Understand the advantages and disadvantages of diversification and related independent
As a small business owner looking for business growth, the acquisition of a diversification strategy can be very attractive. But you must understand the differences between related diversification and unrelated diversification before investing. To diversify your business, your market or your products can be expensive; Therefore, investing in effective diversification.Typically companies diversify through acquisition. Why diversify? The reasons should focus on rapid growth and / or less growth. However, conducting a strategic review to examine whether or not the decision of the growth will result in a return on investment that is high enough to cover the risks related to acquisitions.What are the most effective diversification strategies for your business? To diversify effectively through acquisition means ensuring that you have built or will build, strategies to increase your competitive advantage, improve economies of scale and improve your cost structure to meet the needs customers quickly, or to make your business plan.business owners must evaluate the advantages and disadvantages of the related diversification or not advantages and disadvantages of the related diversification :. A related strategy is when you add or expand existing products, services or markets. For example, a car dealer who buys a retailer business (cleans, washes, polishes cars - both inside and outside). A engaged in related diversificationThe advantage of this type of related strategy is that it provides easier expansion: you already know the industry you operate and you can take advantage of this knowledgethe disadvantage of this strategy is that if there is a seasonal or cyclical downturn in the industry, you will feel the decline in both the dealer. and business retailer. The impact could be severe. There may also be problems with the integration of two companies, with over-estimate the financial returns. Would it have been more cost effective to simply outsourced the details in the example above Advantages and Disadvantages of unrelated diversification: A strategy is irrelevant when you add new or unrelated , products, services or markets. For example, the same car dealership may decide to purchase the restaurant next door. There is no direct correspondence between the two companies (although perhaps employees and guests eat at the restaurant next door). The reason to buy the company that is the owner of the dealership wanted to get into a business that was different, had different seasonality, good yield potential (although the restaurant sector has a high risk / statistical high failure).the benefit of buying an unrelated business is that you reduce the risk of putting "all your eggs in one basket", if the company or industry is hit hard by the economy or competition, or other factors of success, then owning a business can not help offset the slump. in this example, you can also control a portion of the customer base for the restaurant (eg give your automotive customers waiting for service a coupon for the restaurant).Why invest in unrelated diversification? Because you might be able to invest in a new product or a new market that has " peaks "when your company has" valleys "many companies have seasonal ups and down,. if you can acquire a business that has a high when your company has a low, you can compensate for low investment periods Or. of unrelated diversification can bring with it cost savings (such as subletting a part of your office or factory space in the new business, or sharing / consolidate some administrative costs of a company management - human resources, accounts payable and receivable, shipping and warehousing, sales and more). increased profit potential leads an investment in acquiring unrelated.
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