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MARKET DIVERSIFICATION STRATEGIES FOR MANAGING OPERATING
EXPOSURE
1.0 Understanding Operating Exposure and Its Impacts
1.1 Defining operating exposure and its sources
The operating exposure is a term for the risk a company is in when the exchange rates change
and the company's operating cash flows, revenues and costs are affected. Aggarwal et al. (2011)
stress the importance of knowing the operating exposure since it is related to the operation of
multinational corporations (MNCs) that operate in different countries and, therefore, their
currencies are always fluctuating. Operating exposure can be summarized into two main sources,
one of which is the transactional exposure and the other is the translational exposure.
Transactional exposure is based on contracts that are in foreign currencies, which in turn affects
the value of cash flows when exchange rates change (Altuntas et al. , 2015). The other side is the
translational exposure that is the conversion of foreign currency-denominated assets and
liabilities into the reporting currency, which affects the firm's financial statements (Arregle et al.
, 2016). Besides, the exposure to the operating income may be affected by the things like the
geographical distribution of the sales and production facilities, as well as the degree of the
product diversification within the portfolio of the company (Almor et al. , 2018). The importance
of the operating exposure and its management are the reasons for which multinational
corporations have to face the challenges of the currency fluctuations that can be harmful to their
financial performance. Through the process of determining the sources of exposure and the
development of the hedging strategies, the firms can improve the cash flow and profitability they
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have in a world that is becoming more and more globalized. In addition, the risk management
practices that are implemented ahead of time can boost the MNCs resilience to external shocks
and thus help them to stay on top of the international markets. The management of operating
exposure is becoming more and more complex and therefore, an in-depth knowledge of the
company's business operations, its financial structure, and the competition is needed
(Papaioannou et al. , 2020). Besides, permanent supervision and assessment of the currency risks
are needed to adjust hedging strategies to the changing market conditions and to minimize the
losses. The cooperation of finance, treasury, and operational teams is the key to the company's
risk management objectives and the shareholders value maximization in the long run as well as
the company's strategic goals.
1.2 Assessing potential risks and their consequences
Evaluating the possible difficulties that arise from operating exposure is very important for firms
that operate in the global markets. Agarwal and Feils (2018) stress the necessity of the process of
market diversification to be taken into account in order to reduce the operating exposure risk.
The multinational companies with a more diversified customer base and production locations are
less likely to be affected by the unfavorable exchange rate because they can recover the losses in
one market by the gains in another market. Nevertheless, the business that is focused on a certain
market or currency becomes vulnerable to the exchange rate changes, thus, it will be difficult to
find revenue and profit (Altuntas et al. , 2015). The consequences of operating exposure risks,
for instance, lower competitiveness, lower profit margins, and higher financial volatility,
strongly highlight the necessity for the proactive risk management strategies (Arregle et al. ,
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2016). Besides the exploration of the new markets, companies can also use the different hedging
techniques, such as forward contracts, options, and currency swaps, to reduce the effect of the
exchange rate changes on their operating cash flows (Papaioannou et al. , 2020). Besides, the fact
that the monitoring and evaluation of the currency risks are on, the hedging strategies have to be
adapted to the market situations which are changing all the time in order to avoid the possible
losses. The cooperation of finance, treasury, and operational teams is the key element for the
right alignment of risk management objectives with the firm's strategic goals and for the long
term the shareholder value maximization. Through the adoption of a total way, firms can
increase their capacity to resist external shocks and at the same time, boost their competitive
position in the world markets.
1.3 Evaluating impact on profitability and competitiveness
Almor et al. (2018) point out that the born-global firms that start their life cycle with the entry
into foreign markets have the higher operating exposure due to their international sales
dependence. The internationalization of the business gives companies the opportunity of growth
but at the same time it exposes the firms to the currency risks which can result to the erosion of
profit margins and hence the firms will become less competitive. In addition, the impact of
operating exposure on the profitability of a company may change depending on the factors like
the pricing strategy of the company, cost structure and the ability of the company to adapt to the
changing market conditions (Aggarwal et al. , 2011). Birth-global firms are generally confronted
with the rise of the currency risks as they have many international operations, thus, they need to
have strong risk management strategies that will protect their profitability and competitive edge.
