Diversification –sometimes it turns around and bites you

 
Without doubt one of the most difficult challenges a business faces is diversification. Very often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.

One should always respect geography it may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

Mobile phone retailer Carphone Warehouse has agreed to buy out its joint venture partner Best Buy for £471m, giving it full control of its retail operations across Europe.

The joint venture - Carphone Warehouse Europe - operates almost 2,400 stores across Europe.

The joint venture was created in 2008, when Best Buy paid £1.1bn for its 50% stake in the firm.

Carphone said the two companies had decided to focus on their own regions.

The withdrawal marks the end of a costly venture into Europe for Best Buy.

Carphone Warehouse Europe opened 11 American-style Best Buy electronics megastores in the UK, but closed them in 2011 after they lost tens of millions of pounds.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy it can equally provide another drain on an already embattled balance sheet.