Related Diversification Is The Most Popular D
Related Diversification Is The Most Popular D
Related Diversification. Related Diversification is the most popular distinction between the different types of diversification and is made with regard to how close the field of diversification is to the field of the existing business activities. Related Diversification occurs when a company adds to or expands its existing line of production or markets. For this assignment, consider your own company or one that you know well. Assume your company opted to pursue a strategy of related diversification and respond to the following questions.
What industries or product categories could if diversify into that would allow it to achieve economies of scale? Identify at least two or three such industries or product categories? Describe the specific kinds of cost savings that might accrue from entry into each? Incorporate our coursework (Thompson text and other material) from this week into your above responses. Submission Details: Your analysis should be 500 words.
Incorporate a minimum of at least one course (Thompson text) and one non-course scholarly/peer reviewed source in your paper. All written assignments must include introductory and concluding paragraphs, reference page, be double-spaced, and proper in-text citations using APA guidelines.
Paper For Above instruction
Introduction
Related diversification is a strategic approach that companies utilize to expand their operations into industries or product categories that are closely linked to their existing business activities. This approach leverages similarities in technology, distribution channels, or customer bases to achieve synergies, particularly economies of scale. For companies aiming to grow while optimizing operational efficiencies, related diversification offers a strategic pathway to reduce costs and enhance competitive advantage. This paper explores potential industries or product categories suitable for related diversification for a hypothetical company, analyzing how such moves can generate economies of scale and associated cost savings, supported by academic literature.
Potential Industries and Product Categories for Related Diversification
Assuming a manufacturing company specializing in consumer electronics, such as smartphones and tablets, the company could consider diversifying into the related industries of wearable technology, home automation devices, and peripheral accessories. These selections align closely with the core competencies, technology, and distribution channels of the existing electronic products, facilitating economies of scale.
Firstly, wearable technology, including smartwatches and fitness bands, complements the company's existing consumer electronics range. The manufacturing process for wearables shares similarities with smartphones, notably in integrated circuit design, battery technology, and software development. Entering this industry could allow the company to consolidate suppliers for components such as sensors, batteries, and display panels, leading to volume discounts and reduced procurement costs—a form of economies of scale.
Secondly, venturing into home automation devices—such as smart thermostats and security systems—aligns with the company's expertise in electronics and software integration. The R&D efforts can be consolidated, and common components like microprocessors and communication modules can be utilized across product lines. Economies of scale can be achieved through bulk purchasing of these components, reducing manufacturing costs and streamlining logistics.
Thirdly, expanding into peripheral accessories like chargers, cases, and screen protectors further complements the core business. Manufacturing these accessories alongside electronics enables shared distribution channels, joint marketing efforts, and consolidated inventory management, thereby reducing per-unit costs. Such strategic expansion enhances economies of scale through increased production volumes and operational efficiencies.
Cost Savings from Related Diversification
The primary cost savings from entering these related industries arise from economies of scale driven by increased production volume, procurement efficiencies, and shared operational resources. For example, bulk procurement of electronic components, such as sensors, microprocessors, and batteries, can significantly lower the per-unit cost, as suggested by Thompson (2017). These savings are achieved through supplier negotiations and standardized component usage across product lines, reducing manufacturing complexity and costs.
Furthermore, operational efficiencies are gained through shared R&D, marketing, and distribution channels. Developing a unified brand strategy across related products minimizes marketing costs, while consolidated distribution networks optimize logistics and inventory management, leading to lower warehousing and shipping expenses. Additionally, leveraging existing customer service infrastructure reduces the marginal cost of after-sales support.
Studies indicate that related diversification can also reduce risks by spreading revenue streams across complementary products, stabilizing cash flows and allowing for more predictable cost structures. According to Barney (2019), economies of scale are crucial for competitive pricing strategies and profit maximization, especially in technology-based industries where innovation cycles are rapid.
Conclusion
In conclusion, related diversification offers significant opportunities for companies to achieve economies of scale, facilitating cost savings and operational efficiencies. For a consumer electronics firm, diversifying into wearable technology, home automation devices, and peripheral accessories aligns with existing competencies and supply chains, enabling shared resources and procurement efficiencies. These strategic moves can reduce costs, improve competitive positioning, and foster sustainable growth. By leveraging internal capabilities and economies of scale, companies can navigate competitive markets more effectively and enhance long-term profitability.
References
Barney, J. B. (2019). Strategic management and competitive advantage: Concepts and cases. Pearson.
Thompson, A. A., Peteraf, M., Gamble, J. E., & Strickland, A. J. (2017). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases. McGraw-Hill Education.
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Kozmetsky, G., & Livernois, J. (2019). Economies of scale and scope: The revolutionary impact on business strategies. Journal of Business Strategy, 40(2), 45-52.
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