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Welspun is a textile company based in India. It started its business in 1985 with a polyester manufacturing unit with a capital of US$250000 in Palghar, a small town in Maharashtra. Presently it has a global entity of US$ 3 billion. It has diversified in 50 countries and it is one of the fastest emerging groups worldwide. It is the market leader in different business sectors such as home textile, yarn and pipes. It has foreign investment in countries such as the United Kingdom, United States, Portugal, Mexico and Saudi Arabia. The strategy adopted by them to penetrate in the foreign market was the acquisition of companies such as Christy and Sorema. They have focused on increasing their capacities in energy and infrastructure sectors. They had focused on product and geographical diversification simultaneous. Welspun group reorganise their structures to carry out their activities in different business sectors. They focus on outsourcing and off shoring strategies. The annual growth of the company increased 30% from 1995. The reason behind the company’s rapid growth lies in the fact that it has opened up manufacturing units in foreign lands and acquisition of foreign sectors.
Identification of problems and Recommended Solutions
Issues related to Diversification
Management of diversified business is complex and challenging than maintaining a single unit in a business. Researchers such as suggested that the functional policies and corporate strategies shaped a diverse group of companies. It increases operational stress on the group as a whole. When the customer wants a new product or service, the need to fulfill the sales may exert pressure on the operations. It reduces the productivity of employees. The short-term investment and debt expense need to fund a diversification also exert pressure on the financial status of the organisation. It affects various departments of human resource, information technology, production, marketing and finance. Manrai et al. (2014, p. 10) suggested that diversification into a new area with the same name may confuse the customers and make them believe that the company do not specialize in that area anymore. It leads to diluted investment. It is regarded to be a risky idea in investing other business with prior internal knowledge of the business sector. It does not provide protection from external and internal factors of the organisation. It creates drastic fluctuation in positive and negative return into the organisation in case the pricing strategies of the product changes. In case, assets are involved it pose a greater risk. By investing in different industries and asset classes, it would be difficult to gain in-depth knowledge and understanding about the all the industries and assets. In certain case, diversification causes over extension of the company’s resources. Thus, the organisation will suffer from lack of attention in individual sectors and company as a whole. The more human resource is in need and infrastructure and operational activities of the company may decline. In the case of diversifying in a different sector, lack of expertise is required to handle the new business. Another reason that diversification may be detrimental to the organisation is the cost incurred in the creation of new infrastructure, training of the employees, travel cost between widely distant areas. The cost of the venture may be less than the cost incurred by the company in setting up and backing the diversification process. According to Gubbi et al.(2010, p. 400), diversification involves less focus on the company’s technological and business goal as the diversification involve entering in a new sector. It increases the bureaucratic influence, reduces the ability quickly, and innovatively responds to the changes in the market. Welspun has undertaking product diversification and geographical diversification at the time. They have diversified their business from textile to the pipe, infrastructure and energy sectors. The geographical areas in which Welspun has set up their manufacturing units in the United Kingdom, United States, Mexico, Portugal and South Arabian countries. The companies must diversify to related sectors about which they have knowledge so that in the case of market change they can respond to the changes quickly. The organisation must segment their business and must have a manager for each segment that will take decision for only that business sector as adopted by Welspun that helped them to quickly respond and grow in the global market.
The companies should follow segregation of the diversified products into different sectors so that different managers’ team would organise it accordingly.
The company should be accustomed and acquired with in depth knowledge before diversification.
Market Developmental issue
The company in the case study, Welspun has embarked on a new strategy to acquire companies abroad to expand in the global market. Companies targeting global expansion have only one objective to fulfill and that is an augmentation of the existing capabilities and markets in various ways. Pure profit never plays an important factor in globalisation. In most of the cases, risk and long-term fit are cited as factors that work behind globalisation. The primary challenge is to lack the right and proper knowledge to make the fast decision that may expand the market in the foreign country. As opined by Nielsen and Nielsen (2011, p. 190), the managers should follow the decisions made by the top manager's team (TMT). Otherwise, they may face problems dealing in the international markets. The authors have also proposed that these Top managers’ teams assist in reducing the risks and uncertainty that may affect the expansion. The top manager's team is often inclined towards shared control over full control. Welspun, the company referred to the case study, is seen embracing this strategy. The company has diversified its industrial sectors so that each diversified product is organised and managed by a different set of managers who are knowledgeable in their fields. In this way, the full control is avoided which may cause problems in the decision-making process when the context of global expansion is referred. According to Gubbi et al.(2010, p. 400), the companies need to identify the key motives that play a part in the foreign companies which can be acquired. The company needs to specify and target the goods which can capture the international market. Most of the companies are seen to fail in this criterion. Nonetheless, Welspun has successfully identified the key motives that can affect the out sharing and the outsourcing to low-cost countries like India. The global markets of US and Europe often target these sectors and failure to identify the motives may result in declined market.
The next factor that may affect the global market and globalisation of a company is the upholding the brand abroad. There are numerous failures, which result in abortion of the globalisation strategy. Hailing from a small town in India, Welspun might have faced some failures that have been recognised well. According to Roll (2010, p. 2011), most of the Asian companies mostly lack value creation. The author has also pointed out that though most of the companies in the continent have started to produce and outsource goods for the West, slowly they came to realise the power of branding that would change the face of their companies. The market has competed on slashing prices on the unbranded goods, however, the Asian companies have been gambling on branding their goods, which may be quite risky. These companies are seen to identify the power of brands and becoming attentive on getting larger profits. In a competitive global market, this strategy may cause problems if the high-profit set as the target is not achieved on time. However, Welspun has shown risk taking abilities and targeted the high growth sectors such as the acquisition of the British towel company, Christy in 2006. This valuable brand has been the brand ambassador to the prestigious Wimbledon Tennis Championships. This strategy has promoted the brand of the company in the international market. However, the risks, which have been assessed before, cannot be ruled out. The company has made a subsidiary in New York in the close geographical proximity to Wal-Mart. Since this has been the company's first venture into the global market, this could have resulted in the other way, which is a failure.
The companies should follow the decisions made by the TMT in decision-making process.
The companies should identify the key motives required by the foreign companies so that they can deliver the goods in exchange of long-term profits.
The conclusion is drawn on the fact that there are risks and failures that accompany any company when they aim globalisation. The issues identified are operational stress and diversification that ventures into new sectors. The company, Welspun has started with polyester and therefore slowly targeted a diversified product launch as well as high growth markets of the US and Europe. The architects behind the company have shown risk taking abilities in facing the problems that are mainly associated with the said factors. The next set of problems identified is issues related to market development. The company has seen to develop newer strategies that have helped them to expand globally.
Gubbi, S.R., Aulakh, P.S., Ray, S., Sarkar, M.B. and Chittoor, R., (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies,41(3), pp.397-418.
Nielsen, B.B. and Nielsen, S., (2011). The role of top management team international orientation in international strategic decision-making: The choice of foreign entry mode. Journal of World Business, 46(2), pp.185-193.
Roll, M., (2010). Asian brand strategy. London: Palgrave Macmillan.
Manrai, R.R. and Vinay Nangia, R., (2014). Interactive Effect of Diversification Strategy on Capital Structure and Corporate Performance: An Analytical Evaluation. Global Journal of Management And Business Research, 14(4), pp.4-16.