Diversification of a Pharmaceutical firm into Coffee Shop Business
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Added on 2019-09-23
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Diversification is that corporate strategies that a firm uses to enter a new market or industry,which is not a part of it recently. While diversifying, a firm also needs to create new products forthe new markets. Many small companies tend to rule the markets by betting their entire resourceand future on a single product or service, but as the company grows and flourishes, it findsopportunities to add myriads of new products, services, locations and customers. So, it can beeasily deduced that diversification helps a firm to strive through the tough times and even have astrong alternate sources of revenue in times when the original market dries up. Growth throughdiversification also helps a firm to have a great list of options in place when they are needed[ CITATION MUn06 \l 1033 ]. The following essay has been precisely written in order to write a Diversification plan for aleading US-based Pharmaceutical firm, Pfizer. This firm is an American global pharmaceuticalcorporation with its headquarters in New York City. It is considered as one of the leadingpharmaceutical company of the world and is known to produce medicines and vaccines formyriads of medical disciplines. The company was established in the year 1849 and has beenundertaking a single line of production [ CITATION Ent163 \l 1033 ]. Although the firm isperforming a great job in this field, but it has a capability to expand its business in other areastoo. For such a purpose the concepts of diversification are implemented in a firm which wants toinvest in other potential markets and customers to avoid monotonous operations and similar ratesof profits per annum. In the following essay, the selected pharmaceutical firm will expand itsbusiness to coffee shops in order to deal with an entire new set of customers and even have abackup plan for the company to avoid inevitable economic turmoil in the coming future. Theessay will also discuss the potential risks that the firm might face in the process of diversificationand even there will be recommendations and a set of suggestions that could minimize the risks. 2
Companies have numerous reasons for diversification [ CITATION RBi79 \l 1033 ]. The mostconsidered reason is that diversification could act as a survival strategy for a rapidly growingcompany. The pharmaceutical firms often have a regular revenue stream throughout the year, butthis expansion cum diversification will allow the firm to deal with new customers and gainanother level of experience. As the firm has been able to gain a good loyal customer base, henceit can sell its new products easily to its existing customers. It is advisable for the firms to notexpand and diversify its business until and unless its core business is stable and profitable. Thestable core business often gives a chance to a company to direct its unused resources in otherprofitable businesses that not only gives a chance to the company to make profit from otherresources but also evaluate the minds of the other potential customers in the markets [ CITATIONKan121 \l 1033 ]. Pfizer has succeeded in establishing a great brand identity in front of itscustomers and is constantly increasing its customer base in almost all the potential markets in theworld. This strength of the brand identity could be used by the company to explore new marketsand establish strong grounds there. The concept of diversification can be used by the considered company for both offensiveand defensive purposes. In the former case, the firm could use to increase the profit rates byentering and exploring the untapped markets and in the latter case the firm could disseminate itsassets in order to avoid useless crisis in the coming future. The greatest advantage for thecompany, after expanding into the coffee shop business would be a rapid expansion in therevenues. Diversification of trying a hand in Coffee Business will make the company to try itsbusiness expertise and effective marketing strategies in such markets where the firm has neverthought to invest before. The company may also provide a better quality of risk control activitiesby being no longer dependent on a single market for its profits and revenues. 3
Capital Preservation is yet another benefit for this pharmaceutical firm as it plans toexpand its business in coffee shops. This process allows a firm to protect the capital that itpossesses rather than focusing the skills and resources on the rate of return for the investments.By allocating money into different investments, the firm will be able to preserve its capitals intimes of economic turmoil. Investments in myriads of assets tend to minimize risks and allow afirm to concentrate over other potential issues in the firm. The Diversification strategies alsohave the effect of maximizing portfolio returns [ CITATION Acc161 \l 1033 ]. This is due to a basicreason that due to diversification risks are limited as there is a minimal exposure of thecompany’s assets to major losses in the markets. The portfolio is likely to make more moneyunder the diversification process and even maximizes returns as the new and innovative investorsare exposed to high- return growth industries [ CITATION OOj09 \l 1033 ]. The most appropriate expansion cum diversification option for the selected company isthe Brand Extension. Through this approach the firm could expand via an unconnected range ofproducts and markets. But, this approach may have a set of the inevitable risks associated with it.When the firm uses the same brand name to market different products in the different markets,then there are chances that problems in one business could affect the sales of another. However,if the company plans to trade under a different name than one business could easily be separatedfrom the other. Even the firm would be able to maintain its reputation in front of its present andpotential customers. Most importantly, if the selected pharmaceutical company expands intoother business under a different name, then the finances of the parent company are also securedfor a long duration. If one business fails, then it can easily cope up with time without affectingthe profits and operations of other businesses of the company [ CITATION Wan11 \l 1033 ]. 4
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