1 - Is it advantageous for a company to be part of RPG Enterprises? Discuss. [A]Being a part of RPG Enterprises has both pros and cons. Pros: y y y y
RPG brand name puts you at the top of the pyramid. Increase in brand value and market share. Cross holding will ensure better stability and control. Raising money for investment would be easier.
Cons: Compromise on the independency. y Management will be in the hands of Goenka bro thers. y Goenkas were experienced in running traditional industrial production companies and lacked in customer orientation. Thus joining RPG Enterprises would solely depend on whether the companys core competency is beneficial for RPG or matches with the sectors that RPG wants to grow into. y
2
- List down the reasons for product diversification by Business Groups? Is it beneficial? Discuss
[A] Diversification is a strategy used by firms to increase their market share. Firms may diversify by getting into ventures that is in line with the firms existing business (concentric diversification) or the firm can get into a line of business that is totally different than the old business ( conglomerate diversification). The reasons for diversification are listed below: y It is a universally accepted growth strategy and in some cases a protective mechanism. y Belief that catering to a larger market is possible by diversifying and a large market share is always beneficial. y Diversifying so that the waste product of one can be used as a raw material of another. y The firm believes that there is growth in a particular sector and enter it even though its core competency might not lie in the area. y Diversification may make the company good for investment. y Firm may believe that they have the adequate expertise to grow in a particular sector even if they are new to it. Is
diversification beneficial or not depends solely on how has the firm planned to handle the diversification and how successful is it in handling the diversification. Internal diversification is done when the market share is constant and there is a need for introduction of a variant of an existing product as per the market needs. Diversi fying by having a unit which does in house manufacture of parts helps in cost reduction. Having a plant that uses the byproduct of one industry also gets in additional income. Diversifying into a totally new product needs planning in terms of putting the right people into the right positions as well as developing expertise.
3 - List down the reasons for geographical diversification of Groups? Is it beneficial? Discuss [A]The main driving motives behind geographical diversification are: y
y
y
The main idea behind this strategy is to target new markets for an existing core competency and thus diverse the portfolio of this exi sting business across different markets. It might also help in risk avoidance when there is a common danger that strikes a group of markets. The core business of the organization can still keep its business viable by operating in the other areas which remain relativel y unaffected by the upheaval. Different markets provide a new business opportunity for a core business. As a result making a presence felt in these new markets by acquiring mid-performing companies and helping them reach a new level in the existing market slowly increases the parent companys global presence in the core business where the company is trying to stamp its authority.
This approach can be beneficial if there i s some financial or other economic or environmental upheaval in existing markets which initially for the company remains highly domestic. During such a time of adversity the company can easily channelize its efforts towards the other newly acquired markets which can be the source of revenue when the going gets tough in the traditional markets. It reduces the overall risk of the business portfolio because a bad performance in one market can be balanced by better performance in others at a particular point in time. This mode of action can also benefit some businesses because of direct inflow of foreign currency which might be directly channelized for further im provements in the domestic markets. - What happens to a b-group which becomes highly diversified with its own small multi segmental operations? 4
[A]The problems that might arise with diversification with such a business group are: y
y
y
It
might lead to dilution and mediocrity in investment. It is better to own a few businesses which are stable enough to self finance themselves rather than multiple businesses where there needs to be internal channelization of funds in order to sustain these businesses. Focus on quality becomes diluted. The business house might become too busy dealing with the weaknesses of the low performers in the sector as a result of which the brand name of the company as a whole might take a beating. Even investors who initially invest based on the companys bona fides might become skeptical in the future. Diversification in such a company might provide an apparent sense of protection. If such a business house for example just deals with one company and it blows up then the entire business goes downhill. In a case where the business has 100 companies and 1 fails it is hardly noticeable. But in a situation where there are 100 companies out of which 10 are very stable, high performing companies and some financial crisis stri kes, these 10 companies will slowly g et their grip back on the market but the 90 other weaklings fail. This hurts the business more both in terms of brand image in front of the investors and lost investment.
