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A presentation of my recent lecture at a Business School
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Expansion Strategies
Dr. Sandeep Kulshrestha
Types of Expansion strategies
Expansion through ConcentrationExpansion through integrationExpansion through diversificationExpansion through co-operationExpansion through
InternationalisationExpansion through digitalisation
CONCENTRATION STRATEGIES
When an organisation focuses on intensifying its core businesses with a view on expanding through either acquiring a new customer base or diversifying its product portfolio, it is having a concentration strategy
IGOR ANSOFF’S PRODUCT-MARKET MATRIX
Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.
Market Development - the firm seeks growth by targeting its existing products to new market segments.
Product Development - the firms develops new products targeted to its existing market segments.
Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.
TYPES OF CONCENTRATION STRATEGIES
MARKET PENETRATION – Selling more products in the same market
MARKET DEVELOPMENT – Selling same products to new markets
PRODUCT DEVELOPMENT – Selling new products to the same market
Example:Bajaj Auto has undertaken all the above
mentioned strategies
INTEGRATION STRATEGIES
Integration means combining activities related to the present activity of a company
Integration is part of the diversification strategy
It widens the scope for a company as far is the market penetration is concerned.
TYPES OF INTEGRATION STRATEGIES
Horizontal IntegrationVertical Integration
HORIZONTAL INTEGRATION
Horizontal Integration: When an organization takes up the same types of products at the same level of production or marketing process, it is said to follow a strategy of Horizontal Integration (Also known as Merger/Acquisition)
Example: Takeover of Satyam by Mahindras
VERTICAL INTEGRATION
Vertical Integration: Expansion to serve its own needs. Vertical Integration is of two types, namely Backward and Forward Integration
- Backward Integration means going back to the source of raw materials
(Example: A Thermal power company may do coal-mining)
- Forward Integration implies moving closer to the finished product (example: A car spare parts manufacturer would start manufacturing passenger cars)
DIVERSIFICATION STRATEGIES
Concentric or Related DiversificationConglomerate or Unrelated
Diversification
CONCENTRIC OR RELATED DIVERSIFICATION
When an organization takes up related activities within a wider industry situation, it is termed as “Concentric Diversification”
Example:A sewing machine manufacturer starts
manufacturing Kitchen appliances (Wider Industry situation – Women as concentrated target group, Kitchen appliances as concentrated product range etc)
Types of Concentric Diversification
Marketing-related concentric
diversification
Technology-related concentric
diversification
Marketing and Technology-related
concentric diversification
Conglomerate or Unrelated Diversification A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company and many subsidiaries
In other words, a conglomerate takes up such activities which are unrelated to the core business.
CONGLOMERATE OR UNRELATED DIVERSIFICATION
EXAMPLES OF CONGLOMERATES
TATA GROUPADITYA BIRLA GROUPITC GROUPTTK GROUPRELIANCE
ORGANISATIONS WHICH SELDOM DIVERSIFY
Public Sector Enterprises Non Government Organisations
(NGOs)
REASONS OF DIVERSIFICATION
Minimizing RiskCapitalize on StrengthsProvide a new perspective in business
Risks of Diversification
Unrelated diversification is complex and confusing
Diversification demand a wide variety of skills
Decreasing commitment on the core business
Often results in lossesIncreases the administrative costs