Join Doug Ladd for an in-depth discussion in this video Diversification, part of Marketing Foundations: International Marketing.
- Warren Buffet has said "Wide diversification "is only necessary when investors do not "understand what they are doing." The same can be said for diversification within a business. The key is to be wise on where and when you diversify. Diversification is the strategy of adding a new business unit or product line to your company while entering a new market. You may choose to pursue this option if you want to grow internationally, but your current products or business lines wont fit.
This may be the strategy you choose, if during the course of your analysis, you learn that your current products have high tariffs in other countries. There are technological barriers to entry. The expense of entering the new country will be too high, or the customers just don't what you have to offer. All these challenges may be true, but you still want to get some growth from entering new geographies. While investigating the new markets, you may have uncovered an interesting opportunity that falls outside of your current business line.
Capitalizing on this insight may require new resources, talents, and tools that you haven't used in the past. Here's an example. If your current business is focused on making and selling potato chips, and you begin the analysis to consider exporting them to Brazil. After doing your PESTCL, you decide Brazil isn't the right country for your potato chip business, but uncover an under served opportunity for peanut butter and jelly to be packaged together in the same jar.
Developing or licensing this product so you can expand into Brazil, is certainly an option. It may allow you to get into a high growth geography, and perhaps identify other opportunities for the future. But it requires you to add new capabilities, suppliers, partners, and skills. Not all companies are comfortable with pursuing a diversification strategy. A keen understanding of what your company values, the level of risk tolerance, and access to resources will be needed before you begin implementing a diversification deal.
The method of execution can vary. You could buy or license a product, already in the new geography, and put more marketing effort behind it. You could choose to create a new product alone, or with a partner, to take into the new country. Clearly, there are a number of options. You may find, the best path is to take a staged approach to diversifying into a new market. You could develop a peanut butter and jelly combination to launch in your home market first, so you can gain experience and knowledge before expanding into Brazil.
There is no right answer when it comes to diversifying. The best solution is the one that will fit your business and its culture. Will your company be able to manage the risk, or does it make more sense to stick with your core competencies? Answering this question will help you determine if diversification is the right approach for you.
The course also investigates options for global expansion, such as exporting, licensing, joint ventures, and direct investment, and details how to put together a successful marketing mix using distribution, promotional methods, and translation. Plus, learn where to turn for more information about your specific target markets.
- The rise of the global consumer
- Learning about customers in global markets
- Accessing foreign markets
- Adapting products
- Balancing risks and rewards