Which future for Virgin?
Diversification is often seen as the last evolution for a company. However, there are ways and options to adapt your strategy after you diversify in order to make it more efficient to this new change. Virgin is, as we’ve seen in the previous parts, a well-diversified company. There are usually 4 paths a diversified company could use after it diversified, and we can use them to analyse the potential future of Virgin.
1 Broaden the diversification base
Virgin’s essence since its creation is to explore new businesses and try to be a part of them. The company has a real thirst and desire to diversify and no one doubts that the Virgin Group will enlarge his portfolio. On its website, the Virgin Group says that in order to find new business, they just “put their selves in the customer's shoes to see what could make it better.”
In order to diversify more, the company is trying to find or create some businesses that will:
* Reinforce its market position. For instance, Airlines are clearly a business that Virgin wants to strengthen. The “Media & Mobile” division also seems to be a business where Virgin wants to invest, as evidenced by the recurrent creations of mobile companies in recent years. * Build positions in new industries. The company’s new “Green Vision” is clearly showing that Virgin’s new favourite Industry is the “clean energy” industry.
More concretely, the company is investing the profits and dividends from its transport businesses into the development of alternative fuels for instance. Moreover, the “Virgin Green Fund” focuses on “middle market growth and expansion investment opportunities in the renewable energy and resource efficiency sectors including water” with the objective of helping companies realize their full growth potential, says the company.
2 Divest some businesses and retrench to a narrower diversification base
* The company has no intention to narrow its diversification base and reduce its portfolio to some few core-industries. The goal is clearly to find some new businesses and needs, as this paragraph on their website shows.
“We ask fundamental questions: is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served? Is this an opportunity for building the Virgin brand? Can we add value? Will it interact with our other businesses? Is there an appropriate trade-off between risk and reward?” (Company’s website)
3 Restructure the company business line-up
* “Sell off noncore businesses”: There is no proper “core” or “non core” businesses at Virgin, even if there is some sectors more developed than others. Therefore, selling noncore businesses doesn’t seem to be in Virgin’s strategy for the years to come, as they try to develop new core businesses, like “clean energy”. * “Sell off competitively weak businesses”.
The case underlines that Branson wants to focus on long-term investment. He doesn’t have the pressure of Financial Markets, so he can wait few years after an investment, even if it means losing money. Thus, the company can either decide that some investments are not profitable and will never be, and sell off the business (as they did in the past), or decide that this is a long term investment and wait for the investment to become profitable.
4 Pursue multinational diversification
* Multinational diversification seems to be the next step for the brand. The company is located in 30 countries, which is not much when compared to the 11,5 Billion $ revenues in 2009. The company has a very small presence in Asia, and should extend in this part of the world where fast developing countries are located.
* International diversification is complex but could really increase the company revenues by opening new markets to the company’s existing subsidiaries. Moreover, Virgin could use its knowledge of creating new businesses from the scratch to develop in new countries. Furthermore, the expansion of one of the Virgin’s companies in a country could really help the other companies to settle in this country, by transferring knowledge of this new market.
* Virgin in China: this is difficult to find some recent articles and info about Virgin’s presence and goal in China. However, Virgin Atlantic has an office in China and Virgin Megastore is implanted in regions like Middle East and Europe, and will soon open stores China. Moreover, Branson plans to set up a Clean-Energy company in China.
“We plan to invest quite heavily in it” he said in a recent article. He thinks China is currently making some research and trying to develop the “clean energy” business and he wants to be a part of it. Chinese government wants 15% of the energy production to come from wind or solar power by 2020, so it seems to be an interesting new business for Virgin.