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The Advantages and Disadvantages of International Business Diversification - Essay Example

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This essay describes the advantages and disadvantages of international business diversification that will either hinder productive business growth and profitability or cause problems in attempting to recapture the diversification costs and labor…
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The Advantages and Disadvantages of International Business Diversification

This paper illustrates that there are fundamental risks associated with a business maintaining a singular posture for serving local markets and only specializing in one category or type of product and service. These risks include sudden or unpredictable changes in consumer behavior and purchasing intention, the ability of the firm to extend the product lifecycle of its singular product, or threats of competitive entry into the servicing market. As such, corporations seek diversification strategies to improve the business position. A company is considered to be diversified when it runs more than one business unit. The terminology business in the case of diversification includes either changing the business structure or launch of new product lines either related or unrelated to the core product that founded the business. The rationale for diversification generally includes stagnation of existing local market or when the market becomes unattractive due to increases in a competitive rivalry. Most diversification occurs through the result of acquisitions, such as in the case of the Walt Disney Company that switched from production of animated films to acquisition and operation of resort vacation properties or the Virgin Group that started with music production and diversified to include mobile telephony through an acquisition of telecommunications companies. There are many risks of servicing only a singular market with one product or service that has been attributed to placing all of a firm’s proverbial eggs in a single basket. Virtually every product or service offered by a corporation has an established life cycle, moving from a growth phase to an eventual decline along the life cycle model in which sales and demand begin to decline. The life cycle of the product is determined by a number of factors, including consumer behavior changes, innovative product releases by competition that outperforms, competitive pricing instances that drive price-sensitive buyers to rival firms, or even new market entrants that increase choice and lower switching costs for consumers to defect to a rival brand. ... Read More
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