By Sandip Chakroborty
Diversifying in different sectors has become the central talking point for companies and leading players tend to consider it seriously. It comes with its own set of risks and benefits that need to be analyzed thoroughly before getting into diverse segments. However, there is the bright side of taking the economic scale of the company a notch above if the new area of exploration turns out to be successful. While diversification might feel overwhelming and intimidating at first for organizations, where can the process begin? Corporate strategy is what comes to the rescue. It is the essential ingredient that helps organizations know what businesses they can divulge into and how they can be regulated. If you take companies like IBM, 3M, Apple and many others, they have entered multiple industries. And in the Indian market, you have ITC, Tata, Birla Group and many more giants reaping the benefits of diversification.
This is where the crucial question strikes me- What makes it essential to consider a diversified expansion for companies? Firstly, apart from encouraging business growth, it helps with preventing a sector from experiencing a major downfall. While it’s not an absolute necessity, it’s an aid that can save your business during times of crisis. Moreover, it can also help manufacture products from different categories and assess how well they are fairing. In a nutshell, this indicates that you don’t put all of your eggs in one basket.
Branching out
Diversification is not subjected to just one avenue, companies engage in product diversification, geographical diversification and product-market diversification that is divided into different types, levels and opportunities that each of them brings. Let’s take Reliance Industries for instance. This multinational conglomerate has successfully established its hold in diverse sectors ranging from retail, telecommunications, energy, textiles etc. and accounts for 8.9% of the Indian economy’s GDP. Diversifying helps beat the redundancy and dependency that one industry can bring. Naturally, any company can navigate through the highs and lows that the market brings along for the industry. India’s mobility sector is another example that has witnessed massive diversification. Accelerated by urbanization, the industry is expected to witness a four-fold growth by 2027.
This is because services are being made more customer-centric with strategies that can be applied across different sectors. For example, service diversification uses innovative approaches and goes beyond traditional boundaries to appeal to different population groups. This is an important step for the mobility industry because travel makes up a great part of the economy. A diversified game plan that looks at different aspects helps elevate the overall unified focus of the ‘transport’ sector. While transportation goes beyond just travel, it also looks at logistics, which is something that makes any business major schedule.
Impact on nation
India’s logistics sector contributes 14.4% to India’s GDP. This means the logistics sector alone has massive scope for diversification. This not only contributes more to the economy but gives businesses that are interconnected to this sector a chance to increase their visibility. The mobility segment is one of them that’s tied to it. Additionally, as of 2019, the logistics sector stands at a value of 15.1 lakh crore and includes brokers, transport companies, warehouse facilities etc. Thus, one industry in itself has multiple segments that can be explored and leveraged to contribute to the overall economy.
Having a diversified plan to expand business in different areas can help to act upon different available opportunities. These new avenues have the key to unlock tremendous possibilities not just for the organization or individuals working for it but the nation at large. While it’s not a necessity to do so and does not have a 100% guarantee of being successful, it still has several benefits for businesses. In the post-pandemic times, a solid diversification strategy is of utmost importance to avert market downfalls. Therefore, it goes beyond redefining growth strategies and implementing traditional business models to experience business growth and acceleration.
(Sandip Chakroborty is Managing Director at JML, (JCBL Limited Subsidiary). Views expressed are author’s own.)