Evaluation Of Corporate Diversification Strategies

An Evaluation of Corporate Diversification Strategies

SINGLE BUSINESS STRATEGY

Company: AMD

Single business: 95% or more of firm revenues comes from a single business. Advanced Micro Devices, Inc. (AMD) is a semiconductor company that designs, manufactures and markets microprocessors for the computing, communications and consumer electronics markets. The company also markets embedded microprocessors for personal connectivity devices and other consumer markets. The leading semiconductor company has manufacturing and testing facilities in the United States, Europe and Asia, and sales offices throughout the world (AMD 2006).

Sales by Business Area

It principally concentrates in semiconductor manufacturing. Total net sales for 2005 of $5.8 billion increased 17 per cent compared with net sales for 2004 of $5.0 billion (AMD 2006). This growth was driven by the performance of its microprocessor segment where net sales of $3.8 billion increased by 50 per cent compared to 2004, due to increased unit sales and average selling prices (AMD 2006).

Rationale for Business Strategy

Because a large pool of technology makers (computers, phone, gaming, servers, and internet, for instance) rely on the semiconductor industry for manufacturing consumer devices, it makes commercial wisdom for AMD to devote every drop of resources to meet increasing demand for advanced chips.

Appraisal of Business Strategy

Like other chips’ makers such as Intel Corp, AMD pursues a single-product line strategy. That strategy places the chips’ maker in a leading position in the development and innovation of electronics components.

Moreover, AMD’s single business model has earned the company the reputation as one of the most recognizable computer processor brands against staunch challengers like Intel Corp., and Samsung Electronics Co. Ninety per cent of the top 100 and more than 45 per cent of the top 500 of the Forbes Global 2000 companies or their subsidiaries are using AMD64 technology today (AMD 2006).

Another advantage to the company’s current single product strategy is its ability to deploy resources focusing on building on competency and capability. The company's microprocessorsвЂ"AMD Athlon 64 and AMD Athlon 64 FX processorsвЂ"specifically for gamers, PC enthusiasts and digital content creators, are based on the AMD64 technology platform, which extends the industry-standard x86 instruction set architecture to 64-bit computing (AMD 2006; Reuters 2006).

AMD’s current business model permits it to be more responsive to changing demands of industries like gaming, digital content creation, and computing security for instance.

Despite Intel Corp’s dominance in the semiconductor industry, AMD is able to parlay its experience and reputation into sustainable competitive advantage and prominent leadership position in terms of strategic alliance with software giant Microsoft, and motherboard manufacturers.

Nonetheless, AMD’s all-eggs-in-one-basket business model comes with some risks. Intel’s dominant position in the microprocessor market is a threat; AMD’s reliance on one supplier for its 200-millimetre and 300-millimetre silicon-on-insulator wafers, and reliance on third-party companies for the design and manufacture of core-logic chipsets, graphics chips, and motherboards, all undermines its survival.

Still at least for some years to come, AMD is reaping the advantage brought on by benefits of pursing a single-product line strategy.

DOMINANT BUSINESS DIVERSIFICATION

Company: McDonald's

Dominant-business: between 70 and 95% of firm revenues comes from a single business.

Founded by Ray Kroc in 1948, the fast-food giant primarily franchises and operates McDonald's restaurants in the food service industry (McDonald’s 2006; Reuters 2006). It also operates Boston Market and Chipotle Mexican Grill-Chipotle and has a minority ownership interest in United Kingdom-based PrÐ"Єt A Manger (Yahoo Finance 2006).

Sales by Business Area

The company operates in the fast-food segment of the food industry. Of the more than 30,000 McDonald's restaurants in over 100 countries, over 8,000 are operated by the company, more than 18,000 are operated by franchisees/licensees and over 4,000 are operated by affiliates (McDonald’s 2006; Yahoo Finance 2006). The revenues break down for 2005 (see diagram below) and are consistent with its preceding historical operations. Therefore, justifies and confirms the company’s longstanding dominant business diversification strategy.

Rationale for Business Strategy

With Western Europe and the United States markets reaching maturity, McDonald’s Corp. geared towards consolidating and improving value to its shareholders and consumers alike. Profitable growth mattered so much to the fast-food giant. It makes perfect commercial sense to penetrate emerging markets in Eastern Europe, Asia, Middle East, Latin America and Africa. Such strategy plays a defensive market mechanism against competing fast food chains like Subway, Burger King, Pizza Hut and KFC.

Appraisal of Dominant Business Diversification Strategy

Though McDonald’s engages a single product line portfolio, it has sustained its competitiveness through geographic diversification strategy. This mix business model is reflected in its unique use of franchisees/licensees and affiliates to penetrate international, national, regional and local markets. McDonald’s Corp. is reaping the ensuing advantages:

• Easy recognizable branding worldwide;

• Sustainable competitive advantage. The Company competes on the basis of price, convenience and geographic out-reach;

• Keeping strategy responsive to consumers’ changes;

• Higher probability innovative ideas will emerge;

• Resources can be focused on building competencies and capabilities;

•