Currently, the business is pursuing the unrelated diversification strategy, the products All-terrain recreational vehicles, color televisions, Luggage, and Writing instruments have no direct connections with each other. The company is operating within the US, and the CEO has decided to expand the current business to international market. The CEO also wants to change the corporate strategy; related diversification is the new expected strategy. The decision is satisfactory, but the implementation requires some analysis.
As the company produces four unrelated diversified product and it will be difficult for the company to carry on with all of them in the international market, the CEO of the company has decided to let off three products, which are all-terrain recreational vehicles, luggage, and writing instruments. The reason of letting of these products is that the company is not able to make sufficient profit with these products. The most beneficial product, which can also be termed as the star product of the company, is the color television. The televisions produced by the company have a high market share and the market of this product is also growing (Johnson, Scholes, and Whittington 113).
The company has plans to sell its three products All- terrain recreational vehicles, Luggage and Writing Instruments and starts a new business of producing laptops. The reason to sell off the three products is that the products are not as profitable as expected in the local market and it will be difficult for the company to earn high profits with them in the international market. Keeping Television and starting laptops as their basic products, the company is able to have related diversified products. The reason to keep Televisions is that currently, the company’s televisions are more profitable than other products and are famous for their quality. Televisions are electronic items and the customers prefer good quality of electronic items. Laptops also belonging to the electronic industry can gain some recognition when it comes to quality with the help of the brand name.
The company can ensure its success in the market by producing high quality laptops and television. The quality of the laptops should be as high as that of television to attract the customers towards it. The company must select a target audience for their laptops and must manufacture laptops with such specifications that are required by that target audience. Once the company is able to satisfy the customers and grasp an expected market share then it will be easier for the company to explore new markets and earn high profits.
The United States is known for its exports in the global market and is considered to be one of the most developed and significant markets in the world. The business plans to expand internationally and therefore it was required to select three countries and select one out of them. The countries selected for the expansion purpose are Germany, Mexico and Saudi Arabia.
Germany and United States have not been under any trade agreement, but the trade between the countries occurs very often. In the year 2014, the trade between the countries increased drastically. The Unite States had a trade deficit of 73,896.3 million. Saudi Arabia is the largest fuel supplier to U.S.; the U.S. is under a trade deficit as the imports exceed the exports between the two countries. The last country selected for the international expansion is Mexico; currently the trade between the countries is supported by an agreement North American Free Trade Agreement (NAFTA). The agreement has provided more than 1 million jobs for the U.S. citizens and the exports and imports have also increased. Mexico is considered to purchase higher products than any other country in the whole world.
Expansion is a big task and the finances required are too large that most of the firms avoid expansion into international market. The German and Saudi Arabian markets are currently exporting their products and services to The U.S., and the U.S. economy is already facing a deficit in trade with these countries. The German and Saudi markets import more goods from the global market than what they manufacture on their own and, therefore, a large amount of companies and their products have reached these market. The cost of the expansion is also very high in these countries. The expansion of the business line to these countries would not be fruitful. The final country left is Mexico. Currently, the market is one of the largest export markets for the U.S. The expansion of the business units is also very easy and cost effective by the government taxes and other costs are reduced. More than 50,000 businesses have been established between the countries after the agreement (NAFTA) (Kessler 569).
The entry modes are too simple but the firm requires a cost effective mean of entry. It is suggested that the company must purchase a current business in Mexico, this will help the company in a way that no new channels would be required and the company has the investments due to the let off of the products.
Johnson, Gerry, Kevan Scholes and Richard Whittington. Exploring Corporate Strategy: Text & Cases. Upper Saddle River: Prentice Hall, 2006. Print.
Kessler, Judi A. “The North American Free Trade Agreement, emerging apparel production networks and industrial upgrading: the southern California/Mexico connection.” Review of International Political Economy 6.4 (1999): 565-608. Print.