THE IMPACT OF PRODUCT DIVERSIFICATION STRATEGY ON ORGANIZATIONAL GROWTH
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND TO THE STUDY
Diversification is one of the growth strategies available under the corporate level strategy, along side with concentration, merger and acquisition, strategic alliance etc.
Diversification occwurs when a company adds to its business either in term of consumer function, consumer group or alternative technology [Oyedejo, 2004]. According to De Wit and Meyer, (1998)diversification occur when a corporation enter by starting up new activities [internal growth] or buying it lead to expansion of business and thereby ensures synergy and increase in profitability of organization. It is also helporganization to spread their risk. The intense demand to search for growth opportunities and cost efficiencies has encouraged organization to pursue Diversification Chandler,[1962].
According to Thomas and Hunger (2008), diversification is explained to be when an industry consolidates and becomes mature, most of the surviving firms have researched the limits of growth using vertical and horizontal growth strategies. Unless the competitors are able to expand internationally into less mature markets, they may have no choice but to diversify into different industries if they want to continue growth.
Diversification can take various forms. The organization that produce product that serve customer group, customer function, alternative technology diversely related. e.g. Unilever Nig. Plc, the producer of food product, and home and personal care product. How organization can also decide to produce product that dose not serve the same customer group, customer function & alterative technology U.A.C.
This research work shall be focused on concentric or related diversification using Coca cola Nigeria Plc as case study .As it diversify into the production of Table water and Juice (five alive).
1.1 STATEMENT OF RESEARCH PROBLEM
The intense demand to search for growth opportunities and cost efficiency has encouraged organization to pursue diversification (Chandler, 1990). This research work intends to investigate whether diversification as it claim can increase long term profitability of the organization, among others. It also intends to solve the problem of how growth and cost efficiency can be achieved. The aforementioned make this research work on impact of product diversification on organizational growth for investigating and researching on.
1.2 OBJECTIVES OF THE STUDY
Every research effort intends to solve and to make recommendations on a given phenomenon. Better still, it is meant to confirm, re-establish or validate known table or thesis. Specifically, the study is meant to achieve the following
i. To know why product diversification occur.
ii. To know the merits and demerits of product diversification.
iii. To give a feasible look to the concept of diversification.
iv. To give a detailed and in-depth look into the types of the concentric or related diversification as practiced by the coca-cola Nig. Plc. Which diversifies into production of table water.
v. To study the types of diversification report for long profitability in the industry.
vi. To examine if risk can be spread using diversification.
1.3 RESEARCH QUESTIONS
1. Does the Coca Cola Nig Plc adopt the product diversification strategy?
2. Does technological branching affect the growth of the firm?
3. Does product diversification lead to the spread of risk of the firm?
4. Is synergy one of the benefits derived by the firm through the use of the product diversification strategy?
5. Did the firm adopt the internal venturing approach to diversification strategy?
6. Did the firm adopt the acquisition approach to diversification strategy?
7. Is there a direct relationship between product diversification and growth of the firm?
8. Does the product diversification strategy help the firm to overcome the growth limit of its economic and industrial environment?
1.4 STATEMENT OF RESEARH HYPOTHESES
Based on the purpose of the study, the problems identified and the questions asked the following hypothesis shall be tested.
HYPOTHESIS 1
H1: That diversification is a strategic posture for rebuilding and revitalizing organization businesses.
HO That diversification is not a strategic posture for rebuilding and revitalizing organization businesses.
HYPOTHESIS II
H1: that there is direct relationship between product diversification and growth of the firm.
H0: that there is no direct relationship between product diversification and growth of the firm.
1.5 SIGNIFICANCE OF THE STUDY.
The significance of the outcome of this study cannot be over emphasized as the result will showcase to different industrial sectors, how product diversification could be effective in business operation. It would also reveal the various methods and approaches to diversification.
The study has these major areas significance.
Ø To contribute to or expand the frontiers of the existing knowledge on product diversification
Ø To sustain existing knowledge and launch a new era for future discourse on the area of study.
Ø To highlight the usefulness of diversifications in business.
Ø To awaken the consciousness of business owners on the need to adopt diversification strategy in their business operations.
1.6 SCOPE AND DELIMITATION OF THE STUDY
This research is intended to analyze the impact of product diversification strategy as adopted by Coca Cola Nig. Plc which diversifies into the production of table water (Eva water) and the production of juice drink (five alive).
As the case study of the project, emphasis shall be laid on the Coca Cola Nig Plc.
1.7 DEFINITION OF TERMS
Corporate Level Strategy: Is the senior management’s game plan for directing and turning the organization as a whole. At the corporate level, strategies refer to the broad line decisions taken at the top level of the entire organization regardless of the number of the different industries in which it competes or how many divisions or business unit has.
Growth strategies: Are strategies used to pursue the growth objective. It includes concentration, diversification, and vertical, integration strategies as well as internal growth, acquisition, merger, joints venture strategies and product and market development.
Diversification: This occurs when a company adds to its business either in terms of customer functions, customers groups or alternative technologies. It is used to identify the directions of development, which take the organization away from its present markets and its present products at the same time.
Related or Concentric Diversification: Here a firm maintained two or more lines of business, which although distinct, still possess some kind of strategic fit. Two business are related if resources can be productively between them.
Vertical Integration: This is a type of related diversification that consists of backward integration and forward integration.
Backward Integration: This refers to development into activities which are concerned with the inputs into the company’s current business. In other words, the company goes further back in value chain of producing its own raw materials, components, machinery, and making its own designs producing its on finance
Forward Integration: This refers to development into activities which are concerned with a company’s outputs, that is, the company goes further forward in the value chain by creating/producing its own transport, distribution, repairs and servicing
Horizontal Integration: This refers to developmentinto activities which are competitive with or directly complementary to, a company’s present activities.
Acquisition: This is an approach to diversification which occurs when a company purchases an established company facilities, equipment, and personnel.
Internal Venturing: This approach involves a company starting a business from the scratch including building facilities, purchasing equipment, recruiting personnel, opening up distribution channels/outlets, and so on.
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