and net profit increased by 13.8% and 14.7% respectively (Datamonitor, 2011).

There are four business segments which include U.S. soup, beverages and sauces; international soup, sauces and beverages; backing and snaking and North American Foodservice. The backing and snaking unit markets crackers, frozen products, bakery and cookies under the brand of Pepperidge Farm. In Australia and Asia Pacific, it also offers Arnott's brand biscuits. The international sauce, soup and beverages unit offers the sauce, soup and beverage business in Latin America, Russia, Europe, China and Asia Pacific and retailing in Canada .

Philip Morris: Diversification

Philip Morris is one the success story in diversification studies. In the past four decades, the company has grown into a major player in international cigarette industry. Not many years ago, in 1960s Philip Morris was one of the smaller companies in big six ...