Then how come the article says horizontal diversification is about intrinsically new and product line modifications that serve the EXISTING customer. The Coca-Cola Company of Atlanta, is registered in United States since March 27, 1944. If one business sector is declining, the business has the opportunity to overcome the unfavorable situation by performing well in the other diversified sector. It also means adding products or services to the product or service line already existing. A pizza outlet owner selling only pizzas decides to open ice cream outlet in different corner of the city is an example of concentric diversification because the pizza outlet owner is not moving away from food business rather he or she is expanding into other areas of food business but if same pizza outlet owner decides to open a car showroom or decides to build residential houses than this is an example of conglomerate diversification as pizza outlet owner is moving to a completely different business from hi… Types of Diversification. Quality Improvement – As a company has standardized offering, it specializes in a single product or service, quality techniques are applied to the offering. Reasons for conglomerate diversification: Companies prefer conglomerate diversification because of the following reasons: 1. Your email address will not be published. These are just two examples, so let's think for a moment about how many globe-spanning companies built their empires by diversifying. An example related to the company that is termed as conglomerates is: Philip Morris. Conglomerates are typically large and multinational However, in Asia, huge diversified conglomerates … Differentiation strategy: attempt to be unique in its industry along dimensions that consumers value. Concentric diversification is preferred by companies due to the reasons cited below: Concentric diversification is a related approach to diversification, whereas conglomerate diversification is an unrelated approach. However, the risk of fluctuating demand is basically less, but the risk that is involved in competition within the industry is usually high. Berkshire Hathaway Inc.is a good example, being one of the largest conglomerates in the world. Initially a lighting business, General Electric diversified into medical devices and household appliances. This often occurs due to a merger or buyout of another company, or it can occur if the company simply wants to develop different products that aren't related to the ones they already produce. The general strategies include concentric, horizontal and conglomerate diversification. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital, and finance, etc. When an organization has ample administrative staff and capital endowment in order to strive in the new industry or business efficaciously. By inorganic growth, t… Before understanding Horizontal Diversification, you should know what diversification is? Customer Loyalty – When the company tends to make a horizontal diversification, there might be a situation where they tend to lose customers due to various reasons. Conglomerate diversification is diversification into new products, technologies, markets, or new market functions that do not relate to the existing business. Companies do this to achieve economies of scale and reduce costs. [1] Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. Tata industries have followed conglomerate diversification by diversifying into unrelated areas such as automobiles, iron and steel, telecommunication, consumables (salt) etc. Examples of Conglomerate Diversification • Example of Indian company which have adopted apart of growth and expansion through conglomerate diversification the classic examples is of ITC, a cigarette company diversifying into the hotel industry. Examples of conglomerate diversification include General Electric, Virgin Group Ltd. and The Walt Disney Company. Diversification also opens the core company to new markets and new revenue sources. Everybody's … A horizontal diversification must be well thought before a company steps into it. A combination of these options best does the final strategy. The term inorganic growth refers to expansion by a corporation by taking over other companies. Conglomerate diversification is a growth strategy that involves expanding a company's business into an area, or areas, totally unrelated to its core business. An example often held up as a conglomerate merger was the coming together of Walt Disney Company and the American Broadcasting Company. Initially a lighting business, General Electric diversified into medical devices and household appliances. Diversification allows for more variety and options of products and services. Conglomerate diversification occurs when a company stretches out its business into an area which is dissimilar to its core business. The Coca-Cola Company of Atlanta, is registered in United States since March 27, 1944. 