Tuesday, April 24, 2007

Lets talk of synergies

Do companies diversify to reduce risk or diversity just for the sake of it or diversity when they see any opportunity?

The other day I saw Fabindia selling Organic Foods through their stores. Yes they probably have a distribution network in the form of their stores but synergies, hmmm? Also associating Fabindia with organic foods seems a stretch. It is like Arvind deciding to sell snacks from Gujarat just because they are located there.

Is there a synergy between the existing business and the relatively newly business expect that they are probably potential cash cows or that they are sourced in the same region?

So, are cash cows always core?

Do companies think at synergies when they diversify into new businesses?

This used to happen pre 90s when companies basically bought a licence and started work on it, since the possession of a licence meant a "right of way" in that industry. Post that, we have a lot of companies give thought to their synergies and what they might want to diversify into. Now that the new economy emerges, there are opportunities everywhere - how many of these are for trial and how many for keeps?

Many 'synergies' are just about either for milking a cash cow or hoping that somebody buys your cow and gives you cash. Thoughts?

2 comments:

Neelakantan said...

What is the synergy of Pantaloon selling insurance or Airtel (Mittal) getting into retail or even Reliance getting into retail?

Perhaps thats what synergies are all about - use one attribute to gain on another. Organic foods and fabindia roughly target the higher end market. (I am not saying that I associate Fabindia with food - not yet).

Ramesh said...

Pantaloon gets huge amount of reach and you require reach to sell an underpentrated product like insurance.
Conversely Bharti will use its reach/distribution network to market insurance and also use retail to distribute both telecom and insurance.
I think the synergies are huge.
Reliance...well I have no idea !!