Diversification Pattern of Large Scale Indian Manufacturing Industries (Post Liberalisation Period 1995-2005)

Abstract

In recent times India has witnessed a paradigm shift in the business scenario. This is not limited to increased competition but the basic business approach to move along with this change and to combat competitive forces needed a newer approach to growth. The transition from a supplier driven and controlled market to a demand driven and open market not only has led to increased competition, but also increased availability of resources like access to capital, technology, framework for merger/ acquisition/ joint venture, access to market (domestic & foreign), policies to boost productivity & innovation to outweigh the competitive pressure.This study is limited to the large scale Indian manufacturing companies which consisted of 913 companies across India and their performance for the year 1995 and 2005. The objective was to examine the reaction of corporate India with respect to unprecedented changes in the business environment. One dimension of such reaction was to evaluate the product diversification strategies attempted by them. The product diversification has been measured with the help of two alternative approaches like 'Rumelt's Classification' and developing a 'Diversification Index' (based on Cave's Index). Cross-section as well as Industry-wise study has been done adopting these approaches which yielded very different results. Rumelt's approach clearly showed the change in favour of focussed strategy and also the underlined the drivers and impact of such move by analyzing the performance data in 1995 and 2005. However the Diversification Index based did not reveal any such change. Though the performance indicators underlined favourable business conditions firms with unrelated diversification strategy revealed no such pattern.Thus, apart from underlining the diversification pattern , suitability of approaches while doing such an study has been also looked into which brought out the limitations associated with both the approaches. This indicated that Rumelt's approach is more suitable in studying diversification pattern as it segregates the firms on the basis product market commonalities and Diversification Index, being a continuous measure of diversification, can not capture complex market structures or value chain, more suitable to study the firm characteristics with in a specific diversification range or impact of diversification strategy. Moreover in context of Indian economy a more suitable approach to study diversification pattern has also been indicated in future scope of research.