what is a related-linked diversification strategy?

House Authors

2 min read

·

07-10-2024

229

0

Share

Related-Linked Diversification: Expanding Your Business Through Connections

In the ever-changing business landscape, companies are constantly seeking ways to grow and diversify their operations. One strategy that has gained popularity is related-linked diversification, a method that involves expanding into new markets or products that have some form of connection or synergy with the company's existing business.

But what exactly does "related-linked" mean, and how does it benefit businesses? Let's delve deeper into this strategic approach.

What is Related-Linked Diversification?

Imagine a company that manufactures high-quality kitchen knives. They decide to diversify by venturing into the production of kitchen utensils, such as spoons, forks, and spatulas. This move is an example of related-linked diversification. The new product line is related to the existing business in terms of:

• Target market: Both products cater to the same customer base - home cooks and professional chefs.
• Distribution channels: The company can utilize its existing distribution network to sell the new products.
• Production expertise: The company already possesses expertise in manufacturing high-quality metal products, which can be applied to the production of utensils.

Benefits of Related-Linked Diversification:

• Increased market reach: Expanding into related markets allows companies to reach a wider customer base and tap into new revenue streams.
• Synergies and cost savings: Shared resources, expertise, and distribution channels can lead to cost efficiencies and increased profitability.
• Reduced risk: Diversification allows companies to spread their risk across different markets and products, making them less vulnerable to fluctuations in any single area.
• Enhanced brand image: Offering a broader range of related products can strengthen the company's brand image and position it as a leader in its industry.

Examples of Related-Linked Diversification:

• Apple: Started with personal computers and then expanded into related products like smartphones, tablets, and wearable devices.
• Disney: From animation studios to theme parks, Disney strategically diversified into related entertainment and leisure businesses.
• Amazon: Initially an online bookstore, it expanded into various related industries such as cloud computing, streaming services, and grocery delivery.

Challenges of Related-Linked Diversification:

• Internal resistance: Existing employees and departments may resist changes and the need to acquire new skills.
• Increased complexity: Managing diverse product lines and markets can add complexity to operations and require new management strategies.
• Market competition: The new markets may already have established players, leading to intense competition.

Key Considerations:

• The degree of relatedness: How closely related are the new products or markets to the existing business?
• Market attractiveness: Is there potential for growth and profitability in the new market?
• Competitive advantage: Can the company leverage its existing resources and expertise to gain a competitive edge in the new market?
• Resource allocation: Does the company have sufficient resources and expertise to successfully manage the diversification strategy?

Conclusion:

Related-linked diversification can be a powerful tool for growth and profitability. By strategically expanding into related markets and products, companies can capitalize on existing resources, expertise, and customer relationships to achieve sustainable success. However, careful planning, resource allocation, and management are crucial to mitigate potential challenges and ensure a successful diversification strategy.