CORPORATE STRATEGY : DIVERSIFICATION AND THE MULTIBUSINESS COMPANY

BISMILLAHIRRAHMANIRRAHIM

We always heard about diversified company, but what is exactly diversified is? Diversified means a business that operates in more than one industry or market, and uses different distribution channels as a matter of corporate strategy. In this chapter we learnt about corporate strategy : diversification and the multibusiness company. What does crafting a diversification strategy entail? There were four step in diversification strategy which is :

1. picking new industries to enter and deciding on the means of entry 
2. pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage
3. establishing investment priorities ant steering corporate resources into the most attractive business units
4. initiating actions to boost the combine performance of the cooperation's collection of business.

Diversification is good for business because it can broaden the company market and it will improve the performance of the business. But when should the firm consider diversifying? The company can start diversifying when :

• it can expand into business whose technologies and product complement its present business
• its resources and capabilities can be used as valuable competitive assets in other business
• cost can be reduced by cross-businesses sharing or transfer of resources and capabilities
• transferring a strong brand name to the products of other businesses help drive up sales and profits of those businesses

Diversification is also a strategy that include every element, values, department, and shareholder of the firm. Every strategy that the manager implement need to focus on the effect to shareholder, if the strategy will give more profit, then the shareholder will be happy and give their support but if different situation occur, it will effect he firm entirely. So, how the diversification adds value to the shareholder? To prove that the diversification strategy really adds value, the firm need to undergo a test which is :

1. the attractiveness test
2. the cost of entry test
3. the better-off test 

Miss Ummi also taught us about synergy. Synergy is the action that occur when the company show a better performance. Beside that, synergy is a state in which two or more things work together in a perticularly fruitful way that produces an effect greater the sum of their individual effects. Expressed also as "the whole is greater than the sum of its parts"

There are three options in diversifying a new business which is:

1. acquisitions of an existing business
2. internal new venture (start up)
3. joint venture

Acquisition can happen from taking custody of records. It also might happen when a firm taking possession of an asset by purchase. Sometimes it also occur when other firm taking control of a firm by purchasing 51 percent or more of its voting shares. On the other hand, joint venture define as a new firm formed to achieve specific objectives of a partnership like temporary arrangement between two or more firms. Joint venture are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. They, however, present unique problems in equity ownership, operational control and distribution of profits or losses.