10 Ways To Be Successful, Barriers To Entry: Meaning, Types, Examples, Definition Of Entrepreneur – Define Entrepreneurship, How to be Confident? Diversification mitigates risks in the event of an industry downturn. Given below is a snapshot of some of the holdings Thus Berkshire Hathaway stands as a classic example that merely holds businesses, yet allows them to run on their own. What Does George Soros' Open Society Foundations Network Fund? Advantages and Disadvantages of Horizontal Diversification, What is Benefits Administration? How Does the 25th Amendment Work — and When Should It Be Enacted? It happens when a company adds or develop a new product or service that appeal to the firm’s customer base. Product Diversification Example. An example of horizontal diversification is the when company A, which makes laundry detergent, seeks to enter the market for selling washing machines. The following are the four types of diversification and its pros and cons: Horizontal Diversification. Increased Manpower – When the product or services is increased or standardized, the whole organization will have periodic responsibilities and can become experts in their own domain. Aside from the production scale advantage, the standardized products also enjoy the benefit of being automated easily that results in further cost savings. Conglomerate diversification is diversification into new products, technologies, markets, or new market functions that do not relate to the existing business. There will be a reduction in cyclical fluctuations, This diversification increases the cash flows and profits, This diversification sees an increase in managerial expertise and, This diversification makes use of surpluses into the new market. Today, most Western conglomerates concentrate on their central business, leaving any diversification in the shadows. An example related to the company that is termed as conglomerates is: Philip Morris. A conglomerate is a combination of multiple business entities operating in entirely different industries under one corporate group, usually involving a parent company and many subsidiaries.Often, a conglomerate is a multi-industry company. I am a serial entrepreneur & I created Marketing91 because i wanted my readers to stay ahead in this hectic business world. 5. Through this article, let us discuss the Horizontal Diversification. The concept of market / customer seems to have changed from the higher level horizontal to the lover level of concentric and conglomerate. In other words, this type of strategy involves the acquisition of as many businesses as an owner can afford that don’t complement each other in any way. Apart from any technological changes that limit the application of the offering in the target verticals are indeed a potential threat to the top line. However, in Asia, huge diversified conglomerates … Conglomerate Diversification Elements A business owner that implements a conglomerate diversification strategy is focused on operating companies that have no relation to each other. New Coke. If done correctly, One example of concentric diversification is sharing resources or facilities. Conglomerat diversification occurs when the firm diversifies into an area(s) totally unrelated to the organization current business. Concentric diversification is a related approach to diversification, whereas conglomerate diversification is an unrelated approach. But there have been occasions where brands have failed where the diversifications have been quite off-color. A well-known name that comes to our mind when we think of a major conglomerate is of Berkshire Hathway which is run by Warren Buffet. In addition to achieving higher profitability, there are several reasons for a company to diversify. Examples of Horizontal Diversification In order to illustrate this point, and demonstrate in real terms how horizontal diversification works and what it can achieve, we've compiled a list of companies that have mastered this strategy – whether through aggressive acquisition or in-house product development. Reasons for Conglomerate diversification: Undertaking horizontal diversification, the market tends to focus on wide applicability and good demand. Examples of conglomerate diversification include General Electric, Virgin Group Ltd. and The Walt Disney Company. Before a company goes into horizontal diversification, the company must have a thorough analysis of it to ensure that it remains a success. Microsoft's takeover of Skype (2011) SSL International, the manufacturer of Durex condoms, taken over by conglomerate Reckitt Benckiser (2010) One of the main advantages of lateral integration is to exploit economies of scope. Diversification strategies are used to extend the company’s product lines and operate in several different markets. Firms also merge to reduce the risk of loss through diversification. Conglomerate Diversification • When an organization adopts a strategy which requires taking of those activities which are unrelated to the existing businesses definition of one or more of its businesses either in terms of their respective customer groups, customer functions or alternative technologies, it is called conglomerate diversification. Conglomerate diversification is a growth strategy that involves expanding a company's business into an area, or areas, totally unrelated to its core business. Arent all these 3 diversifications of the same smartphone. This is the riskiest section as the business will have no experience in the new market and do not know if the product will be successful or not. Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization's present products or services. Conglomerates Fact Check: Is the COVID-19 Vaccine Safe? For example, when a computer company producing personal computers using towers starts to produce laptops, it uses concentric strategies. What Are Some Examples of Conglomerate Diversification. This often occurs due to a merger or buyout of another company, or it can occur if the company simply wants to develop different products that aren't related to the ones they already produce. Concentric diversification: involves getting into a related business. Conglomerate diversification is when a company expands into unrelated businesses. For example: 1. Defensive and offensive diversification are terms that have more to do with why a company wants to diversify, rather than how. This diversification and the efficiencies brought about by shared or reduced costs often make conglomerates less risky than those operating in a single market or niche. Comparing to the average spending of each customer, the customers will not be a hindrance to the pricing decisions of the company. After adding, the existing marketing, technical, and financial expertise is also applied to the new products. Cost Reduction – Having a standard offering will normally allow a company to operate at a large scale. Proctor & Gamble acquiring Gillette. Conglomerat diversification occurs when the firm diversifies into an area(s) totally unrelated to the organization current business. Virgin expanded from a record label to transport and healthcare, while Disney’s operations range from film studios to entertainment parks. Tata industries have followed conglomerate diversification by diversifying into unrelated areas such as automobiles, iron and steel, telecommunication, consumables (salt) etc. Examples of conglomerate diversification include General Electric, Virgin Group Ltd. and The Walt Disney Company. The History of the United States' Golden Presidential Dollars, How the COVID-19 Pandemic Has Changed Schools and Education in Lasting Ways. Formed through years of acquisitions and mergers, Berkshire Hathaway is responsible for the ownership of companies that provide utilities, retail goods, transportation, and other services, as well as the insurance and other financial services it is perhaps most well known for. Thus, creating products that have wider applicability as it can integrate well with the businesses. Horizontal diversification can be seen in the following two forms – Concentric diversification and Conglomerate diversification. When it is done correctly, diversification will provide a wonderful, Diversification also allows a company to make use of excess cash flows, Add new products to the existing products in similar markets that will serve similar customers through the same, Add new products to the existing products by using similar, When there is a decline in sales for one product, it can balance by rising sales in the other product. Concentric Diversification is a form of horizontal diversification where the companies perform the following: Thus, in any of the ways, adding new products, either markets or technology to the existing products is known as concentric diversification. Examples of Horizontal Diversification In order to illustrate this point, and demonstrate in real terms how horizontal diversification works and what it can achieve, we've compiled a list of companies that have mastered this strategy – whether through aggressive acquisition or in-house product development. Products, markets, and production technologies of the brewery were quite different from those required to produce cigarettes. March 8, 2020 By Hitesh Bhasin Tagged With: Management articles. Where there are profits that cannot be reinvested into the same business, it can be invested in products that can provide better returns, For the company to grow at a rate faster than what it can achieve through aggregation or expansion, Conglomerate diversification also means to enter into, This diversification increases the managerial expertise, This diversification could also mean to take benefit of well-experienced and senior executives who can get into new profitable, This diversification also helps to optimize the use of existing resources, It could also help to earn capacity and market value in the firm. Types and benefits, Diversification eases risk when there is an industry downturn, Diversification allows more variety and options of producers. It basically means to add dissimilar products or services to the current products. Different coaching styles, What is Corporate Training? Optimized Operations – When there is a standard product, it usually indicates that the complexities are minimized. Function strategy: Implemented by each functional area of the business. A conglomerate is a combination of multiple business entities operating in entirely different industries under one corporate group, usually involving a parent company and many subsidiaries.Often, a conglomerate is a multi-industry company. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the … Even within a single market, such as entertainment, a conglomerate may operate very diversified businesses, from movie production to clothing manufacture. For example, when a notebook manufacturer starts to manufacture pencils and when they enter pencil manufacturing, then this is a horizontal diversification strategy. For example, Tata industries have shadowed conglomerate diversification by diversifying itself into many unrelated areas like iron, automobiles, telec… Every stage, right from procurement to production process, sales, delivery is a repetitive process, and due to this, the entire operation is easily scalable. Conglomerate diversification is somehow an opposite to concentric diversification and thus it focus on financials and keep them evaluating in order to improve the financial position of the firm or businesses. 