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The time of the currency changes and the scale of the changes can greatly influence the financial
performance of the firm, therefore, the monitoring of these changes and the fast reaction to the
currency movements become important. The companies with the high operating exposure may
search for the ways to eliminate the risks of the exchange rate fluctuations such as the currency
hedging or the revenue diversification to lessen the impact of the exchange rate changes on their
profits. A proactive means of dealing with operating exposure risks and the fact that the currency
risk is included in the strategic decision making will enable the firms to enhance their resilience
to the external shocks and the competitive edge in the markets of the world. The working
together of finance, treasury, and operational teams is very important in connecting the risk
management methods with the big picture business goals of the firm and in the efficient
utilization of the finance resources in order to reduce the currency-related risks.
1.4 Identifying key drivers of operating exposure
The recognition of the main factors that contribute to operating exposure is a prerequisite for the
design of the most adequate risk management measures. Arregle et al. (2016) stress the fact that
environmental complexity plays the role of a mediator in the relationship between geographic
and product diversification on operating exposure. Companies functioning in complicated
circumstances where there are different laws, cultures, and economies, may have the increased
exposure to risks of operating in risky environments. Knowing the relationship between market
diversification, product portfolio composition, and environmental complexity is the key to help
companies to adjust their risk management approach to reduce the negative effect of operating
exposure on performance and competitiveness. By the examination of the interaction between
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these factors, the firms can discover the areas of weakness and thus, can decide to apply in these
areas the measures that will make them more resistant to the changes in currencies and the other
shocks. To add to that, the proactive risk management practices, like the scenario analysis and
the stress testing are the tools that help the firms to foresee and set the course for the possible
operating exposure risks, thus, the firms can face at once and efficiently deal with the changing
market conditions. The team-work between different functional areas within the organization,
such as finance, treasury and strategic planning is necessary to make sure that the risk
management strategies are in line with business objectives. The continuous monitoring and
evaluation of operating exposure dynamics allow firms to modify their risk management
approach in time, thus, the firms are able to take advantage of the market dynamics changes and
adapt to them. The integration of a comprehensive method to handle the operating exposure risks
and a combination of the insights from the academic research and the industry best practices,
firms will be able to improve their competitiveness and hence the long-term value creation for all
stakeholders.
2.0 Geographical Diversification as a Mitigation Strategy
2.1 Expanding operations across multiple geographic regions
The process of geographical diversification entails the spread of a business across a variety of
geographic regions so as to reduce the risks of operating in only one market. According to
Belderbos et al. (2014) multinationality helps the firms to distribute the risk downwards by
diversifying their options portfolio and organizational structure. Through the participation in
different markets, firms can cut down their reliance on one market and at the same time grow
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existing market opportunities in different zones. Boehe and Jimenez (2018) stress the importance
of the born global firms' home marketio model, which is based on early internationalization and
the export of the products to the markets. Such a way allows a company to have a presence in
several markets at the beginning, and as a result, geographical diversification is used as a
strategic tool to increase the competitiveness and the resilience to the risks of the market.
Geographical diversification not only helps the firms to cope with the economic crisis, or the
regulatory changes in the specific markets but it also enables them to take the advantages of the
growth opportunities in the emerging economies or regions with the favorable business climate.
As well, the firms that are operating in different parts of the world will be able to achieve the
economies of scale, the access to a bigger talent pool, and also the market insights. Nevertheless,
to be successful in the diversification of the geographical field, it is essential to make a plan, do a
market analysis, and allocate the resources properly to make sure that they are in line with the
company's strategic objectives and risk tolerance. Through the use of geographical
diversification which is a part of the overall business strategy, firms are able to boost their
competitive edge, improve their ability to withstand external shocks and at the same time, create
value for the shareholders.
