An argument for diversification of the business that will be presented to the board of directors or business investors
Most entities are often caught in a dilemma on whether to bet on other business ventures, so as, to generate growth. While every business should have a core area that it performs best, it is essential for a business to diversify. Furthermore, the entity should diversify its businesses so as to benefit from the fast-changing world markets and technologies. Although, when an entity concentrates on the core business, it is able to generate more products and services.
Laying more focus on one business venture beyond a point is sometimes a risky decision. Indeed, most existing companies diversify their businesses. It is rare to find an entity that focuses on a sole business venture. Through diversification, the entity will be in a better position to enjoy vast economies of scale by engaging in global promotion activities, which may enable the company to improve its production. Consequently, there is a need to expand as the prevailing local market is sheer and saturated.
A strategy for diversification indicating the products and industries for the diversification
There are numerous growth alternatives that are available to the business. The business can expand through more investments into the markets, advanced product development, or business diversification (Ansoff, 2011). Accordingly, the entity should also be in a position to counter the risks associated with the expansion of the business. This is because as the company expands there are some perils related to entering into new related or unrelated business. These uncertainties should be weighed against the benefits it presents.
There are many entities that have missed substantial opportunities by not engaging in new ventures. The firm should seize opportunities in related products and services into the existing line of business. This can be well achieved through the acquisition of competitors or investing in the development of new products. Here, the firm will acquire more synergies from sharing common business resources, such as distribution, brands, product research and development facilities. Consequently, according to Ansoff (2011), there are those synergies that accrue from the ability to utilize common management abilities in different businesses.
The foreign market that the company should enter and discuss the strategy it should use to enter the market
Expansion into foreign markets is the regional breadth of an organization’s international existence. International diversification provides an indication of an entity’s level of interdependence on foreign markets. Moreover, diversification often relates to a transformation in the characteristics of an entity’s product line and market. Accordingly, diversification strategies involve key issues, such as find the answer on the question of whether the venture to be embraced is more appealing than the existing business or whether the firm presents a greater competitive advantage within the business to be embraced (Thompson, Strickland & Gamble, 2010).
In the efforts to internationalize, the firm must decide on the entry mode in order to make the best use of the resources (Li, 1995). This is due to the fact that globalization has provided entities with opportunities for internationalization. According to Zekiri&Angelova (2011), when moving into an alien market, it is vital to be aware of how the “prevailing political, social and economic institutions have emerged, their history, location, culture, and demography.” The firm should take into account the strengths and challenges associated with the various modes of entering into foreign markets. Here, the firm should be driven by its strategic objectives and resources at hand.
The challenges that the company may face in the foreign market and its response to them
Entry Barriers
Barriers to entry are enormous challenges that might make it hard to explore new markets. These are imposed by the prevailing administration in order to protect local companies. In order to overcome the hurdles related to entry, organizations should ensure that foreign entities fulfill the required agreements.
Bureaucratic Procedures
In the quest to explore foreign markets, the company might encounter bureaucratic administrative tasks, such as incorporating the company and getting product approval. The company should hire an all-time administrative team that can perform these tasks on behalf of the company to avoid such inconvenient procedures.
Communications
There could be cultural misunderstandings emanating from miscommunication. It is vital for the company to have a foreign team to help close the gap between the cultural differences and eliminate the problem of miscommunication, (Zekiri&Angelova, 2011).
A scenario when it would not make sense for the company to diversify or expand into a foreign market
Diversification into foreign markets is a critical strategy for the company. This is because this important phenomenon is closely linked to the influence of globalization and constantly increasing pressures of rivalry. It is also evident that access to opportunities in the foreign markets will assist the company in countering the challenges that might be encountered in alien markets and promote the entity’s general performance. However, there are circumstances when expansion into a foreign market would not be justified.
My rationale lays in the performance of the company. Poor performance would make it difficult for the organization to expand into international markets. To conquer international markets, previous performance will be a key determinant and an important driver for international expansion. Ang (2007) claims that international diversification “has a real correlation with performance.” In addition to this, diversification-performance relationship “controls other significant determinants, such as market performance, age of the corporation, organizational life cycle and level of the industry of participation” (Ang, 2007).
Creation of a business environment conducive to ethical behavior
In the business sector, moral ethics are hugely beneficial. This is because of ethical practice aids in promoting inter-organizational relationship through establishing the correct obligations for all the stakeholders. Building a sustainable interdependence rooted in ethical practice is critical in any company. An entity can only be ethical as its stakeholders work towards the attainment of the right virtues. Wells and Spinks (1996) claim that business virtues “can help stakeholders approach moral problems in business systematically.” Furthermore, the corporation should have “proper standards of behavior and valid models of the expected behavior their business”(Wells& Spinks, 1996).
The failure of organizations to enact and enforce ethics might make workers not realize the right conduct expected from them. Therefore, it is the duty of the entity to nurture proper working environments for the benefits of workers, customers and the organization. The manner in which the entity conducts its core business indicates how well the organization maintains its business ethics. It is also important for the company to provide such work environment, which will cause a favorable influence on ethical behavior. Additionally, businesses can achieve this by creating the right incentives to facilitate the achievements of the company’s objectives.
References
Ansoff, H. I. (2011). Strategies for Diversification, Harvard Business Review, Vol. 35 (5), 113-124.
Ang, S. H. (2007). International diversification: A “quick fix” for Pressures in Company Performance?University of Auckland Business Review, Vol. 9 No. 1, 17-24.
Li, J. (1995). Foreign Entry and Survival: Effects of Strategic Choices on Performance in International Markets, Strategic Management Journal, Vol. 16, 333-351.
Thompson, A.A.,Strickland, A. J., & Gamble, J. E. (2010). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases: 2009 Custom Edition (17theds.). New York: McGraw – Hill – Irwin.
Wells, B. & Spinks, N., (1996). Ethics must be Communicated from the Top Down! In Career Development International, 1(7): 28-30.
Zekiri, J. &Angelova, B. (2011).Factors that Influence Entry Mode Choice in Foreign Markets, European Journal of Social Sciences – Volume 22, No. 4.