Diversify or Concentrate?

There are often questions related to diversity versus concentration when a company looks to allocate finite resources among various markets. Choices involve concentrating on a small number of markets or diversifying by growing in a relatively large number of markets.  The path taken is determined by a mix of factors that include:

  • Market attractiveness. When there are high and stable growth rates in only certain markets, the company will likely opt for a concentration strategy. This is often the case with innovative products early in their life cycle. If demand is strong worldwide, as it might be for consumer products, then diversifying might make sense.
  • Concentration or saturation. This will occur in markets that are responding to marketing efforts at marginally increasing rates. But when the cost of acquiring additional market share points goes too high, marketers tend to look for opportunities to diversify.
  • Product Uniqueness. While unique product attributes that are in demand might offer a significant lead time over competitors and make diversifying less urgent, it is hard to sustain the advantage for long.
  • Marketing mix and its spillover. The expanding reach of media outlets makes it increasingly difficult to confine advertising messages to one country. In Europe, for example, adds on satellite channels now reach most Western European markets simultaneously, even if the company does not want to reach all of them. The more a marketer can standardize marketing mix elements, the more likely the company is to achieve economies of scale and diversification. While on the one hand, the marketer can benefit from the spillover, the downside is that if the marketing message in one region varies from the marketing message in the neighboring region, the marketer is losing some control.
  • Objectives and policies. If the unit must maintain extensive interaction with intermediaries and clients, it will need to concentrate its marketing approach.

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 95.