Diversifying without diluting

Tech companies are encroaching on the auto industry; Automologist, LILY, explores this latest industry shake-up that has auto players reevaluating their businesses.

When business growth comes to a halt, business owners think of diversifying into adjacent markets. There are different ideas when it come to business diversification: some are of the opinion that diversifying your business into new markets will dilute profitability and put the company’s future at risk. Examples of not-so-successful diversification attempts are Coca-Cola in film-making and wine, Kodak in pharmaceuticals, Philip Morris with Miller Brewing and so on. However, for every failure there is a success story; there has been numerous successful ventures, such as: IBM, which expanded from hardware to services; Disney, from film to theme parks, retail merchandise, etc.; Apple, from computer software to smartphone, music and, soon, cars.

PricewaterhouseCoopers(PWC) conducted its 18th Annual Global CEO Survey which includes CEO’s from the automotive industry. 56% of all CEO’s surveyed said that cross-sector competition is on the rise. Even if you are not stepping into the adjacent market, someone else will step into yours! In response to this disruption, the dynamism of market forces has created a market place without boundaries, even if you do not wish to be part of it. 46% of CEO’s in the automotive field expect, in the coming three years, rising competition from other sectors; 30% has gone one step ahead by entering into a new industry while 23% are thinking of doing so.

If you have been following the development of the industry, one very obvious blurring of boundary that we are witnessing is the convergence of the automotive and digital industries; just look at how Apple and Google invaded the automotive industry and how much the automotive world now relies on the support of the tech industry; the difference with Apple and Google is that they took the lead.

PWC’s research indicated that 83% of auto CEO’s place importance on data mining and analysis; 77% believe in the importance of mobile technology for customer engagement; 77% think that it is important to boost cybersecurity; 53% are exploring the potential of robotics as compared to only 36% of all the CEO’s surveyed. In 2015, 55% of auto CEO’s are concerned about their ability to keep abreast with new technologies as compared to only 49% last year.

A couple chooses to get married when they find that they cannot live without each other; so, since the automotive industry needs the digital industry so much, instead of diversifying into a totally new market – such as property or healthcare – it gets ‘married’ to the digital partner and build their future together!

I like this quote by John C. Plant, the Chairman, President and CEO of TRW Automotive: “Business partnerships are like being married. There are ups and downs, and you have to think beyond the immediacy of any dispute…But basically if you have aligned interest, then normally things just work out.”

The key phrase is “aligned interest”, which creates a mutual requirement for a future that brings fulfillment for both partners. The automotive company receives exclusive digital technology input while the digital technology company gains a faithful customer who helps increase its revenue and wealth in a much shorter time span.

Even though the digital technology industry is one of the more popular ‘marriage partners’, there are other industries that the automotive players leverage on; for example, 29% of the CEO’s choose to partner with the manufacturing industry and 22% prefer the energy, utilities and mining sectors. These partners potentially are their suppliers, customers or associates from different industries. There’s nothing impossible in a dynamic business environment – as many as 34% anticipate partnerships with their competitors!

Thus, should you want to diversify without diluting, do not treat your competitor as an enemy; if your heart is not big enough to welcome them as a ‘friend’ now, then take the first step by entering into a mutually beneficial partnership with this ‘frienemy’.

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