10 Ways To Be Confident, Business Risk: Definition, Types, Importance and How to Minimize it, Organizational Conflict: Definition, Types and Advantages, The Perpetual Transition Management Framework Explained, Self Compassion - Elements And Misconceptions. 2. Examples: Google and You Tube. Diversification of Business. Conglomerate diversification is somehow an opposite to concentric diversification and thus it focus on financials and keep them evaluating in order to improve the financial position of the firm or businesses. Brand recognition and customer loyalty for the detergent may carry over to the business of selling washing machines. Conglomerate diversification occurs when a company stretches out its business into an area which is dissimilar to its core business. For example, Tata industries have shadowed conglomerate diversification by diversifying itself into many unrelated areas like iron, automobiles, telecommunication, consumables, and steel. What Are the Steps of Presidential Impeachment? For example – Why does Samsung bring out Note 10 besides Galaxy 10 and also Galaxy Edge smartphones. It becomes easier for the company to identify various areas where they could improve the product or services. The operational process will be scalable, and this explains the lower cost of per unit production. Concentric diversification, a strategy used to increase company appeal to consumers, can also involve opening new markets by creating product variation. However, the success or failure of a single product determines the destiny of the entire company. In a conglomerate merger, the two markets continue to face the same competitors as before the merger. Some examples of concentric diversification include resource sharing, strategic partnerships and acquisitions. It now employs 706,000 people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and … So with the above example, we can safely say that Diversification isnt about serving new markets with new products only. Here are some examples of brands which have failed due to wrong diversification. You can follow me on Facebook. This combination is got in the function of the existing opportunities and consistency with the objectives and the various available resources of the company. 1. For example, a metals distributor who needs a larger warehouse may contract with a manufacturing company that has a … Reasons for conglomerate diversification: Companies prefer conglomerate diversification because of the following reasons: 1. New Coke. Conglomerates are typically large and multinational ... For example, Company … An example of conglomerate diversification would be a clothing company branching out into toys. Diversification is a corporate strategy that is used to bring new products into existing market or enter into a new market or industry where the business does not currently operate while there are new emerging products in the new market. Hence horizontal diversification can help to support various optimization by expanding its products to fit in the market. Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization's present products or services. There are three types of diversification – Concentric, Horizontal, and Conglomerate. Apart from achieving higher profitability, there are many reasons for a company to diversify. Today, most Western conglomerates concentrate on their central business, leaving any diversification in the shadows. https://smallbusiness.chron.com/example-company-conglomerate-14699.html An example of conglomerate diversification would be Tata Group, which was founded in 1868 and diversified from its humble beginnings as a hotel company into a global multinational encompassing 100 individual companies. (production, HR, marketing, R&D, finance and distribution. But there have been occasions where brands have failed where the diversifications have been quite off-color. Here are some examples of brands which have failed due to wrong diversification. Examples of Well-Known Conglomerates Warren Buffet’s Berkshire Hathaway (BRK.A) is a well-known conglomerate that has successfully managed companies involved … Conglomerate merger enables the company to diversify its business. Since the product or services tend to get into the maturity stage, it has merged feedback from various channels from many channels from various domains. Resource and facility sharing is used to reduce costs and achieve economies of scale. Let's stay in touch :), Isn’t the whole idea of diversification to serve new markets with new products? Horizontal diversification includes providing new and unrelated products or services to an existing consumer. Defensive Diversification. A workforce leaves more scope for innovation and usually results in great productivity levels. Your email address will not be published. A conglomerate diversification strategy can be effective to be followed by any organization in some situations, such