• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Diversification case study. Reasons why GSK diversify

Extracts from this document...

Introduction

Diversification Introduction Diversification is the process of entering new business markets with new products. Companies diversify either by acquiring already existing businesses or by expanding their own businesses into new markets and new areas of production or service. Firms may choose to diversify for two reasons. Diversification may benefit the firm's owners by increasing the efficiency of the firm. Also, diversification decisions may reflect the preference of the firms' managers. Reasons why GSK diversify GSK is a pharmaceutical giant, with an estimated seven per cent of the world's pharmaceutical market. One of their key strategies is to diversify their business to create a more balanced product portfolio and move away from a reliance on traditional white pill/ western markets Economies of scale and scope Having a wide variety of products will enable GSK to capture a larger market share, and hence more profits. GSK diversify into over-the-counter (OTC) medicines, oral healthcare and nutritional healthcare. ...read more.

Middle

Economizing on transactional costs Since GSK relies primarily on research, ideas from one project can help another project. GSK set up a research centre in Biopolis, Singapore. Biopolis is a world class research hub. By setting up a research centre in Biopolis, GSK can economize on transactional costs. Internal capital markets In a diversified firm, some units generate surplus funds that can be channeled to units that need the funds. In 2009, GSK's core pharmaceuticals and vaccines businesses delivered sales of �19.1 billion. Sales in the Emerging Markets pharmaceutical business grew to nearly �3 billion. Consumer Healthcare sales grew to �4.7 billion. Through these profitable businesses, GSK is able to absorb the impact of losing more than �1 billion of sales to genericisation in the US market in 2009. Diversifying shareholders' portfolios Individual shareholders benefit from investing in a diversified portfolio. Hence, a shareholder can invest in a single diversified firm and achieve the benefits of portfolio diversification. ...read more.

Conclusion

In 2009 this programme delivered �1 billion of annual savings. Take advantage of existing expertise, knowledge and resources in the company when expanding into new activities. This may result in transfer of skills, such as research and development knowledge and sharing of resources. Finally, diversification spread risk by avoiding having all eggs in one basket. For example, instead of just relying on traditional pills and euro markets, GSK has diversified into oral care products, skin care products, sports products, nutritional products, as well as diversifying into emerging markets and Japan. Disadvantages of diversification May result in slowing growth in its core business. Adding bureaucratic complexity. In addition to direct financial costs, there may additional bureaucratic complexities necessitated by the need to coordinate and control core activities with additional activities. Losses may be incurred during market consolidation process resulting in some business units being subsidized by other profit making units. Diversification through acquisition across national boundaries may result in the organisation having to deal with varying intricacies of the political and legal requirements of the different countries in which the organisation has controlling interests. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Case Studies and Analysis section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Here's what a teacher thought of this essay

4 star(s)

****
This is a well researched piece and the writer has discovered a lot of useful information about GSK. My main criticism is that they never define what they mean by diversification and according to classical business theory do not describe any either. Firms often move into new products and new markets. This is not the same as diversifying.

Marked by teacher Dennis Salter 15/05/2013

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Case Studies and Analysis essays

  1. Case study of The Jollibee Foods Corporation

    Similarly, Jollibee also acquired Red Ribbon Bakeshop on 2005, another popular fast-food restaurant in the Philippines. In 2006, the company acquired the franchise of D�lifrance. This further expanded its penetration in the food service industry particularly in the French cafe-bakery, a growing segment of the Philippine food market.

  2. Zara case study. Zaras Objectives, Strategies and Problems.

    Zara's internal and external environments 3.1 Internal Environment Zara has several specific capabilities that allow the company to have a solid competitive advantage: ?The ability to quickly respond to the market needs has given a distinctive competitive advantage to the company but other companies tried to copy the model but failed.

  1. Virgin Atlantic PESTLE analysis.

    standard of living; they find it hard to find new jobs as skills are always changing. They will affect the economy because the government will receive less money from unemployed people and in turn affect the amount of money they have to spend on other things such as if a

  2. Stakeholders in Tescos and Cancer Research.

    And greater clearness may encourage donations from those that aren't giving now because they don't trust charities. In time, greater clearness will help all donors to become more informed donors and their trust will become more directly linked to how well charities communicate the difference they make.

  1. (P4) Describe the Functional Activities and the Independencies of Tesco Plc and Coleraine Borough ...

    * Health Action Zones * Planning Advice * Healthy and Safety (Within the council along with public liability) The environmental health department has arranged its activities into the following core functions; 1. Food Safety Objective: To ensure that food which is produced, prepared and sold within the Borough is safe.

  2. Unit 2 P3 Describe the main physical and technological resources required in the operation ...

    name This suggests that managing their copywriters is essential to make their organisation name legally own by the government to prevent copywriters. Human resources How management of human resources can help to improve the performance of the business (M1) Human resources were discussed in P1 and P2.

  1. Unit 1 P6 Describe how political, legal and social factors are impacting upon the ...

    The E.U is an economical as well as political union where they currently have 28 parties, they operate by the system of supranational independent institution an intergovernmental negotiated decisions made by the members. Formed back in 1951 originally with only 6 countries, so what affect does it have on businesses,

  2. Explain different types of business information, their sources and purposes

    Finance will have a wealth of information relating to company performance, such as profit and loss figures, the balance sheet, cash flow information and the costs of running the business. External Sources: This exists in the form of published materials.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work