Expansion options for Safeguard Fire Security acquisitions, mergers, or product diversification as an alternative?
Van der Westhuizen, Marnus.
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The purpose of this research is to provide the members of Safeguard Fire Security with the knowledge and tools to make an informed decision as to whether the business should be enlarged by extension into new geographical areas through acquisitions and mergers, or by diversification into other product-markets. In order to optimise the company's growth objectives, strategic decisions must be made and the reasons why firms diversify or expand is discussed. Different types of diversification strategies are contemplated and considered. It is noted that expansion offers a strong transfer of technology and or marketing competence, while in diversification novel products are acquired and previously unexplored markets are entered. Since diversification is costly and risky, attention is given to the question of whether the firm can solve its problems without diversifying (internal assessment). The discussion on the internal assessment of the firm is done through an 'internal assessment diagram' that steers the assessment through several steps. In order to analyse the product-market opportunities that are available to the firm outside its present scope and thus produce the final decision whether the firm should diversify, an external appraisal of the firm is done. The analysis is done through an 'external assessment diagram' that puts the firm in the position to make a diversification decision. The firm can now make a choice to pursue expansion, diversification, or both. The particular course of action chosen and its timing depends on the risk philosophy of the firm's management. After the firm has applied the procedure for developing product-market alternatives the stage is set for a major decision point at which the firm commits itself to a particular product-market scope and growth vector. Instead of seeking remedies in operational improvements (such as cost reduction, new managers or reorganising of the company), the members of Safeguard Fire Security decided to revamp the entire product-market position. It is pointed out that more diversification and expansion options should have been considered and several recommendations are made with the aim of guiding the members in their new venture. It was concluded that the product diversification opportunity to manufacture fire appliance equipment for the fire industry was attractive enough to sacrifice expansion moves and even to relinquish some parts of the firm's present business.