2.2 Leveraging location-specific advantages and risk profiles
Bowen and Sleuwaegen (2017) emphasized the necessity of exploring trade theory and policy to
get to the markets that have the conditions that are good for the business operations. Companies
can, by themselves, assign their resources to the sectors which have the correct business
conditions, the adequate skilled labor force, and the proper infrastructure. Apart from that, the
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geographic diversification allows the firms to deal with the specific country risks, such as the
political instability, the changes in the regulation and the economic fluctuation (Bragaw &
Misangyi, 2017). By having firms on different regions with different risk profiles, the firms can
lessen the effect of the negative events that might happen in any one market and at the same
time, they will be able to maintain the stability in their overall operations. The other factors are
the location-based advantages such as a cheaper production cost or the location near the main
markets, which can make a firm more competitive and at the same time, increase the long-term
profitability. This is depicted, for example, in the case of a multinational corporation that opens a
manufacturing plant in a country with low labor costs or a tax policy that is favorable to the
business to reduce the production costs and to increase the profit margin. Moreover, the business
can be in new customer segments or new regions of the market which is a good way to increase
the revenue and expand the market hold. Nevertheless, the companies also have to be conscious
of and face the risks that are associated with the geographical diversification, which are the
currency problems, the supply chain breaks, and the geopolitical issues. The careful application
of the risk management strategies could imply the hedging of the currency exposure, the
diversification of the suppliers and the establishment of the flexible operational structure to the
changing market conditions. In general, using the advantages of the locations and the risks, the
corporations can make a geography diversification strategy that will be the foundation of their
competitiveness, resilience and the sustainable growth in the world markets.
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2.3 Managing currency exposure and exchange rates
The geographical diversification strategy is the main component of the currency risk and the
exchange rates which is the most important aspect of the management. Brewer (2015) looks at
the link between geographical coordinates and export outputs, and shows how currency
fluctuations can be the key of the firms competitive position in the international market.
Businesses operating in various fields are at the risk of the fluctuations in the currencies which
are changing every now and then and the changes in the exchange rates can affect the value of
the international sales and the repatriated profits. The attainment of the currency risk
management is shown through the use of the hedging strategies such as the forward contracts and
the currency options which are the ways to get rid of the negative effect of the exchange rate
volatility on the financial performance (Castaner & Kavadis, 2013). Furthermore, businesses can
also price their items and services in such a way that the currency changes are taken into
consideration and they can always be in the lead of the global market in terms of competition.
The companies that will be taking the proactive way of dealing with the issue of the currency
exposure, will be the ones that will be the ones with the lowest level of the uncertainty regarding
the exchange rate fluctuations and thus these companies will be able to protect their profit and
their cash flows. In addition, the recurring currency risk is an integral part of the strategic
decision-making process for the firms and thus, they can widen their international business
according to their risk tolerance and financial goals. The work with the finance, treasury, and
operational teams is the corner stone of the development and implementation of the efficient
currency risk management plans that are environmentally friendly to the company's business
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goals. This is how the firms using currency risk management in their geographical diversification
strategy increase their resistance to the external shocks and also, keep their competitive edge in
the international markets at the same time.
2.4 Navigating cultural and regulatory environments effectively
The research of Belderbos et al. (2014) shows that the organizational structure is the main thing
that helps in solving the problems of different cultures and institutional complexes across the
markets. Companies are obliged to modify their tactics and ways of functioning to suit local
customs, tastes and regulations in order to acquire credibility and forge relationships with
stakeholders. Moreover, the creation of a culture of diversity and inclusivity within the company
will be the main reason to improve the cross-cultural communication and collaboration, which
will also help the companies to navigate the cultural differences and to use the geographical
diversification as a source of the competitive advantage (Boehe & Jimenez, 2018). Through the
knowledge and handling of the cultural and regulatory peculiarities in each market, firms can
take advantage of the opportunities presented by the diverse geographical markets and at the
same time, they can also ease the possible risks. The culture and regulatory environment that
successful navigation needs proactive engagement with the local stakeholders, such as
customers, suppliers, and the government authorities. Besides, the courses for cultural training
and the development of employees can be the way to facilitate the better comprehension and
admiration of the different cultural views, the relation and the reduction of the misunderstandings
in the cross-border business interactions are more strengthened. Besides, complying with local
rules and staying up to date with changes in the regulatory frameworks is a must to cut off the
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legal and reputational dangers linked to operating in foreign markets. The cultural and regulatory
aspects are to be taken into account in the strategic decision-making processes of the firms, thus
they will be able to become more adaptable and responsive to the market trends, hence, they will
be more likely to succeed in different geographical environments. The creation of good
relationships with the locals like distributors or joint venture partners can explain to you the
situation on the ground that you are, and it will be easier for you to enter and expand in the
market (Bragaw & Misangyi, 2017). On the other hand, hiring local experts and tapping into
their local talent pools and networks can help companies to deal with culture, norms and
regulations more easily, thus, boosting their competitiveness and sustainability in the world
markets (Brewer, 2015).
