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… An acquisition strategy entails purchasing another company, or one or more product lines of that company. For example, a small grocery retailer on the east coast may purchase a comparable grocery chain in the Midwest to expand its operations.
Adv : Lessen the risk of being in a single industry
Disadv : More difficult to manage
Types of strategy : Diversification strategies : Related diversification
1. When value chains posses competitively valuable cross-business strategic fits
2. A process that takes place when a business expands its activities into product lines that are similar to those currently offers.
3. Either through acquisition of competitors or through internal development of new products/services.
Types of strategy : Diversification strategies : Unrelated diversification
1. An unrelated diversification strategy favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses.
2. A form of diversification when the business adds new or unrelated product lines and penetrates new…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. A company may be able to gain the size necessary to exploit its core competence by becoming larger in terms of the size of its market share. And, an increase in market share enables 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
Buying a competitor 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. 3) Vertical Acquisitions
A vertical acquisition has occurred when a company acquires a supplier or distributor, which is positioned either backward or forward in the company's cost/activity/value