What Is Unrelated Diversification Strategy

Nirma recently reported that it was foraying into cements business by acquiring Lafarge’s cement business. According to me, it is unrelated diversification strategy that the company has adopted. This is because Nirma is a group of companies situated in the city of Ahmedabad (western India) that manufactures items ranging from cosmetics, soaps, detergents, salt, soda ash, LAB and Injectables. The Rs 1,700-crore soaps and detergents major Nirma Ltd. has made an entry into the cement business, which is nothing but unrelated diversification. Unrelated Diversification alludes to a expansion procedure where companies extend their operation into markets or products beyond current resources and capabilities. It is a type of diversification where

The decision to diversify into unrelated areas is generally embraced by firms in volatile industries that are liable to quick innovative change. The conspicuous reason for existing is to diminish risk. It is likewise assumed that by restructuring the portfolio of businesses, the firm would be in a position to create value. For instance, the ITC’s diversification into edible oils, hotels, financial services etc. is conglomerate diversification likewise Nirma into Lafarge’s Cement, NEPC group’s foray into agro foods, textiles, paper, airlines, wind energy, tea plantations etc; Ballarpur Industries into chemicals, nylon fibre, leather etc. in addition to paper. Essar’s foray into shipping, oil, sponge iron, marine construction, telecom, power, etc.

Diversification strategy is observed when new products are presented in a totally new market by the company. There are numerous obstacles when company enters into another market as it requires a considerable measure of venture and a great deal of labor as well as focus of the top management. Diversification will be productive only when the advantages created by diversification exceed the related expenses. To contain costs, the firm ought to focus attention on well known fields and by diversifying internally instead of by

 When the planned business in an industry other than the industry of core business has a huge development potential.

 When the company is slightest inspired by abusing strategic-fit relationship.

 When the environment presents a strangely extensive number of exciting opportunities to be misused by the firm’s resource base.

It might be noted that unrelated diversification is mostly undertaken for financial gain. Here strategic-fit is a secondary consideration. The underlying premise of unrelated diversification is that any business that has great benefit prospects is a decent business for further investment.

As per the opinion, we can conclude that a business which does not continue adding new clients is bound to fail in the long run. Similarly, a company which does not extend at the correct time will undoubtedly lose a considerable measure of its clients and market share. Also, the diversification growth strategy helps the company grow in the right direction and manages risk for the company at the meantime adding to the bottom line.

Thus, Diversification strategy is extremely valuable for the company in the long