3.0 Product and Service Diversification Approaches
3.1 Developing a broad portfolio of offerings
The versatility of the company, to be able to make different products and services, is the major
technique of the development of a wide portfolio of offerings. The function of Chakrabarti et al.
(2007) is to explore the positive link between diversification and the performance of the firms,
among them the East Asian ones. By introducing new product and service lines, firms can cater
to the diverse customer requirements and thus, can also reduce the dangers of being reliant on a
single source of income. This balanced portfolio is not only a way to grab the market
opportunities in different sectors and industries but also the stability and resilience to the market
declines are raised (Chen & Ho, 2000). Apart from that, the portfolio which offers different
products can be used for such techniques as cross-selling and upselling, which will eventually
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result in the revenue growth and the profit enhancement. Apart from that, diversification is a way
for firms to get rid of the risks that they would typically be facing if they had only invested in
one sector or market especially if that sector or market has a problem or the economy is not
doing well (Wan et al. , 2015). On the other hand, a number of products that a company has can
make a company more competitive as it can offer to the customers not only the products but also
the full packages of their needs at the same time as it can also block the entry of its competitors
(Borchardt, 2020). Nevertheless, although there is an attempted of differentiating the asset-class
allocation which requires the manager to make the right kind of resource allocation and to plan
with a view to the performance and the alignment with the general business goals of the firm
(Gupta & Gupta, 2017). Firms need to keep on studying the market situations, customer needs,
and the competition in order to find the sources of growth and to modify their products and
services in line with the new situations. The companies that are able to keep pace with the market
changes because they have a flexible and agile diversification strategy will be able to grow and
be successful for a long time. The company’s iterative portfolio management process implies the
assessment of the current performance of the products they are already in the market, the
identification of the places that need to be improved or the places where the products were not
good enough, and the searching for new places for expansion or the creation of new products
(Chakrabarti et al. , 2007). With the proper portfolio management, firms can maximize the use of
their resources, cut down the risk of chance and, at the same time, boost the profit on their
various products and services.
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3.2 Identifying complementary and uncorrelated revenue streams
The mentioning of the revenue streams that are the complement and the ones that are the
uncorrelated are the vital parts for the product and service diversification. Cheng and Kesner
(1997) emphasize on the significance of organizational slack which makes it possible for firms to
be in the innovation and new product markets and new product categories. Through the use of
the current resources and abilities, the companies can create the complementary products which
will make the value proposition for the customers to be more impressive. Besides, it is also good
to have the revenue streams that are not related to each other, thus, the risk of revenue
concentration is diminished and the portfolio is more diversified. Chittoor and colleagues (2009)
portray this procedure in the Indian pharmaceutical industry, where firms switched from the
imitation of the Western products to the creation of the innovative drugs for the emerging
markets, thus diversifying their revenue sources and the expansion of the market presence. The
complementary revenue streams are the products or services that are offered to the customers
that can make their present offerings more attractive and thus, cross-selling the products will be
easier. An example of this is a software company which can diversify its revenue streams by
providing consulting services or training programs to its clients in addition to its main software
products. Likewise, the pursuit of currently uncorrelated revenues denotes the exploration of
markets or industries with different demand drivers and economic cycles, which consequently
lessens the firm's dependence on the single market and thus, the vulnerability to the downturns in
any of the markets. Nevertheless, the success in the field of diversification is dependent on the
strategic planning, the market analysis, and the risk assessment which will be done to ensure the
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alignment of the new activities with the firm's core competencies and strategic objectives
(Simsek et al. , 2009). Besides, companies should always be able to check and adjust their
diversification plans according to the changing of the market conditions, customer requirements
and the competitive situation on a regular basis in order to make their diversification efforts more
effective.
