Running Header: DIVERSIFICATION STRATEGIES

Diversification Strategies

Diversification Strategies

The issue of corporate strategies for business development is a matter crucial and this regardless of size. Companies do not limit their activity to only one type of production: competition forces companies to constantly be on several markets and thus diversify their business. Among the main policy options that global available to the company, diversification is therefore an alternative widespread in strategic business maneuvers. However, other alternatives are possible in terms as corporate specialization, integration and / or internationalization. All companies must value over time if they want their business to ensure development Constant. Whatever the company size, business leaders and managers wonder about the extent of their strategic portfolio and thus the opportunity to diversify and expand their business portfolio. The issue of diversification is well posed.

Diversification is opposed to the specialization that is for the company to stay in an area strategic activity. When the company moves away from its field, it is assumed to diversify. In practice, the term diversification covers some very different light of the ambiguity that surrounds the subject of diversification. Diversification is known as the process by which a company spends to offer new products and enter new markets, by way of corporate acquisitions or investing directly in new business. The reason that companies are diversified is the search for synergies or a reduction in the overall business risk. Diversification is one of four marketing strategies defined in the Ansoff matrix. There are related and unrelated (conglomerate) diversification. In turn, related diversification can be vertical or horizontal.

Firms diversify when they can not achieve its objectives. In the area of ??the target return for short and long term can cause market saturation, the overall decline in demand, competitive pressures or the obsolescence of the product line. In the target area flexibility may be the cause a disproportionately large share of sales to one customer, market or technological base usually reduced, or the influence of new technologies.

A company can diversify because the retained available exceeds total expansion needs. The return that can be obtained from liquid resources generally is lower than that of operations. There may be pressures for the company to invest the money in a more cost effective.

Firms diversify when diversification opportunities promise greater profitability than the expansive opportunities. This can occur when diversification opportunities are sufficiently attractive to compensate for their lower inherent synergy, or when the synergy is not considered important and therefore the benefits of expanding the synergy on diversification are not significant.

Southwest Airlines

Southwest Airlines was created in response to the high price of intra-Texas flights (Freiberg, 1996). The little upstart airline withstood the test of time, surviving courtroom battles, combined with the constant need for increased capital. The new discount airline went on to wage war with the major air carriers. This is a no-frills carrier. For the most part, they offer no food, no movies, no first class, and no reserved seats. They are not a hub-and-spoke carrier, but rather ...