Diversification is about building new products, exploring new markets, and taking new risks. The concept is much the same in the world of business ownership. Since the private sector is unpredictable at best, and customer whims are notoriously fickle, diversification can pay to broaden a company’s horizons and pursue new opportunities- no matter how confident it may be in existing offerings. The cost of ignoring this can be severe.
That is, until they recognized that streaming- and not DVD rentals- was the future of entertainment. Having said that, diversification is not a cure-all for the struggling business, nor a sure way to cement the lead if the business is already thriving. The world is full of companies that found their specialty early on, built a market around that product, and decided to make it their focus. However, it is one potential answer in order to remain competitive.
In global context, perhaps General Electric is what is called to be a world-class diversifier. What started out as a merger between two electric companies, over long 26 years, GE successfully branched out into a wide variety of industries including power and water, transportation, oil and gas, aviation, healthcare, and more. Tesla is slowly rebranding as a battery company, where once they were known as an automaker. New technologies are forcing companies to redefine what it is they have to offer the world. Another popular name in the world of diversification is Chinese conglomerate Alibaba, e-commerce, retail, Internet, AI and technology.
Different businesses adopt different methods to diversify their business. The big names in global business landscape diversify by finding a related product, researching its potential, and then making an entry into that new market. There are plenty of high-profile companies that do this regularly through acquisitions: namely, Apple, Amazon, Google, and Microsoft. These companies find and purchase small companies that can add value to their existing product lineup.
Some diversify by taking up a related line of business. Flipkart, India biggest online store bought payment start up PhonePe to offer e-wallet service to fit into the only shopping preference to its large customer base. Similarly, BigBasket diversified to online delivery business by acquiring Delyver, which has a name for using local stores to deliver groceries to people.
The e-commerce giant, Amazon has been expanding into groceries and physical locations, including bookstores, ironically working itself back into the brick-and-mortar business that it’s also disrupting.
The startup landscape of Bangladesh is at nascent stage of development. Interestingly, some local startups have gone for forward and backward integration and diversification of their services to broaden their horizon in the market. It aided the companies to expand their activities to control direct distribution of their products; and reduce supplier dependency with regard to e.g. timely deliveries, quality concerns, innovation ability.
PATHAO: the big name in Bangladesh’s startup scenario created the market for bike ridesharing. Besides ridesharing, Pathao took up some other lines of businesses as part of their diversification strategy, for instance, e-courier (Pathao Parcel- B2C and Pathao Fulfillment-B2B), online food delivery (Pathao Food), e-wallet (Pathao Pay), online marketplace (Pathao Tong). Also, Pathao started geographical diversification by expanding its operating in Nepal. What is evident in all of their areas of diversification revolves around the core business i.e. ride-hailing.
COOKUPS: the online homemade food delivery platform is building an ecosystem of on-demand homemade food market place and of late it came up with its sub brand named Growups. Under this brand, they sell fresh produce and groceries.
CHALDAL: the premium online grocery shop has come up with its own ride-hailing service called Chalao. However, Chalao is primarily dedicated to address the growing number of orders Chaldal receives everyday.
SHOHOZ: offers bus tickets, hotel reservations, and launch tickets online. It also provides information about pricing, availability, timings, and booking facility for bus tickets, hotel reservations, and launch tickets. In recent time, they have ventured into ride-sharing, which is totally a new area for their original line of business.
Local startups of Bangladesh is taking up other lines of businesses as their diversification and growth strategy, which are pertaining to their core nature of business. Since, the startup ecosystem just started breathing, startups are making cautious steps towards diversification and they are mostly shying away from catering to a completely new line of business. However, the local startups should watch out the market meticulously while going for geographical diversification since mega brands Walmart, Starbucks succumbed to fall in other geography due to prior inadequate research of the local market. Nevertheless, there are just as many companies (if not more) that took a while to discover their purpose, and diversified again and again until they found out what that purpose was e.g. Nokia(which originally sold paper products).
“The asset quality is deteriorating in the highly fragment banking system.”- the remark came on the recently published Moody’s outlook for Bangladesh banking system. Despite being a robust economy, Bangladesh is witnessing ever-growing trend in bad loans. The chronic deterioration in asset quality is ultimately hitting the banks’ profitability due to covering up for high credit cost.
For the nature of banking sector whose core job is to dealing with mass people’s money, bad loans are nothing new or unique. However, the pace it is growing is alarming. Aggressive endeavors by banks for portfolio target in this populated banking sector played substantial role for rise in NPL. Some other factors like lengthy judiciary process, uncertain business environment and no evidence of exemplary measures against habitual defaulters fuel the growth of piling bad loans. Countries like China, who drastically curbed their bad loan rate over the years, used social shaming as a technique to combat their bad rates. Then again, Malaysian government introduced separate Asset-Management companies to recover the non-cash collaterals by converting them to cash. In Bangladesh, in order to curb the bad rate, whereas due diligence on bank managements’ part is required, the judiciary process needs to be streamlined as well. Also, it is high time the banking sector altogether should take strict social measures against the habitual defaulters in order to combat their default culture.Download View