Nirma Case Study Solution

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Answer 1. Recently Nirma announced that it was foraying into cements business by acquiring Lafarge’s cement business. According to me, the strategy used by Nirma is of diversification cum acquisition. I believe this type of strategy is undertaken by firms as it involves diversified acquisitions either to minimize the potential risks of one business component/industry not performing well in the future or to maximize on the synergies and revenue streams of a diverse operations. Here, Nirma has diversified it’s business by entering itself into a new vertical business but has done it by acquiring another company which may or may not be at risk. DEFINITION of 'Diversification Acquisition ' “A corporate action in which a company purchases a…show more content…
While a number of companies may feel that they have an internal core competence, they may be unable to exploit their resources and capabilities because of a lack of size. Now, here Nirma, may be able to gain the size necessary to exploit its core competence that is Lafarge, by becoming larger in terms of the size of its market share. And, an increase in market share of Nirma enabled the company to increase its market power. Because of this, acquisitions to meet a market power objective generally involve buying a supplier, a competitor, a distributor, or a business in a highly related industry. 2) Horizontal Acquisitions Here, Nirma buying Lafarge, or a business in a highly related industry--which increases the company 's market power--provides the company with the size it needs to exploit its core competence and gain a competitive advantage in its primary market. When a competitor in the same industry is acquired, a company has engaged in a horizontal acquisition. Although here, they are two different industry…show more content…
9) Lower Risk Compared to Developing New Products Internal product development processes can be risky, in that entering a market and earning an acceptable return on investment requires significant resources and time. All the same, acquisition outcomes can be estimated easily and accurately (as compared to the outcomes of an internal product development process), causing managers to view acquisitions as carrying lowering risk. Because acquisitions recently have become such a common means of avoiding risky internal ventures, they even could become a substitute for innovation enabling companies to avoid the risk of internal ventures and overcome constraints on internal resources and capabilities. 10) Increased Diversification Acquisitions are a common strategy that companies can use to diversify. This may be because it should be easier for companies to develop new products and/or new ventures within their current markets because of market-related knowledge, so companies that desire to enter new markets may find that current product-market knowledge and skills are not transferable to the new target market. Acquisitions also may have gained in popularity as a related or horizontal diversification strategy enabling rapid moves into related markets (or to expand market power) and as an unrelated diversification strategy. Also, acquisitions are the most frequently used means for companies to diversify their operations into international

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