Valeant's Diversification Strategy: Coffee Shops in Canadian Market

This report analyzes Valeant Pharmaceuticals International's diversification strategy, specifically its potential expansion into the coffee shop business within the Canadian market. The analysis begins by highlighting the context of Valeant's economic downturn and the rationale for diversification as a risk management strategy, particularly considering Canada's high coffee consumption rates. The report proposes investment in coffee startups as a suitable diversification approach, allowing for a gradual understanding of the market and mitigation of potential risks. It identifies key challenges associated with diversification, such as adapting to customer preferences, maintaining perishable goods, and managing brand perception issues. The report suggests mitigation strategies, including operating under a different brand name, forming joint ventures, and effectively communicating the change plan to employees. Furthermore, the report emphasizes the importance of acquiring market knowledge and training employees in new marketing skills to successfully cater to the coffee shop market. Ultimately, the report provides a comprehensive overview of the opportunities and risks involved in Valeant's diversification into the coffee shop industry, offering strategic recommendations for a successful venture.

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Expansion and Diversification of a Pharmaceutical firm in the Coffee
Shop Business

Diversification is a process in which a firm leaves its core industry and market to enter an
entirely new market with new customers and opportunities. A marketer plans to diversify its
business in order to manage risks by simply minimizing the potential harms to the expanding
business in times of economic downturns. There are times when the current business activities
stop responding in a positive manner to the economic turmoil situations. In such a condition, it is
recommended to shift over such a business that doesn’t reacts negatively in times of adverse
situations. Diversification is also helpful in times when one of the businesses of the company is
facing failures in the markets. The other businesses will help the profits and sales to rise for the
company and even keep it viable for a long time. Sometimes Diversification is also used by a
company as one of its growth strategy. In this a company can rely upon other sources of income
derived from other business ventures (Surowiecki, 2016).
In the following essay, a step has been taken forward to suggest a new business idea to a
pharmaceutical firm and even analyze the potential risks associated with this diversification and
expansion process. In this essay, the selected pharmaceutical firm will diversify its business and
invest in Coffee shops to have an entirely new experience of dealing with coffee lovers. The
essay will evaluate the potential risks of diversifications along with suggestions and
recommendations to mitigate them in all possible ways. The company that has been chosen for
this assignment is Valeant Pharmaceuticals International. It is a multinational pharmaceutical
company based in Canada. The company entered the Pharmaceutical business in the year 1994,
under the name ICN Pharmaceuticals Inc. by merging with three leading companies of that time.
In the year 2003, the company got its new name as the Valeant (Valeant Team, 2016). The
adverse condition rose when the firm was involved in a controversy related to drug price hikes in
the year 2015. This year marked a great setback in the sales and profit rates of the firm. This
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economic downturn has bought up with a suggestion of expansion cum diversification through
which the firm could seek new markets and customer base to compensate the ongoing loss. For
such a purpose the expansion could be towards coffee shop business in Canada.
Out of 80countries, Canada stood up at first position in the survey, which was conducted
to evaluate how many liters of coffee is consumed in cafes and coffee shops. The prime reason
behind this heavy consumption is the prolonged cold weather. Apart from this only reason, there
are a number of other small reasons too (Coffee Association of Canada, 2016). Among them, one
of the most reliable reasons is the ample of best coffee brands in the country which are serving
coffee cups to meet the tempting demands of the customers. Either outside or at workplace, most
of the Canadians enjoy on an average 3.5 cups of coffee per week in cafes and restaurants. These
statistics suggest that this diversification of the firm facing a great economic turmoil could yield
a number of lucrative results in the coming future. The Canadians already have a great affinity
towards Caffeine and hence an investment in this business is always a profitable decision. The
Cafes and the Coffee shops will not only offer myriads of Coffees but to complement it, they
may also offer tempting recipes that could easily lure more and more customers towards this new
expansion idea (McAlpine, 2013).
The most apt and suitable approach of diversification for the selected firm could be investments
in the Coffee Startups in Canada. This approach would allow the investors of the core business to
have a feel for the product they are going to launch and would even have an understanding and
experience about the venture from the beginning. Moreover, while learning from the staring the
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executives of the pharmaceutical firm could easily evaluate the hidden threat and opportunities
associated with the new business and target markets where the core business is going to expand
and diversify (Bully, 2015). The investments in startups often allow the companies with a core
business to look for opportunities in a number of directions and hence invest in multiple startups
of same or different genre at the same time. The investments done through diversification often
allows a company to seek long- term gains in the future and even provides much more security
than putting all the money in one market and in one type of customer base. The company that
plans to invest all its assets and resources in a single promising market, then there are chances
that a company might face serious problems in times of losses. By diversifying the portfolio, the
company could get a better chance to achieve long term goals by playing safely along the way
(Ciulu, 2008).