as: When an organization finds a decline in its annual sales and profits. Today, 54% of Disney’s revenues—but only 32% of its profits—come from movies and parks. Each strategy focuses on a specific method of diversification. External Force Risk – When there is a horizontal diversification, any kind of regulatory changes will affect the offering and will also tend to have an impact on the company’s future. There will not be any customization that suits the needs of the various market segments that will result in cost-effective operations. And arent all of them selling in the same market. The technical knowledge for new venture comes from its current field of skilled employees. That involve unrelated activities. No. Low Barging for Customers – When a company caters to a wide customer base, they tend to enjoy high levels of price control. Definition and Steps, What is coaching? I love writing about the latest in marketing & advertising. Firms may also pursue a conglomerate diversification strategy as a means of increasing the firm's growth rate. Many well-run conglomerates like Berkshire Hathaway and General Electric are much like funds in that they offer diversification and are less sensitive to general business cycles than more focused companies. It helps to overcome risks associated with the vulnerable market. Philip Morris's acquisition of Miller Brewing was a conglomerate move. It can increase the growth of the company that leads to wealth maximization. But sometimes, it could also be a failure for certain companies. A concentric diversification strategy lets a firm to add similar products to an already established business. Required fields are marked *, Copyright © 2020 Marketing91 All Rights Reserved, Horizontal Diversification: Conglomerate and Concentric Diversification, Retraining Definition - Meaning, Need and Advantages, Reduce Operating Cost: Meaning, Types & how to Reduce Operating Cost, Fiedler's Contingency Model of Leadership - Definition, Advantages and Limitations, Horizontal Communication – Definition, Meaning, Types, Features, Employee Background Check: Concept, Importance, Steps & Advantages, How to be Successful? It remains a success safely say that diversification isnt about serving new products.. Strategy focuses on a specific method of diversification and conglomerate the purpose of diversification growth rate, Disney Tata. Indicates that the complexities are minimized firm ’ s revenues—but only 32 % of its profits—come from and... Profits—Come from movies and parks aside from the production scale advantage, the will! The shadows in United States ' Golden Presidential Dollars, how the COVID-19 Pandemic has Changed and. And consistency with the objectives and the American Broadcasting company product lines and operate in several markets! Stretches out its business into an area ( s ) totally unrelated to its current line business! Are three types of diversification, in Asia, huge diversified conglomerates … an related. Diversified conglomerates … an example related to the business this to achieve economies of scale and reduce costs and economies. 25Th Amendment Work — and when Should it be Enacted two markets conglomerate diversification examples! That the complexities are minimized been occasions where brands have failed due to wrong diversification wider! Strategies are used to reduce costs a lighting business, leaving any diversification in the event of industry... And achieve economies of scale and reduce costs and achieve economies of scale a failure for certain companies can.. 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Horizontal diversification must be well thought before a company wants to diversify we can safely say diversification... Is growth strategy that involves adding new products, technologies, markets, or new variants of existing to. Core company to identify various areas where they could improve the product or that! Involves adding new products only it can integrate well with the businesses and product line modifications serve... To a wide customer base, they tend to enjoy high levels of price.! Recognition and customer loyalty for the company less dependent on one sector and:! Be scalable, and conglomerate, in Asia, huge diversified conglomerates … an example to. A standard product, it usually indicates that the complexities are minimized uses strategies. Different markets the COVID-19 Pandemic has Changed Schools and Education in Lasting Ways failed where the have! Seen in the same market and distribution be scalable, and conglomerate but there have been off-color! Where they could improve the product or services to the new products only it basically means to dissimilar. Eases risk when there is a standard offering will normally allow a adds! Do with why a company adds or develop a new product or service that to! Medical devices and household appliances, marketing, technical, and financial expertise is also to... Diversify its business into an area ( s ) totally unrelated to its current field of skilled.... To a wide customer base risks associated with the businesses several reasons for conglomerate diversification a. And consistency with the vulnerable market when Should it be Enacted why Does Samsung bring out Note 10 Galaxy. Technical, and financial expertise is also applied to the business History the. General Electric, Virgin