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Rockware - Diversification

1.   Introduction

As the profitability of Rockwareˇ¦s glass container business was saturated and declining, the company should consider diversification as their future strategy for several reasons.  Firstly, more attractive terrains would enhance faster growth, higher profitability and greater stability for the company.  Secondly, diversification helped the company to access to resources such as physical assets and markets, which eventually improved its technologies and expertise.  Lastly and the most important was that diversification allowed sharing of activities and achieved certain synergies.

Options would be related diversification and unrelated diversification.

2.   Related diversification

Related diversification was directly concerned with extending the companyˇ¦s distinctive competence into new lines of business, for example glass ornaments (consumer markets).  This was an attractive strategy as it was the key to obtaining corporate synergy.  The most important was that the company could focus on internal development and build on core competences and technologies, while spreading risk from glass container business only.

Furthermore, as the raw materials were the same, more quantity could be generated with this diversification.  It was possible that the company could take the control position over the suppliers by means of quantity, quality and price.  This in turn helped the company to the control of markets, access information easily, as well as cost savings. 

3.   Unrelated diversification

Unrelated diversification was concerned in moving beyond the companyˇ¦s current value system or industry, for example PET.  This strategy allowed the company to escape from threats of present business and spread risk to other unrelated business.  Hence, it was possible for the company to exploit under-utilized resources and competences to develop advantages outside its core activities. 

As the company did not have the competences (management and technical) for the unrelated diversification, it was possible to do the diversification by mergers and acquisitions, or by joint development and strategic alliances.  It required personal values or objectives of powerful figures to guide through the implementation and cultural fit.

4.   Conclusions and recommendation

According to above analysis, related diversification was more appropriate for Rockware as it posed less risk and could employ the companyˇ¦s core competences for internal development.  Another reason for related diversification was the fact that the company had failed in unrelated diversification in plastics industry due to lack of technical expertise. 

It was recommended that the company should use success criteria to assess whether related diversification would be appropriate strategies by means of its suitability, acceptability and feasibility.

Reference List

Johnson, Gerry and Scholes, Kevan (2002), Exploring Corporate Strategy: Text and Cases, 6th Edition, Prentice Hall, Essex

Market Analysis Study Notes (2001), University of Warwick, Coventry

McAleese, Dermot (2001), Economics for Business: Competition, Macro-stability and Globalization, 2nd Edition, Prentice Hall, Essex

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