What Are Some Examples of Concentric Diversification?
Some examples of concentric diversification include resource sharing, strategic partnerships and acquisitions. Concentric diversification, a strategy used to increase company appeal to consumers, can also involve opening new markets by creating product variation.
Resource and facility sharing is used to reduce costs and achieve economies of scale. A distributor who needs a larger warehouse may contract with a company that has the extra space.
A strategic partnership is when two companies enter a formal business relationship to obtain benefits greater than those they can achieve separately. An example of this relationship is a software company partnering with a customer relationship management company. The software company can expand to a different industry, and the customer relationship management company can make deeper headway into the software company’s industry. Companies can form a strategic partnership through contract or joint ventures. A joint venture allows the companies to form a related but wholly separate business.
Mergers are when two companies combine into one company through the exchange of stock. Acquisitions involve one company purchasing another. For example, an office supply company may strive to purchase paper manufacturing companies.
Concentric diversification is used for many reasons, including increasing company value, reducing risk and utilizing extra cash. It is also used to drive shareholder value increases, to achieve business synergy and to improve product development.