DIVERSIFICATION

International Diversification



International Diversification

Introduction

The term “Diversification” means an individual or entity is entering into the new market or business. This paper will focus on the international diversification of the corporations and also highlight the purpose or motives behind the diversification. The paper will elaborate the advantages and disadvantages for a corporation going internationally. The paper will also include a case study which will help in understanding the key issues that a corporation faces in starting business at different geographical locations. The case study will assist in getting the indebt analysis of the diversification. The case study will be comprised of the real example of the company “Pepsi Co”. It is a fact that the practical example provides the real information which is often different from the theory. Therefore, the case study will enhance the findings and issues of corporation diversifying internationally. The business runs for the purpose of making profits. The management of the company's prefers to take all those operations which have potential to give profits and avoid making investments in projects which are expected to perform average or below average.

The management of the company makes the decision of going abroad or making investments in other countries with the same mind set. It is the fact that the risk attached to the geographically diversified projects is expected to high as compared to the risk attached with local projects. Therefore, the decision of making investment in international projects requires through analysis of the target market. It is no necessary that company will remain successful because of its brand name, heavy investment and efficient business models. The cultural study is very important is very important in carrying out projects at different locations. The purpose of the diversification is to increase the value of shareholder wealth. Generally, there are three ways of making investment in international projects which are acquisition, internal start up and strategic partnership/ joint venture. The widely used mean of international diversification is the acquisition of a local business and modify its existing strategies. It does not mean that the process of acquisition is free of disadvantages, each way or mean has its own advantages and disadvantages. The other two means or forms of international diversification are more time consuming as compared to the acquisition (Kapfere, 2008, pp. 155).

There are two kinds of diversification such as related diversification and unrelated diversification. The related diversification means that company is entering into new markets but the required capabilities of business will remain same. The company will start serving the new markets with old capabilities. On the other hand, the unrelated diversification means that the company is entering into new markets which require new capabilities. The costs and expenses attached to unrelated diversification are often higher than the costs and expenses attached to the related diversification (Kapfere, 2008, pp. 155).

The company which starts operating in other countries is expected to stay in the host country for longer period of time because acquisition or starting up a new business requires a lot ...