Write a respond adding to the arguments below or disagree with it and back your point up.
Statement 1- 200 words
Statement 2- 200 words
Statement 3- 200
Statement 1
Three opportunities that share a sound basis for diversification or through vertical integration are found in three activities; market-related, operating-related, and management. These three areas of opportunities have been exploited by many different companies across virtually all industries. There are essentially two types of diversification and they are related and unrelated. According to our readings this week “Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries” and unrelated diversification “which occurs when a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries” (Lesson 5).
One company I chose that successfully used related diversification across its marketing, operations, and management is Starbucks. In 1971 Starbucks began selling roasted coffee to restaurants and espresso bars. From there the director or retail operations and marketing, Howard Schultz, convinced the current leadership to open the first coffee shop in 1985. From then until now Starbucks has continually sought ways to improve their position and that has been through diversification. In 1995, the first Frappuccino was introduced and three years later Starbucks products were offered in grocery stores around the country. At the same time the coffee house menu continued to expand. In 2013 they purchased a bakery operation that the firm acquired for $100 million and Evolution Harvest granola bars for $30 million dollars. This gave Starbucks the ability to add food items to the menu. An interesting aspect of this company is that the model they follow for expansion goes hand in hand with expanding certain aspects of vertical integration from coffee bean and bakery ingredients to a finished product either in the grocery store or one of their many coffee houses (Starbucks, 2018).
Another company I will highlight has done an excellent job using management opportunities in growing their brand and that is Tractor Supply Company. This company began in 1932 as a tractor parts business and if you look at what they offer today on their website, it is a little overwhelming. Since 1932 they built such a diversified portfolio which has kept them on track to earn over seven billion in revenue last year. They hold equities in not only tractors but “Tractor Supply lists five major product categories. The livestock and pet products, hardware, tools, truck and towing products, seasonal products such as lawn and garden equipment, gifts and toys, clothing and footwear, and agricultural products” (US SEC, 2017). They have managed to become the leader in the ranch and farm industry and offer a one stop shop, a sort Walmart for ranchers. In a sense this is an example of how they integrated related and unrelated diversity along with leveraging management into their strategic model laying the ground work for success.
Statement 2
According to the University of Minnesota (n.d.) there are several kinds of integration, including backward vertical integration, forward integration, or related diversification. As a whole, vertical integration is the process in which firms enter another part of their value chain (University of Minnesota, n.d.). In backwards vertical integration, a firm will begin participating in a part of the process that is farther away from the customer. This is typically quite lucrative for firms, as they have the potential to control more part of the process and work on their competitive advantage (Amedeo, 2018). Additionally, this can lower costs, by keeping more steps of the chain in house. For example, Target produces several store brands, such as Archer Farms, Up and Up, and others. Since target is a retailer who has vertically integrated into manufacturing, this is considered backwards integration.
Forward vertical integration, as expected, is the opposite of backwards vertical integration. In this case, the firm becomes one or several steps closer to the consumer on the supply chain. For example, Eckert’s a southern Illinois based apple orchard used to sell only wholesale to retailers. However, in recent years, Eckert’s has opened several stores, selling directly to customers, as well as a restaurant. By becoming the retailer, the firm has moved a step closer to the consumer, making this forward vertical integration. The benefits are similar; firms will have more control over the process, reduce costs, and enhance their competitive advantage (University of Minnesota, n.d.).
Another kind of movement is related diversification. In related diversification, a firm moves into an industry that is different than their current one, but has some similarities (University of Minnesota, n.d.). As cited by the text, Disney’s acquisition of ABC was considered related diversification, since movie and television industries are different, but related (University of Minnesota, n.d.).
While any kind of diversification is not risk free, there are quite a few benefits that should be considered. Moving forward, backwards, or horizontally to a different industry all together, may help a firm diversify and expand. On the other hand, there is also a possibility that some firms do not have the resources or preparations in place to expand in these kinds of ways.
Statement 3- Are you ready for interviewing time? Let us start it early for you and the rest of the class. Pretend for a moment that you have just finished your degree and there is a great job (and I mean $50K more than you are making now a year) advertised with Amazon.com or perhaps with one of the Trump businesses. They want you to come to the interview with ideas for some possible acquisitions that could be beneficial to them. The person with the best suggestions — will get the job and opportunity to work with their own time to make these acquisitions work. Ready? What might you suggest?
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