3.3 Capitalizing on emerging market trends proactively
The main thing is to be in the forefront of emerging market trends and to take advantage of them
to the fullest. Chon and You (2017) talk about the pros and cons of Korea's diversification
strategy, thus, the market research and strategic foresight, which is crucial for the plan, are
highlighted. Companies have to keep on their toes, the market changes, the consumers tastes and
the technology progress, to find the new trends and chances. Through the stock of the resources,
companies can create new products and services that meet the changing requirements of the
customers and thus, improve the competitiveness. Contractor et al. (2003) present a three-stage
theory of international expansion, which, in turn, shows the connection between the
internationalization and performance of the service sector. To maximize the opportunities arising
from the new market trends, the firms must create a culture of innovation and agility which will
enable the employees to take part in the exploration of new ideas and the experiments of the new
approaches (Verganti, 2009). Also, the joining forces with startups, research institutions, and
industry experts can be a way to have the access to the newest technology and the market
insights which in this way the firms will be able to develop and commercialize the innovative
solutions quickly (Hagedoorn, 2002). Besides, the capability building and training programs can
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be used to the benefit of employees in order to acquire the skills and knowledge which will be
used to face the changing market dynamics and thus lead to the innovation in the whole
organization (Bock et al. , 2012). Through the adoption of a proactive strategy to detect and
study the upcoming market trends, firms can be the ones at the top of the class, develop the
sustainable growth and at the same time create the long-term value for the stakeholders.
3.4 Managing innovation and diversification costs effectively
Human beings should manage the costs of innovation and diversification in such a way that it is
effective for sustainable product and service diversification. Chakrabarti et al. (2007) have
shown that companies have to find a way to balance the expenditures for innovation and the cost
control measures in order to secure the profitability. The correct distribution of resources and the
ranking of the resources are the key factors which will enable the government to maximize the
research and development investment and at the same time to reduce the risks which are
connected with the diversification. Besides, the promotion of the culture of innovation and
entrepreneurship within the organization, empowers employees to come up with new ideas and
to experiment with different product and service offerings (Cheng & Kesner, 1997).
Nevertheless, the attainment of a balance between innovation and cost control demands planning
and execution of the projects in detail and with care(Furr & Dyer, 2014). The innovation
strategies of the companies must go hand in hand with the strategic objectives and market
opportunities, they should concentrate on the projects that have the highest potential for value
creation and competitive advantage (Birkinshaw et al. , 2016). In addition, the improvement of
project management processes and the introduction of performance metrics are the ways that
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firms can track the progress and impact of innovation initiatives, thus, the informed decision-
making and the resource allocation can be done (Cameron & Green, 2015). Besides, taking the
help of external partnerships and collaboration platforms can be the reason for firms to get
additional resources and expertise which will bring down the innovation costs and will also
fasten the time-to-market for new products and services (Laursen & Salter, 2014). The described
strategy of integrating innovation and diversification costs management in a holistic way will
enable firms to improve their ROI, cut down on the risks and sustainably stimulate the business
growth in a competitive and ever-changing market.
4.0 Supply Chain Diversification and Risk Management
4.1 Diversifying suppliers and sourcing locations strategically
The major of supplier and sourcing location diversification is the key factor in the reduction of
supply chain risks. According to Goerzen and Beamish (2003), the geographic scope is one of
the major factors that influence the performance of multinational enterprises. The movie has to
be enjoyable and entertaining as well as contain a moral. Besides, the sourcing decisions of the
strategic management are the ones through which firms can use the cost efficiencies and the
specialized expertise in other markets (Hitt et al. , 2006). The supplier selection process, which
takes into account the suppliers' reliability, quality, and responsiveness, is a way of choosing the
good partners in the different locations. This way, the supply chain of the companies will be
more stable. Besides, supplier diversification, the creation of the collaborative relationships with
the suppliers through the transparent communication and the mutually beneficial agreements
leads to the trust and cooperation which is the benefit for both of the suppliers and companies
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(Cao & Zhang, 2011). Besides, the adoption of technology-based supply chain solutions, for
example, tracking systems and predictive analytics, makes the supply chain more visible and
transparent (Kumar et al. , 2011). The technological developments in turn allow the risk to be
identified and mitigated in an effective way. Through the means of a strategic approach to
supplier diversification and sourcing, firms can make their supply chain more resilient, reduce
the number of operational disruptions and keep their competitive edge in the environments that
are constantly and uncertainly changing. The most efficient way of doing this is by managing the
supply chain risks proactively through strategic diversification. This way, not only is the
operation safeguarded but also the firm is placed in a good position to expand to the new
emerging opportunities and thus the market conditions become more flexible with the ability to
better cope with the volatile environment. The courtesy is the following; firms can improve their
resilience and responsiveness to the changing supply chain difficulties and market by the
continuous evaluation and adaptation of their supplier strategies.
