Diversification Strategies Notes and Exam Questions Business Studies Grade 12

Diversification is a strategic approach that involves expanding a company’s product line or entering new markets to minimize risk and maximize opportunities for growth.

Diversification Strategies Notes and Exam Questions Business Studies Grade 12

Definition: Diversification is a business strategy that involves expanding a company’s operations into new markets or industries that are different from its existing operations. The goal of diversification is to reduce risk, increase revenue, and achieve long-term growth.

Types of diversification strategies

Concentric Diversification: This involves expanding into markets or industries that are related to the company’s existing operations. For example, a company that produces and sells software may diversify into providing IT consulting services.

Examples:

1. Sasol: Sasol, a South African energy and chemical company, has diversified into related industries such as mining, exploration, and production of oil and gas.
2. Woolworths: Woolworths, a South African retail company, has diversified into related industries such as financial services, insurance, and mobile telecommunications.
3. MTN: MTN, a South African multinational mobile telecommunications company, has diversified into related industries such as e-commerce, digital banking, and entertainment services.
4. Old Mutual: Old Mutual, a South African multinational investment, savings, insurance, and banking group, has diversified into related industries such as real estate, asset management, and private equity.

Horizontal Diversification: This involves expanding into markets or industries that are unrelated to the company’s existing operations but still within its core competencies. For example, a company that produces and sells smartphones may diversify into producing and selling smartwatches.

Examples:

1. Nando’s: Nando’s, a South African restaurant chain, has diversified into producing and selling its own brand of peri-peri sauces and marinades.
2. Distell: Distell, a South African alcoholic beverage company, has diversified into producing and selling non-alcoholic beverages such as soft drinks and fruit juices.
3. TFG: TFG, a South African retail company, has diversified into producing and selling cosmetics and personal care products under its own brand.
4. Bidvest Group: Bidvest Group, a South African services, trading, and distribution company, has diversified into producing and selling a range of industrial products such as chemicals and coatings.

Conglomerate Diversification: This involves expanding into markets or industries that are completely unrelated to the company’s existing operations. For example, a company that produces and sells automobiles may diversify into producing and selling home appliances.

Examples:

1. Remgro Limited: Remgro Limited, a South African investment holding company, has diversified into completely unrelated industries such as healthcare, infrastructure, and financial services.
2. Bidvest Group: Bidvest Group has also diversified into unrelated industries such as aviation services, automotive retail, and office solutions.
3. Steinhoff International Holdings: Steinhoff International Holdings, a South African multinational retail holding company, has diversified into completely unrelated industries such as furniture manufacturing and retail, automotive retail, and forestry.
4. Sanlam: Sanlam, a South African financial services company, has diversified into completely unrelated industries such as agriculture, real estate, and renewable energy.

Each type of diversification strategy has its advantages and disadvantages. Concentric diversification can help companies leverage existing capabilities and resources, while horizontal diversification can help companies enter new markets and explore new growth opportunities. Conglomerate diversification can help companies mitigate risks and achieve long-term growth through diversification into unrelated markets or industries.

Diversification strategies are an important tool for companies looking to achieve long-term growth and mitigate risks. The specific diversification strategy chosen by a company will depend on its goals, resources, and capabilities, as well as the opportunities available in the market.