6 - Diversification Strategies

Summary

Introduction

The vulnerability of the specialized firm to fast and unexpected changes in the environment in the last half of the twentieth century meant that firms in many industries chose to diversify as a way to grow and survive. The development of the multiproduct firm is often considered to be related to factors such as excess capacity and its creation, market imperfections, and the peculiarities of organizational knowledge, particularly its fungibility and tacit character. This chapter explores the role of marketing knowledge and brands as underutilized resources. I want to explain how despite following apparently different strategies of related and unrelated diversification, a group of multinational firms from different countries achieved similar global leadership positions.

It is very difficult to classify firms' strategies over long periods of time as involving only related or unrelated diversification. Nonetheless, despite the unique ways through which firms respond to imperfections in markets and other factors, it is possible to find common patterns in their diversification strategies. Commonalities exist not only in the products and geographical markets they selected, but also in their vertical integration strategies and the physical and knowledge linkages they created. Some firms even adopted strategies of double diversification, engaging simultaneously in geographical and industrial diversification.

In this chapter, I provide empirical evidence on the imperfections in alcoholic beverages firms and markets that led firms to diversify into related and unrelated areas over time and to create different kinds of physical and knowledge linkages.