While diversifying, there are a number of identified as well as unidentified problems that
are faced by the core business that is trying to expand into an entirely new business and new
markets. The perception of a Pharmaceutical firm has been always to serve the bulk of customers
at a single time irrespective of their personal needs. The core business has always produced
drugs that are in demand in the markets as a whole rather than serving those drugs and medicines
that are particular towards certain sensitivities of the people. This habit of the company will pose
a great challenge in front of the executives who have to now manage customers with a specific
set of tastes and choices in terms of Coffee and other eatables served in the cafes and coffee
shops. The customers visiting the coffee shops have different demands for their coffee and in
order to succeed in this business, the coffee shops need to meet the individual demands of the
people and evaluate their perceptions towards the tastes that are being served. Also, the entry
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into the Coffee markets opens a challenging way for the new entrant for maintaining perishable
goods. This new business will deliberately ask the executives to maintain a great level of
monitoring over the coffee shops in order to ensure that the customers are being served with
fresh and tempting coffees and other eatables. For such a purpose, while diversifying the
company definitely has to recruit a number of new professionals who are highly skilled in
monitoring activities. This recruitment process will compel the firm to invest a good amount of
its financial resources which could further lead to financial issues for the company (Insig, 2015).
As the company is recently found to be indulged in illegal acts, hence there is not a much
clearer and candid brand image of the firm in the markets. The investors are reluctant to spend
their financial resources and other assets in such a firm that is struggling to regain its prestigious
position in the markets. Through its illegal acts, the firm has also lost most of its loyal customers
in the markets, which were gained through direct selling or through the medical representatives
all over the country. It will take a lot of time for the firm to reshape its brand identity and win the
hearts of the customers once again. In such a situation, if the firm enters a new market, then in
the initial days it will likely face a negative response from the customers. The only way to
mitigate such a risk is the firm should enter the domestic as well as the international markets
under a different brand name or could also acquire the already existing startup. The startups have
the potential to look both the positive and negative side of the market and evaluate the upcoming
opportunities (Activa, 2011). Even, as the people involved in the startups usually have igniting
and innovative minds, hence the Diversifying firm could seek their help to enter in a unique way
in the markets. Exploring the market under a different brand name is also a great decision as
people will not be so aware of the Core Company’s background. So, it would be easier to create
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a new level of loyalty and attract new customer base. Another mitigation option is to enter into a
joint venture with an already existing leading Coffee Brand and provide them all their necessary
investments. In such a case, the Diversifying Company would only have to take care of
consistent financial sources and do not mind about the public dealing process and maintenance of
the coffee shops. This will further strengthen the company to focus more on the increment of
profits and sales of its declining economy rather than directing its resources and skills in gaining
new customer bases and rely on their response for its new business’s success (Times, 2016).
The communication of the change plan among the employees is yet another potential
risks for the company. The company has been engaged in this Pharmaceutical business for more
than two decades and the employees have adopted their lifestyles and habits according to this
working environment only. While entering into the new business, with new target markets and
new products, the company will definitely have to employ the most potential and loyal employee
of its core business firm in this new business and this will further lead to another challenge of
convincing the loyal employees to recalibrate their knowledge, skills and way of working in
compliance to the demands of the new markets (Macaluso, 2014). Moreover, most of the loyal
employees of the firm are above 35 years and for them any sort of change is a little annoying. So
the expanding firm has to look for a number of measures to convince their employees that
whatever change is being carried out, it is ultimately for the benefits of the employees only. To
convey the benefits of the new expansion cum diversification process, the senior members of the
firm could arrange for regular meetings and conferences for the employees and even hire experts
of this field that could easily motivate the employees towards this change process. In the
meetings, the employees could also be asked to suggest ideas and opinions over the new
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diversification process. This will make them feel more connected to the company and hence they
would readily agree to the ongoing decisions of the firm (Primeast Ltd Global Headquarters,
2015).
