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STRATEGY:
DIVERSIFICATION AND
THE MULTIBUSINESS
KHAIRUN NISAA BINTI AB RASHID
COMPANY
HAFLIDA BINTI OMAR
WHAT DOES CRAFTING A
DIVERSIFICATION STRATEGY
ENTAIL?
Picking new industries to enter and deciding on the means of
Step 1 entry.
=
Internal Line
Business through
Internal Development
Company Name Operator/Services
The hotel operator of Sama
KL Airport Hotel Sdn. Bhd. Sama Hotel & Sama Sama
Express
MA Agriculture-Horticulture Sdn. Bhd.
(MAAH)
The operator of all airports in
Malaysia Airports Sdn. Bhd.
Malaysia except KLIA & KLIA2
MA Consultancy Services Sdn. Bhd.
(MACS)
MA Technologies Sdn Bhd.
The duty-free operator of
Malaysia Airports (Niaga) Sdn. Bhd.
Eraman Duty Free
MA Properties Sdn. Bhd.
Malaysia Airports (Sepang) Sdn. Bhd. The operator of the KLIA & KLIA2
Urusan Teknologi Wawasan Sdn.
Bhd. (UTW)
Malaysia International Aerospace
Centre Sdn. Bhd. (MIAC)
WHEN TO ENGAGE IN
INTERNAL DEVELOPMENT
Ample time to
develop and
launch business
Availability of Cost of acquisition
in-house skills is higher than
and resources internal entry
Factors Favoring
Internal Development
Which Diversification
Path to Pursue?
Both Related
Related Unrelated
and Unrelated
Businesses Businesses
Businesses
CHOOSING THE DIVERSIFICATION PATH:
RELATED VS UNRELATED BUSINESSES
MAS Golden Holidays Sdn Bhd Subsidiary Tour operator Malaysia 100%
Malaysian Aerospace Engineering
Subsidiary Engineering Malaysia 100%
Sdn Bhd
MAS Academy Sdn Bhd Subsidiary Flight school Malaysia 100%
Cross-Business
• Serve as an internal capital market.
Allocation of
• Allocate surplus cash flows from businesses to fund
Financial
the capital requirements of other businesses.
Resources
Acquiring and
• Acquire weakly performing firms at bargain prices.
Restructuring
• Use turnaround capabilities to restructure them to
Undervalued
increase their performance and profitability.
Companies
MISGUIDED REASONS FOR PURSUING
UNRELATED DIVERSIFICATION
Seeking
Pursuing rapid
Seeking a reduction stabilization to
or continuous Pursuing personal
of business avoid cyclical
growth for its own managerial motives
investment risk swings in
sake
businesses
STRUCTURES OF COMBINATION
RELATED-UNRELATED DIVERSIFIED FIRMS
Dominant- Have a major “core” firm that accounts for 50 to
80% of total revenues and a collection of small
Business related or unrelated firms that accounts for the
Enterprises remainder
Narrowly
Are comprised of a few related or unrelated
Diversified businesses
Firms
Broadly Have a wide-ranging collection of related
Diversified businesses, unrelated businesses, or a mixture of
Firms both
* Rating scale: 1 = very unattractive to the firm; 10 = very attractive to the firm.
Relative market share: the ratio of a business unit’s market share to the market
share of its largest industry rival as measured in unit volumes, not dollars.
FIGURE 8.3
A Nine-Cell Industry
Attractiveness–
Competitive
Strength Matrix
• Strong of managerial,
Nonfinancial administrative &
Resource Fit competitive capabilities
to support.
Step 5: Ranking Business Unit &
Assigning a Priority for Resource
Allocation
Help top level executives assign each business a priority for
resource support and capital investment.
Best ways of generate additional funds for redeployment to
businesses with better opportunities and better strategic and
resource fit.
Ranking Factors: Sales growth, Profit growth, Contribution to
company earnings, Return on capital invested in the business,
Cash flow
Financial resources are limited - Steer resources to business units
with the brightest profit and growth prospects and solid strategic
and resource fit
FIGURE 8.5 The Chief Strategic and Financial Options for Allocating
a Diversified Company’s Financial Resources
Step 6: Crafting New Strategic
Moves to Improve Overall
Corporate Performance.
FIGURE 8.6
A Firm’s Four Main
Strategic Alternatives
After It Diversifies
Broadening a Diversified
Firm’s Business Base