Study of corporate diversification of Indian firms strategy area

Abstract

While the qualitative aspects of corporate diversification have been widely researched, there have been varied results regarding diversification advantages. Since the success and failure of such a move are widely dependent on both internal factors (like the current industries in which the firm is operating, the financial strength of the firm, core competencies of the firm, which industry the firm wants to diversify into) and external factors (industry conditions, the firms currently operating in the target industry, global business scenario, etc.), as such, we decided to focus on a specific aspect of the topic – risk reduction. There have been varied results on whether diversification has a role in reducing risk for the firm. After all, if the firm diversifies into a related industry, a risk factor in the original sector is likely to be carried over to the other industry as well. As such, logic dictates that the risk reduction benefits from diversification should only be tangible as long as the correlation between the original and target industries is low. However, decades of past research have shown that the detriments of diversification over the long term will far outweigh the benefits in such cases. We have conducted studies of such claims to examine the risk factor associated with the same and the possible success factors for this specific case group.