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Buss 4 Jan 2012

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Buss 4 January 2012

To what extent is diversification the best strategy to achieve profitable growth? (40 marks)

Diversification, one of the four strategies in the Ansoff’s Matrix, is a corporate strategy to enter a new market or industry which the business is not currently in, whilst also creating a new product for that new market.
Profitable growth is a term often used by CEOs when describing the firm’s strategic objective. Business growth can be achieved either by boosting the revenue of the business with greater product sales or service income, or by increasing the profitability of the operation by minimising costs. Diversification plays a great role in the growth of many large businesses, however, the extent of the growth is largely dependent on factors such as: the type of industry that the business is in or the risks involved into entering new markets.

There are many ways in which to diversify a business, all which may be included in the strategy to achieve profitable growth. The most straightforward of these is to provide a natural extension of the goods or services that you already offer to customers. The best example of business that has undergone diversification is Samsung. Samsung is best known for its smartphones, tablets and televisions, however Samsung’s business activities and operations are spread wider than just those two important markets. The electronics giant also makes military hardware, apartments, ships and operates a Korean amusement park. The business currently had around 350,000 employees and in 2011 reported revenues of $220 billion and economists estimate that Samsung’s revenues account for about 20% of the value of South Korea’s economy. Whilst there are plenty of highly diversified businesses in the world, there aren’t many that can compete on such a scale as Samsung’s with the same amount of diversity.

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