Chapter 6: Corporate-Level Strategy 177With the dominant-business diversification strategy, the firm generates between 70
and 95 percent of its total revenue within a single business area. United Parcel Service
(UPS) uses this strategy. Recently UPS generated 61 percent of its revenue from its U.S.
package delivery business and 22 percent from its international package business, with
the remaining 17 percent coming from the firm’s nonpackage business.^17 Though the
U.S. package delivery business currently generates the largest percentage of UPS’s sales
revenue, the firm anticipates that in the future its other two businesses will account for
the majority of revenue growth. This expectation suggests that UPS may become more
diversified, both in terms of its goods and services and in the number of countries in
which those goods and services are offered.
Firms that focus on one or very few businesses and markets can earn positive returns,
because they develop capabilities useful for these markets and can provide superior ser-
vice to their customers. Additionally, there are fewer challenges in managing one or a
very small set of businesses, allowing them to gain economies of scale and efficiently use
their resources.^18 Family-owned and controlled businesses, such as McIlhenny Company’s
Tabasco sauce business, are commonly less diversified. They prefer the narrower focus
because the family’s reputation is related closely to that of the business. Thus, family
members prefer to provide quality goods and services which a focused strategy better
allows.^19
Sany Heavy Industry Co., Ltd is China’s largest producer of heavy equipment. In fact,
it is the fifth largest producer of this type of equipment globally. Sany has seven core
businesses including: concrete machinery, excavators, hoisting machinery, pile driving
machinery, road construction machinery, port machinery, and wind turbine.^20 While
each is distinct, some similar technologies are used in the production and equipment.
Furthermore, related technologies allow similarities in production processes and equip-
ment for certain parts allowing a transfer of knowledge across these businesses. In addi-
tion, customers and markets share some similarities because most relate to some form of
construction. Although Sany might be evaluated by some to be using a single-business
corporate strategy because of its focus on heavy equipment manufacturing. If this is
the case, it has a series of differentiated products and is likely following a product pro-
liferation strategy. A product proliferation strategy represents a form of intra-industry
diversification.^21 Yet, as noted, Sany also has seven business divisions, one for each type of
heavy equipment it manufactures. Thus, it might also be considered by some to engage in
moderate diversification in the form of highly related constrained diversification, which
is discussed next.6-1b Moderate and High Levels of Diversification
A firm generating more than 30 percent of its revenue outside a dominant business and
whose businesses are related to each other in some manner uses a related diversification
corporate-level strategy. When the links between the diversified firm’s businesses are
rather direct, meaning they use similar sourcing, throughput and outbound processes,
it is a related constrained diversification strategy. Campbell Soup, Procter & Gamble, and
Merck & Co. use a related constrained strategy. A firm shares resources and activities
across its businesses with a related constrained strategy.
For example, the Publicis Groupe uses a related constrained strategy, deriving value
from the potential synergy across its various groups (mobile and interactive online
communication, television, magazines and newspapers, cinema and radio, and outdoor
signage), especially the digital capabilities in its advertising business. Given its recent
performance, the related constrained strategy has created value for Publicis customers
and its shareholders by helping target particular audiences through appropriate media
and digital strategies.^22