The recent ongoing period of recession has shown the world two simple things- the evergreen importance of liquidity and the need for diversification. This article is regarding the importance of the second.
Previously companies used to concentrate only on their core sector, but with the dominance of globalization over the last decade or so has made it imperative for companies to look for sectors beyond their core. Take for example the case of Microsoft- famous for its Windows OS software for PCs now concentrates a great deal on its hardware and gaming industry. Or for that matter consider the case of Google which has transformed itself from being a search engine to one providing email, advertisements and in fact even OS for mobiles (Androids). Or even the case of Mahindra & Mahindra, formerly a manufacturer of heavy duty vehicles, but now has a foothold in almost every sector including Softwares.
The need for diversification has been strengthened owing to the following reasons:
1. Advent of Internet : The emergence of internet has made it possible for anyone sitting in any part of the world to analyse your business model and present a better alternative. So what used to be a competitive advantage for 2 decades previously will now not last beyond 6 months !
2. New sectors and new markets: The world becoming more open to free trade has resulted in opening up of new markets, markets which have its own parameters of judging your product thereby leading to customized products or even completely new products. Besides the emergence of completely new sectors like VOIP, Blue-Ray,etc. look too lucrative to be let go without giving a try.
3. More competition: More number of players have emerged in your product segment forcing you to reduce your margins in order to remain competitive. The only way out in that case is to look for new avenues !
Diversifying a brand has its own pitfalls as well: it leads to diluting your brand equity ! So take care while extend your brand to other sectors.