4.2 Implementing robust supply chain contingency plans
The main factor of the diversification of the supplier and the location of the sourcing is the
reduction of the supply chain risks. Goerzen and Beamish (2003) state that the geographic scope
is one of the primary factors that affect the performance of multinational enterprises. The movie
should be fun and entertaining at the same time and it should contain a moral lesson. In addition,
the sourcing decisions of the strategic management are the ones through which firms can make
use of the cost efficiencies and the specialized expertise in other markets (Hitt et al. , 2006). The
process of supplier selection, which considers the suppliers' reliability, quality, and
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responsiveness, is a way of choosing the good partners in the different locations. This way, the
supply chain of the companies will be more reliable. Besides, the supplier diversification, the
building of the partnerships with the suppliers, through the open communication and the
mutually advantageous agreements, leads to the trust and cooperation which is the advantage for
both of the suppliers and companies (Cao & Zhang, 2011). Therefore, these joint operations are
the way to the teams to carry out the risk management and problem-solving in the emergency
situations. Besides, the introduction of the technology-based solutions for the supply chain such
as the tracking systems and the predictive analytics makes the supply chain more visible and
transparent (Kumar et al. , 2011). Thus, the technological advancements facilitate the recognition
and mitigation of the risks in a smooth way. By using a planned technique of supplier
diversification and sourcing, companies can make their supply chain more stable, lessen the
number of operational disruptions and keep their competitive advantage in the environments that
are constantly and unpredictable changing. The most effective manner to achieve this is by
managing the supply chain risks proactively by means of strategic diversification. Thus, not only
the operation will be protected, but also the firm will be in a good position to expand to the new
emerging opportunities and thus the market conditions will become more flexible and the firm
will be able to better cope with the volatile environment. Courtesy is the following; the
companies can be more resilient and responsive to the supply chain problems and market
changes by the continuous evaluation and adaptation of the supplier strategies.
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4.3 Fostering supplier relationships and risk-sharing mechanisms
Developing supplier relationships and the organization of the risk-sharing mechanisms is a
crucial factor for the establishment of the resilience in the supply chain. Kang and Stulz (1997)
stress the importance of trust and teamwork in reducing the supply chain risks. The fact of the
establishment of long-term relationships with the suppliers of the firms promotes mutual
understanding and commitment, thus the firms can effectively communicate and coordinate the
response to the possible disruptions. On the other hand, the risk-sharing mechanisms, such as
insurance or contractual agreements, can be of great help to society in order to diminish the
financial burden of the supply chain disruptions to be shared among the stakeholders (Hitt et al. ,
2006). The cultivation of solid supplier relationships and the introduction of risk-sharing
mechanisms will allow the firms to be more flexible and responsive to the changing market
conditions and thus, improve the supply chain. Besides, the commitment of investing in the
supplier development programs and capacity-building initiatives increases the capabilities and
reliability of suppliers, hence the chances of disruptions are reduced and the supply chain get
more resilience (Liu et al. , 2016). Joint product development or process improvement activities,
for instance, are the cooperation-based initiatives that lead to the enhancement of creativity and
the reduction of the waste in the whole supply chain, hence, both the buyers and the suppliers
gain the benefits from it (Kaminski et al. , 2015). Besides, the regular performance evaluations
and feedback sessions provide a way for firms to monitor supplier performance, spot the
improvement areas and to deal with the possible risks proactively (Wagner et al. , 2006).
Through the development of transparency and accountability in the relations between the
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supplier and the firm, firms can create trust and mutual respect, making the groundwork for the
successful risk management and collaboration (Li et al. , 2016). Furthermore, adding the
sustainability and social responsibility aspects into the supplier selection and evaluation methods
lowers the risks of ethical issues and the bad reputation which are associated with the supply
chain disruptions (Seuring & Müller, 2008). Through the emphasis on the long-term relationship
and the common values, the firms can create a supply chain system that is reliable and can adjust
to the changing market conditions and can cope with the unexpected issues.
