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Diversification strategy of the firm
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Full text: https://firmstrategy.net/category/str... • If firm concentrates on its existing products - market, its strategy focuses on developing and optimizing its existing activities and resources. In contrast, taking the decision of product/ market diversification allows firms to enter new or underexplored markets and industries with new product lines by developing internal capabilities or through merger and acquisition. This leads to changes in firm’s structure, governance system, and to develop a new management process (Ramanujan and Varadarajan, 1989). This strategy was firstly mentioned by Ansoff (1957) as the ultimate diversification option in his product-market development matrix, usually called Ansoff matrix. • By definition, diversification strategy involves “[..] the entry of a firm or business unit into new lines of activity, either by processes of internal business development or acquisition, which entail changes in its administrative structure, systems, and other management processes” (Ramanujan và Varadarajan, 1989, p.525). In practice, firms adopt diversification strategy only when they recognize potentials or needs outside their current markets. This strategy is risky because firms must develop both new markets and new products at the same time. The risk that firms can face is that their new brand can make obsolete the original brand, or manipulate the original brand. Or sometimes, the lack of knowledge about consumers’ needs and habits makes this strategy fail.
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