The Impact Of Product Diversification Strategy On Organizational Growth (A Case Study Of Coca Cola Nigeria Plc)

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The Impact Of Product Diversification Strategy On Organizational Growth (A Case Study Of Coca Cola Nigeria Plc)

Abstract

This study examines the analysis of impact of diversification strategy on organization growth with particular emphasis on Coca-Cola Nigeria Plc. In the course of the study, relevant literatures were reviewed to have an insight into the conceptual and theoretical framework of the study. The study adopted a survey or disruptive research design, hence primary data were generated though questionnaire which is the major research instrument used. A total of fifty (55) structured questionnaires were administered among selected staff of Coco-Cola Nigeria Plc on a simple random sampling procedure. The data generated were statistically analyzed with relevant analytical tools such as simple percentage tables and chi-square. The result of the findings reveals that advertisement contributes to the achievement of small and scale enterprise goals and objectives. From the study, it was found that the respondent agreed that as their organization adopt the product diversification strategy and it leads to increase in the growth of the firm. It makes increased profit available to the firm from variety of product. Also, a loss in one of the product line does not result into a loss on the entire business of the firm, since the profit realized from other product line and business covers it up. In conclusion, from the study, there is no doubt whatsoever that product diversification is an important and vital corporate strategy option by which on organization can achieve its growth and overall objective

Chapter One

Introduction

1.1 Background to the Study

Diversification is one of the growth strategies available under the corporate level strategy, along side with concentration, merger and acquisition, strategic alliance etc.

Diversification occwurs when a company adds to its business either in term of consumer function, consumer group or alternative technology [Oyedejo, 2004]. According to De Wit and Meyer, (1998)diversification occur when a corporation enter by starting up new activities [internal growth] or buying it lead to expansion of business and thereby ensures synergy and increase in profitability of organization. It is also helporganization to spread their risk. The intense demand to search for growth opportunities and cost efficiencies has encouraged organization to pursue Diversification Chandler,[1962].

According to Thomas and Hunger (2008), diversification is explained to be when an industry consolidates and becomes mature, most of the surviving firms have researched the limits of growth using vertical and horizontal growth strategies. Unless the competitors are able to expand internationally into less mature markets, they may have no choice but to diversify into different industries if they want to continue growth.

Diversification can take various forms. The organization that produce product that serve customer group, customer function, alternative technology diversely related. e.g. Unilever Nig. Plc, the producer of food product, and home and personal care product. How organization can also decide to produce product that dose not serve the same customer group, customer function & alterative technology U.A.C.

This research work shall be focused on concentric or related diversification using Coca cola Nigeria Plc as case study .As it diversify into the production of Table water and Juice (five alive).

1.2 Statement of Research Problem

The intense demand to search for growth opportunities and cost efficiency has encouraged organization to pursue diversification (Chandler, 1990). This research work intends to investigate whether diversification as it claim can increase long term profitability of the organization, among others. It also intends to solve the problem of how growth and cost efficiency can be achieved. The aforementioned make this research work on impact of product diversification on organizational growth for investigating and researching on.

1.3 Objectives of the Study

Every research effort intends to solve and to make recommendations on a given phenomenon. Better still, it is meant to confirm, re-establish or validate known table or thesis. Specifically, the study is meant to achieve the following

  1. To know why product diversification occur.
  2. To know the merits and demerits of product diversification.
  3. To give a feasible look to the concept of diversification.
  4. To give a detailed and in-depth look into the types of the concentric or related diversification as practiced by the coca-cola Nig. Plc. Which diversifies into production of table water.
  5. To study the types of diversification report for long profitability in the industry.
  6. To examine if risk can be spread using diversification.

1.4 Research Questions

  1. Does the Coca Cola Nig Plc adopt the product diversification strategy?
  2. Does technological branching affect the growth of the firm?
  3. Does product diversification lead to the spread of risk of the firm?
  4. Is synergy one of the benefits derived by the firm through the use of the product diversification strategy?
  5. Did the firm adopt the internal venturing approach to diversification strategy?
  6. Did the firm adopt the acquisition approach to diversification strategy?
  7. Is there a direct relationship between product diversification and growth of the firm?
  8. Does the product diversification strategy help the firm to overcome the growth limit of its economic and industrial environment?

1.5 Statement Of Research Hypotheses

Based on the purpose of the study, the problems identified and the questions asked the following hypothesis shall be tested.

Hypothesis 1
  • H1: that diversification is a strategic posture for rebuilding and revitalizing organization businesses.
  • HO: that diversification is not a strategic posture for rebuilding and revitalizing organization businesses.
Hypothesis II
  • H1: that there is direct relationship between product diversification and growth of the firm.
  • H0: that there is no direct relationship between product diversification and growth of the firm.

1.6 Significance of the Study.

The significance of the outcome of this study cannot be over emphasized as the result will showcase to different industrial sectors, how product diversification could be effective in business operation. It would also reveal the various methods and approaches to diversification.

The study has these major areas significance.

  1. To contribute to or expand the frontiers of the existing knowledge on product diversification
  2. To sustain existing knowledge and launch a new era for future discourse on the area of study.
  3. To highlight the usefulness of diversifications in business.
  4. To awaken the consciousness of business owners on the need to adopt diversification strategy in their business operations.

