Diversification

Diversification Strategy pursued by the company

Maintaining a balanced portfolio of cash- generating and cash
using businesses. Helps in risk mitigation and investing in
earnings from one business to another
Reduce the underinvestment problem-Internal capital cheaper
than external funding
Greater agency costs- To manage aspirations and
compensation
Growth opportunities- To escape stagnant and declining
industries
Competitive Advantage By diversifying
1) Economies of Scope - Tangible & intangible resources,
management prowess
2) Parenting Advantage General Management, Corporate
reputation, goodwill, experience
3) Internal Market internal capital and labor markets
4) Market Power Tie-in sales, multi-point competition, mutual
forbearance, vertical integration
Tata Timeline
Year

Event

1868

Jamsetji Nusserwanji TataFounded Tata Group as a trading

firm

1874

Textile Industry-Spinning,weaving
and manufacturing

1903

Hospitality Industry- To set up the

Taj Mahal Palace

1907

Iron & Steel Industry- First office

in London

1910

Tata Hydro Electric Power supply

Company

1911

The Indian Institute of Science

-Bangalore

1917

Tata Oil Mills Company to make

soaps, detergents and cooking
oils

1932

Tata Aviation Converted to Air

India & nationalized in 1953

1839

Tata Chemicals Largest

producer of soda ash

1945

Tata Engineering & Locomotive

Co. Now known as Tata Motors

1954

Engineering & ManufacturingTata Voltas is established

1962

Tata Finlay Now known as Tata

Global Beverages
Tata Exports- Now known as Tata
Intenational

1968

Service sector- Tata Consultancy

Services

1971

Precision Engineering ProductsTata Precision Industries- First in

Singapore

1996

Telecom Sector- Tata Teleservices

2001

Insurance Industry- Tata AIG

2006

DTH Sector- Tata Sky Satellite

television
Retail- Croma multibrand outlet

2008

Automotive Industry- Jaguar and

Land Rover acquisition

2010

Pulses Sector- i-Shakti dals

Health Drinks sector- JV with
Pepsico

2012

Retail Beverages Sector- JV with

Starbucks

2013

Aviation Sector- re-enters through

a JV with Singapore Airlines

Diversification in retail sector

1) Infiniti retail Croma- It is a wholly owned 100% subsidiary of
Tata Sons- It has products in 8 categories- Home
entertainment, small appliances etc.
2) Tata acquired Uk based Littlewoods retail chain in 1997 to
form Trent Ltd.- clothes, accessories etc
3) 50-50 JV with Poltrona Frau Group- luxury furnishings and
design products
Diversification in Consumer Products Sector
1) Watches- Titan portfolio- It owns 60% market share- Fastrack,
Sonata etc.
2) 1995- Jewelery segment brand Tanishq
3) Eyewear- Titan Eye+ frames, lenses, sunglasses etc.
4) Precision Engineering- Industry verticals such as aerospace,
oil&gas, hydrolics etc.
Rationale Behind diversification in consumer products sector
A) DIVERSIFICATION IN PRECISION ENGINEERING PRODUCTS

Got into Precision engineering because they had high

precision in manufacturing and had proven capabilities in
watch making.
Attractiveness Test Industry chosen for diversification is
structurally attractive- India was a developing manufacturing
base for precision products, defence market expected 100 bn$
worth supplies, government policy mandated 30% domestic
supplies.
Better-off test- Market Power Tie-in sales, Internal labor
markets- less hiring and firing, career development
opportunities, informational advantage about talent.
Cost of entry test- Cost of entry was less than the future
expected returns because there was immense need and
demand for these products in the market. Proved by the fact

that they are attractive and deal was to get royalty of 3.5% of
net sales for 7 years from the date Tata power made profit.
B) DIVERSIFICATION IN TITAN EYE+
Got into Titan Eye+
Attractiveness Test- Diversification Strategy- Spot the growing
consumer demand and consumers viewed eyewear as a
functional product and thought of bringing style accessories to
India.
Value creation- wide retail network, research data and
valuable franchise network.
Key motives- personal adornment and potential to become
industry leader
Better off test- Parenting Advantage General Management,
Corporate reputation, goodwill, Market Power Tie-in sales
Cost of entry test- cost of entry was low. Prices of titan eye+
were in the range of 500-30000 shows desire to cater to wide
spectrum of consumers. Company thought of ideas such as
bringing in style consultants and optometrists. Also offered
warranties and free eye testing clinics- both firsts in the
industry. Thus, high returns were expected.
C) DIVERSIFICATION IN THE AVAITION SECTOR
Tata Sia-JV between Tata Sons and SIA Expected impactoperate a full service carrier, cash in on international traffic
Tata Air Asia Deal- JV between Air Asia and Tata owning 30%
stake
Attractiveness Test Rationale- growth opportunity, belief that
they could do better than existing players and low jet fuel
prices seemed to lure this diversification
Better of test- Economies of scope-intangible resourcesbrand, technology, internal capital markets- cross
subsidization
Cost of entry test High cost of investment but industry could
be made attractive because of - Enter the entire value chain
including operating airports, repair and maintenance facilities,
IT for aviation services by leveraging existing businesses.
Therefore future returns expected to be good.