Diversification case study. Reasons why GSK diversify

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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. Worldwide it is the second largest in OTC medicines and the third largest in Oral healthcare. In Nutritional healthcare it holds the leading position in the UK, India and Ireland.

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OTC medicines include Panadol, Eno. Oral healthcare products include Aquafresh and Sensodyne. Nutritional healthcare products include Horlicks, Ribena and Lucozade.

Economies of scope enable GSK to leverage core competences, such as R&D. It also enables them to moblilize invisible assets, such as their 12 800 highly skilled researchers.

The scale of manufacturing in GSK is huge, with the manufacture of over 4 billion packs per year in 28,000 different presentations (including tablets, creams/ointments, inhalers, injections, liquids

and steriles), which are then supplied to over 150 markets. Over £3.7 billion was spent by GMS on production in 2009.


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**** 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.