Diversification Strategy

Diversification Strategy

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Diversification Strategy

Part 1: Pre-Report Analysis

Diversification strategies are key factors that determine the success or failure of a business during expansion into the international market. Diversification refers to a risk analysis and reduction framework used by a business to help in the expansion into new markets to achieve greater profitability. This can be done by diversifying the product and services to target new customers to increase the market growth and share to achieve increased organizational profit. The diversification strategies are categorized as related and unrelated diversification. Related diversification is exploring and entering a new industry or market similar to the existing market and industry. Unrelated diversification is entering a new industry different from the home market. In this case, the Pet firm aims at expanding geographically into new markets, Venezuela and Japan. The top management needs to devise expansion and diversification to ensure the company adapts and competes fairly to gain a profitable market share and growth. The administration must develop synergy in the operations to ensure the firm can implement the best practices to efficiently build, equip and supply the new stores in the new markets.

Diversification strategy for entering the new market.

International strategies that can be used in geographical diversification are categorized as horizontal, vertical, and forward-vertical integration diversification strategies. The choice of the international strategy depends on external business environmental factors like the socio-political environment, suppliers, competitors, consumers, and the economic climate (Hunjra et al., 2020). Horizontal integration is a diversification strategy that involves acquiring and majoring with an existing rival company located and operating in the new market. Instead of relying on individual business efforts, the firm might consider expanding into new markets through mergers and acquisitions. In this strategy, the firm might buy out similar and operational firms in the new locations. A merger is integrating similar firms into a single entity. This expansion and diversification strategy is perfect and best when venturing into the Japanese market. Horizontal integration is attractive in the Japanese market for various reasons, like lowering the diversification costs by achieving a greater economy of scale. The Japanese market is a stable market, thus attractive to the industry's key players, leading to increased competition and higher operational costs. By combining forces with the other existing market players, the new organization will achieve greater efficiency, reduce the intensity of business rivalry, new distribution channels, and attractive brand names, thus earning maximum profit and increasing market share. It is important to note that organizations must explore the financial situation before entering into any business merger and acquisition.

Vertical integration strategies are the framework that involves the firm acquiring new portions of the value chain. This occurs when the suppliers and buyers of the organizations have too much power in the business ecosystem (Nambisan et al., 2019). For instance, when entering the market through the supplier domain, the firm can eliminate or reduce the business leverage of the suppliers and consumers and use it to control the firm. Vertical integration techniques are known to create a greater profit potential. For instance, this technique is viable when considering the Venezuelan market. In this case, vertical integration will be achieved by opening pet stores using a similar brand name to the domestic market.

Forward-vertical integration is a technique that involves capturing a huge market share by moving down the value chain as a way of entering the buyer's business. This can be done by opening and operating several retail stores that sell the organization's merchandise. Therefore, the firm will be able to capture profits that would have been enjoyed by other stores that are located at the lowest level of the value chain. The forward-vertical framework is a powerful strategy for developing a neutralizing effect on powerful buyers. By capturing the market share through for