During Expansion and Diversification, the Expanding Company needs to have a great
knowledge about the new market it is entering. Starting from a scratch is definitely a tedious task
even for the leaders of another industry. This is because the marketing trends and customer
perceptions of one industry entirely differs from another. Even the marketing strategies are also
different. For instance, while marketing a new drug you need not to rely upon advertisements
and online media platform a lot. A drug could be marketed easily by reaching leading hospitals
and doctors who daily attends a number of customers (Collins, 2015). But in order to market a
Coffee shop, a marketer has to adopt all possible marketing and promotion strategies like
printing ads in magazines and newspapers, broadcasting commercials on TVs and Radios,
reaching customers through online media platforms like Facebook and Twitter, Word of mouth
selling, etc. So in order to succeed in this new business, the core company executives will have
to search for such type of candidates as its employees who could easily communicate the
products and services to the specific target consumers in the markets. Also, the loyal employees
of the firm need to be trained with advanced marketing skills so that they could deal efficiently
with new markets and their varying needs (Gino, Pisano, Sorell, & Szigety, 2006). To further
mitigate this risk, the company executives could also arrange for conferences and training
sessions for its employees from where they could learn the new and innovative measure to reach
out for the remote and potential customers and serve them with the best taste of Coffee.
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Moreover, the firm could seek out for potential candidates and offer then handsome salary so that
they serve for a longer duration for the firm (Kandybin & Genova, 2012).
When a company plans to diversify then there are chances that the searched locations and
markets are situated overseas or in foreign lands. In such a case, the most potential risk is of
managing the expatriate managers and employees in the lands other than the domestic ones.
When the company enters foreign markets, then it becomes hard for it to convince its loyal
employees to leave the comfort of their home jobs and serve the firm overseas. Also, the
expatriates themselves find it tricky to work and communicate with the subordinates that have an
entirely different lifestyle, culture, ethical values and way of working. The lack of
communication between the managers and the subordinates often leads to delay in submission of
crucial projects on time and even the employees develop an aversion of serving the firm in the
best possible manner. In such a case, either the expatriate quits the job or the candidates stop to
apply for jobs in a particular firm (FN Media Group, 2015). This risk needs to be cured at an
initial level only because it becomes quite tedious to operate and manage issues that are
occurring in foreign lands. To this, the company might respond by arranging skilled training
sessions for the employees that would be discharging services in foreign markets. Through the
training sessions, they could easily learn how to communicate with the employees with different
perceptions and ways of working. These sessions might also incorporate perfect leadership skills
among the expatriates through which they could take wise and unbiased decisions for their
subordinates and even for the company on a whole. The training sessions also teach the
expatriates that what immediate actions could be taken when the employee unions attacks the
company in times of issues related to salary and working hours (Walker & Johnson, 2011).
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For the company like Valeant Pharmaceuticals, the expansion and diversification in the
domestic markets are a wiser option rather than searching for markets and locations in foreign
lands. This is because the statistics of coffee consumers in Canada are very good and the
investment made in this business would yield more lucrative results for the company. However,
the expansion in the domestic markets too could have its own associated risks. For instance, as
the Canadians are quite fond of Coffee, hence there are already a number of competitors in the
markets that are serving efficiently to their customers (Bottazzi, 2012). Hence, it would be very
hard for the new business to enter the overpopulated market of Coffee and rule the entire market
in one go. The competitors are present from a very long time and they know which taste could
perfectly satiate the taste buds of its customers. Hence, for Valeant this diversification in the
home markets is also a tough task. But if the company tries to closely evaluate the marketing
pattern of its competitors in the coffee markets and even learn the ways that make their special
coffees and different from other, then there are chances that this new entrant could rapidly attract
a huge customer base in a very short period of time. The company will have to learn from the
scratch and for this purpose it could seek alliance from the medium level coffee sellers and could
even invest in their firms so that the core company would not have to worry about the basics of
coffee business anymore. This will allow the company to focus more on other strategies that are
developed to increase sales and profits for the firm (Canada, 2014).
From the above discussion it is quite clear that in order to increase the sales and revenues, a firm
could easily rely upon the option of Diversification. As the company has been found indulged in
illegal activities recently, so the sales and profit rates are automatically dwindling at a rapid pace
and there is an immediate need to find an alternative source of income which could easily
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compensate this loss. Hence, Diversification into a coffee business is a good option for the firm
to maintain its position in the Pharmaceutical business and also to have a lead in coffee business
too. There are a number of risks associated with the Diversification process and a successful firm
is a one that easily evaluates these risks beforehand only. If the firm seeks well then there are
chances that the most apt mitigation strategies could be found. To strive in this competitive and
demanding business world, ever firm needs to invest its assets and financial resources in myriads
of spheres rather than directing them directly into a single business and single market. This is a
crucial approach to minimize the risks associated with a single business strategy.
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