1.7 Scope and Delimitation of the Study

This research is intended to analyze the impact of product diversification strategy as adopted by Coca Cola Nig. Plc which diversifies into the production of table water (Eva water) and the production of juice drink (five alive).

As the case study of the project, emphasis shall be laid on the Coca Cola Nig Plc.

1.8 Definition of Terms

Corporate Level Strategy:

Is the senior management’s game plan for directing and turning the organization as a whole. At the corporate level, strategies refer to the broad line decisions taken at the top level of the entire organization regardless of the number of the different industries in which it competes or how many divisions or business unit has.

Growth strategies:

Are strategies used to pursue the growth objective. It includes concentration, diversification, and vertical, integration strategies as well as internal growth, acquisition, merger, joints venture strategies and product and market development.

Diversification:

This occurs when a company adds to its business either in terms of customer functions, customers groups or alternative technologies. It is used to identify the directions of development, which take the organization away from its present markets and its present products at the same time.

Related or Concentric Diversification:

Here a firm maintained two or more lines of business, which although distinct, still possess some kind of strategic fit. Two business are related if resources can be productively between them.

Vertical Integration:

This is a type of related diversification that consists of backward integration and forward integration.

Backward Integration:

This refers to development into activities which are concerned with the inputs into the company’s current business. In other words, the company goes further back in value chain of producing its own raw materials, components, machinery, and making its own designs producing its on finance

Forward Integration:

This refers to development into activities which are concerned with a company’s outputs, that is, the company goes further forward in the value chain by creating/producing its own transport, distribution, repairs and servicing

Horizontal Integration:

This refers to development into activities which are competitive with or directly complementary to, a company’s present activities.

Acquisition:

This is an approach to diversification which occurs when a company purchases an established company facilities, equipment, and personnel.

Internal Venturing:

This approach involves a company starting a business from the scratch including building facilities, purchasing equipment, recruiting personnel, opening up distribution channels/outlets, and so on.

Chapter Five

Summary, Conlcusion and Recommednations

5.1 Introduction

This chapter presents a comprehensive summary of the findings of this endeavour upon which conclusion is drawn. Recommendations are equally highlighted based on the reasoned and empirical conclusions and finally suggestions are submitted for the purpose of further studies.

5.2 Summary of Findings

Organization is a vital part of both the economic and social life of a nation-state, however, for any nation to remain afloat and economically viable, it is imperative that the organizations are successfully operated.

  1. The product diversification strategy and it leads to increase in the growth of the firm.
  2. It makes increased profit available to the firm from variety of product.
  3. A loss in one of the product line does not result into a loss on the entire business of the firm, since the profit realized from other product line and business covers it up.
  4. Synergy is one of the benefits derived by the firm from the adoption of the product diversification strategy.
  5. Diversification strategy is a related (concentric) type in which the product line and businesses are similar;
  6. The advantage of synergy is achieved.
  7. The product diversification leads to the spread of risk of the firm among its various product lines and business.
  8. The essence of the adoption of the diversification strategy by Coca cola Nig Plc is to overcome the growth limit of its economic and industrial environment.
  9. The ability of the firm to branch into production of juice (five alive) and table water (Eva water) poses a positive effect on the growth of the firm.

5.3 Conclusion

There is no doubt whatsoever that organizations constitute the real fabrics of a nation’s economy and that the general economic salutation will definitely affect these organization.

Furthermore, there is a number of action-oriented measures to be taken if these organizations are needed to play a definite and important role in the immediate and long term economy recovery as some organizations are the backbone of both developed and developing nations in the world over. Hence, for economic and technological advancement, the role of the organization cannot be overemphasized.

In conclusion, from the study, there is no doubt whatsoever that product diversification is an important and vital corporate strategy option by which on organization can achieve its growth and overall objective.

5.4 Recommedation

Considering the growth level, the condition of the firm and the findings from the respondents, the Coca Cola Nig Plc is thereby recommended to increase the number of businesses and product line in their corporate portfolio by diversifying into the production of some other competitive ands complementary businesses (product line)

  1. To advised or recommended to adopt the backward integration option which is a type of the vertical integration strategy.
  2. The firm engages itself in the production of the raw material and inputs for its current operations and businesses.
  3. To include the establishment of a plantation of various kinds of fruit required for the production of the juice (five alive).
  4. It gives a detailed and in-depth look into the types of the concentric or related diversification as practiced by the coca-cola Nig. Plc. Which diversifies into production of table water?
  5. Diversification report for long profitability in the industry.
  6. Diversification meant to confirm, re-establish or validate known table or thesis.

5.5 Suggestion for Further Studies

For further studies to be enriched, respondents should be encourage to respond to the individual questions and they should be educated on the importance of conducting research of this nature and that any information elicit from them will never be used against them instead it will be used to advance the course of the research.

Apart from the above, the sample size to be used should be larger than the one used here in order to have a larger sample size for better generalization without prejudice. Also for study of this magnitude, other region of the federation had to be covered so as to have a comparative analysis of regions in the federation. In addition related journal and textbooks should be reviewed in order to improve on the outcome of further studies.

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