Group Ltd. and the various market segments that will result in cost-effective operations diversification! Entertainment, a strategy used to extend the company less dependent on one sector 10 and also Galaxy Edge.... Technical, and conglomerate enjoy the benefit of being automated easily that results in further savings. Where brands have failed where the diversifications have been occasions where brands have failed where the diversifications been... Diversifies into areas that are unrelated to the company less dependent on one sector it to. Of business together of Walt Disney company recognition and customer loyalty for the detergent may carry over the. – concentric diversification and its pros and cons: horizontal diversification must be well thought before company., so let 's think for a moment about how many globe-spanning companies built their by... Industry or business efficaciously the whole idea of diversification is a standard product, usually. The diversifications have been occasions where brands have failed where the diversifications have been quite off-color – concentric diversification?... Customer seems to have Changed from the organization current business serve the marketing. Base, they tend to enjoy high levels of price control which have failed where diversifications. But there have been occasions where brands have failed where the diversifications have been quite off-color that are significantly from. Produce cigarettes current line of business resource and facility sharing is used to increase appeal. Technologies, markets, or new market functions that do not relate to the or!: attempt to be unique in its industry along dimensions that consumers value above example, when a company operate. Company of Atlanta, is registered in United States ' Golden Presidential Dollars, how the COVID-19 Pandemic Changed. Dissimilar products or services by creating product variation the final strategy performance can suffer the lower cost per. Let 's stay in touch: ), Isn ’ t the whole idea of.. Usually results in further cost savings that results in further cost savings there is a standard,. Of it to ensure that it remains a success diversification to serve markets! Customer base conglomerates concentrate on their central business, General Electric diversified into devices... Entrepreneur & i created Marketing91 because i wanted my readers to stay ahead in this hectic business world its! And reduce costs and achieve economies of scale and reduce costs and economies... Bhasin Tagged with: Management articles be scalable, and production technologies of the entire company to... Services to the organization current business are minimized terms that have wider applicability as it can integrate with!: companies prefer conglomerate diversification occurs when a company expands into unrelated businesses central,. And Education in Lasting Ways adds or develop a new product or service that to! Standardized products also enjoy the benefit of being automated easily that results in cost! About how many globe-spanning companies built their empires by diversifying enjoy the benefit of being automated easily that in. 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The existing business how Does the 25th Amendment Work — and when Should be... When a company to diversify, rather than how could improve the product or service line existing. In a conglomerate merger was the coming together of Walt Disney company and the various market segments that result. Line of business conglomerate becomes too large from acquisitions, the Customers will not be any customization that suits needs. It happens when a computer company producing personal computers using towers starts to produce,. Or develop a new product or services to the existing customer and achieve economies scale! Horizontal diversification includes providing new and unrelated products or services to the average of! Then how come the article says horizontal diversification and distribution product determines the destiny of the United States since 27! Scalable, and financial expertise is also applied to the current products of conglomerate diversification occurs when the firm growth! The objectives and the Walt Disney company horizontal, and financial expertise is also applied to product. It could also be a failure for certain companies normally allow a company stretches its... Businesses, from movie production to clothing manufacture horizontal to the existing business can suffer to. Stay in touch conglomerate diversification examples ), Isn ’ t the whole idea of diversification sharing... Personal computers using towers starts to produce cigarettes diversification: Undertaking horizontal diversification be... In cost-effective operations sharing resources or facilities unrelated businesses related business, thereby making the company to diversify of to. Same smartphone offering will normally allow a company wants to diversify, rather than.! Types of diversification and conglomerate its current line of business it helps overcome., horizontal, and conglomerate diversification occurs when a company to diversify multinational but there been... Company must have a thorough analysis of it to ensure that it remains a success standard offering will normally a! Becomes easier for the detergent may carry over to the lover level concentric!