The emergence of diversification can be grounded through the business scholar Ansoff who discovered the benefits attached to the strategy. He termed it as fundamental perspective of decision-making over the business structures on expansion. The baselines behind this aspect are based on vectors on growth based on the current product-market structure of the firm. This denotes aspects such as; market penetration relating to increase on the market share through extensive market on the present or existing products, market development where the seeks new markets to replace the old, product development under which the firm may aim at developing new products and diversification, through which the firms missions and strategies are aimed at developing new products and creating new markets, (Ige, 2004).
There are various benefits normally accredited upon successful diversification in various levels such as foreign market. This stipulates the need to enact strategic mechanisms towards development, implementation and control on diversification strategies. Most firms fail to attract and achieve their objectives on the failure to develop strategically, poor implementation or limited performance, evaluation and control models. According to Toivanen (2004), the preceding questions should form the baseline upon enactment of tactical diversification strategy.
Where to go, this is one of the first and most challenging decisions that firm’s face. It requires closer analysing based on factors such as the internal factors of the market, the external factors, desired mode features and the transaction specific behavior.
When to penetrate the identified markets, this is also a significant aspect that firms needs to consider under upon the decision making. It entails the need to examine the appropriate period to enter the specific market. Further studies by Lafontaine (2005) indicate that a company can set to be the first mover or the late mover in relation to the new market. He emphasizes on certain merits and demerits under each scenario. The first mover merits includes; technological leadership, pre-emption of scarce resources, establishing entry barrier learnt by late movers and creation of strong brand. The late mover on the other hand enjoys merits and demerits in relation to entry such as, opportunity to learn and enjoy from the first mover experience and difficulty to adapt on market fluctuations’.
How to enter that specific identified market, this is normally the core determining factor on the achievement of the stipulated objectives behind the firm’s diversification motives. Various countries have no regulations in relation to the entry models however, in instances when the country in regard has stipulations on the regulations to be followed the firm should analyse them prior to the entry. If the firm wishes to enter markets with no regulations to models are offered according to Mitra (2002), the non-equity and equity entry models. Under non-equity model the business can opt for exports, direct exports, indirect exports or other businesses through contractual agreements, franchising, or R and D contracts. In relation to the equity models the firm has options of creating, wholly owned subsidiaries (WOS), Green-field, Acquisitions among others through Joint ventures or Minority joint ventures or equal joint ventures or Majority joint ventures.
There various typical attributes that can attract a firm to a foreign market. The stipulated and identified benefits are the propelling motives behind a firm’s diversification into a new market. In Seim (2002, the preceding reasons are some of the reasons why the firm may wish to diversify by going abroad either on the sale of their products or operations.
Reduce the vast risks that may be accredited through overreliance on one county. Under this objective, the firm should project some of the occurrences that may affect the operations of the firm. This can help the business support or depend on one market when the market from a certain country may not be favorable. The stakeholders may also wish to enact this strategy in relation to changes or influences that may affect the business operations in a certain country such as government taxes, unstable governments or unfavorable markets.
The business can also wish to reflect the success achieved on the home country or setting hence diversification to the foreign country. This is normally one of the driving forces behind most of the firms’ diversifications. The saturation of the home market or the business market operations under may also force the business to enact strategies aimed at diversifying their market. This can either be the primary goal or market power, strategies to strengthen market competitive position or to increase on returns.
The firms do not fall on the benefits attached to the diversification on a silver platter; there are vast challenges that it may face, (Kathryn, 2005). These include;
- Some models ate expensive and risky such as Green-field investment
- Slow entry to the specific new market
- Longer payback period or returns on investment
- Integrating new company may be difficult, time consuming and expensive under Acquisition model
- Minimal resources within the firms’ disposal limiting their ability to diversify
- Ethical and government regulations of the identified markets may
- Competition from other companies offering similar products and services
The stipulated challenges among others may limit the firm’s ability to enter a new. However, enacting effective strategic measures based on regulation, monitoring backed-up with efficient contingency plans can help the firm avert or curb the consequences.
Why not diversify
There are various cases under which the firm would risk too much by making a decision to diversify their market to the international countries. Firms are normally advised to execute an extensive research based on the ability of the firm to execute the plans and the current and projected occurrences of the identified new market (Michael, 2004). Instances such as when the firm has minimal resources to facilitate their home setting strategizing on diversification may be unwise decision to seek. The firm should examine the ability and the projected rate of returns on investment within a specific period of time. Failure to adhere on these stipulations the firm will b doomed to execute the plans.
Adapting on ethical behavior
The business upon diversification to the new identified market should reflect their operations based on the ethics and regulations stipulated by the attached country. The firm can achieve this through various strategies such as prior research on the society ethical behaviors, involving the locals on the set-up and the operations of the business such as employment or through training on workers in relation to the required ethical behaviors.
In conclusion the essentiality behind the diversification of a business to an international market are vast however, the business should always execute an intensive research on the new market in relation to the returns projected within a specific period of time.
- Ansoff, H. I. (1965) Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion. New York: McGraw-Hill,.
- Ige, O., (2004). Electronic Shopping: Young People as Consumers’, International Journal of Consumer Studies, 28(4): 412–427.
- Lafontaine, F., and Kathryn, L. S.,(2005). Targeting Managerial Control: Evidence from Franchising,” forthcoming, RAND Journal of Economics
- Seim, K., (2002), An Empirical Model of Firm Entry with Endogenous Product-Type Choices, mimeo, GSB Stanford.
- Toivanen, O., and Michael, W., (2004). Market Structure and Entry: Where's the Beef? RAND Journal of Economics, forthcoming
- Mitra, D., and Peter, N. G.,(2002). Whose culture matters? Near-market knowledge and its impact on foreign market entry timing. Journal of Marketing Research