4.4 Leveraging technology for supply chain visibility
Goerzen and Beamish (2003) point out the part of information technology in enabling supply
chain coordination and monitoring. Apart from the high technology that is blockchain, IoT
sensors, and predictive analytics, these technologies also give firms the opportunity to have a
real-time view of what is going on in the supply chain. Hence, companies can spot the risks and
disruptions on the spot and deal with the problems. With the help of technologically enabled
supply chain visibility firms can improve the inventory management, streamline the logistics,
and spot the limitations in the supply chain network(Kafouros et al. , 2008). This kind of action
makes supply chain more resistant to the changes and also more flexible, which are the qualities
that are necessary for the business to cope with the fluctuation in the market and also to cut the
damage caused by the disruptions in the business. Besides, the cloud-based platforms and digital
collaboration tools are the catalysts for smooth communication and information sharing among
supply chain partners, thus, the coordination and the response capabilities are enhanced
(Christopher & Peck, 2004). Additionally, the integration of artificial intelligence and machine
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learning algorithms into supply chain management systems enables the creation of predictive risk
models and scenario analyses which in turn, allow firms to be able to foresee and avoid possible
disruptions before they take place (Sheffi & Rice, 2005). Through the use of technology to
enhance the visibility of the supply chain, organizations can acquire useful information, thus,
help in the decision-making process, and in the case of a complicated and volatile business
environment, they can be able to strengthen their risk management capabilities.
5.0 Strategic Partnerships and Collaborative Diversification Models
5.1 Forming strategic alliances and joint ventures
Becoming part of a strategic alliance or a joint venture is a strong way of pursuing collaborative
diversification. Fisch and Zschoche (2012) look into the impact of operational flexibility on the
decisions to withdraw from markets, and show that adaptability is important for the strategic
partnerships. Through the creation of partnerships with the firms that have complementary
strengths and resources, organizations can use each other's strengths and resources to go together
towards the opportunities that are of mutual benefit. Joint ventures are an avenue for the firms to
share the risks and responsibilities while also the firms are able to gain new markets or
technologies(Furrer, 2011). Strategic partnerships also offer the possibility of the sharing of
knowledge and learning which increases the competitive advantage and allows the firms to
innovate together (Gaur & Delios, 2015). Through the collaboration of different companies,
firms can diversify their operations more efficiently and effectively than they can by themselves.
Also, the alliances, which are usually between two or more companies belonging to the same
industry, lead to the economies of scale and scope. This in turn results in the reduction of the
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costs and the increase of the efficiency through the pooling of the resources and the sharing of
the infrastructure (Hitt et al. , 2009). Besides, the partnerships can also improve the market
coverage and the image of the brand by using the partner's customer base and distribution
channels (Hennart, 2009). Besides, the strategic alliances help the firms to get to the new markets
and regulations making their new geographic reach and the risks associated with the market
concentration (Das & Teng, 2000) lower. The strategic alliances and joint ventures also present
strategic flexibility and agility in dealing with the changing market conditions and customer
preferences in case of the dynamic world of today (Dacin et al. , 2007). Through collaborating
with firms that have the same capabilities and resources as they, organizations can easily modify
their product lines and marketing strategies to take advantage of the emerging opportunities or to
solve the new problems (Inkpen and Beamish, 1997). Besides, strategic alliances give firms the
opportunity to gain the specialized expertise and industry insights which they would not get if
they were working alone and thus, they can get an edge over their competitors.
5.2 Leveraging complementary capabilities and risk profiles
Gaur and Kumar (2009) explore the relationship between the international diversification and
firm performance, and stress the impact of ownership structure and group affiliation. Strategic
partners are the ones who offer various abilities, resources and market information that are a
perfect match for their respective partners. The partners, having different risk profiles, will help
the firms to distribute the risks more effectively and at the same time, they will be protected
more from the market changes (Gedajlovic & Shapiro, 2002). In addition to that, the cooperation
of different enterprises with the differentiation of the product or service results in the entrance
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into the new markets and customer segments which are not easy to penetrate without the
cooperation, thus, the expansion of the financial opportunities and the increase of the market
reach. Besides, the combination of the several projects results in the collaboration and the
strengthening of the advantages through the resources and the abilities (Brouthers et al. , 2008).
By the teamwork of different specialists and resources, businesses can achieve economies of
scale and scope, thus, they will be able to save money and increase their operational efficiency
(Das & Teng, 2002). In addition to that, the partnership with companies that have a large market
share and distribution systems helps to speed up the market entry and allows the customers to be
acquired more easily, hence, the companies have a better chance in the new markets (Hitt et al. ,
2008). Also, the alliance of the companies in the diversification of the technologies allows them
to cut the risks of technological uncertainties and innovations by cutting the costs and technology
sharing and access to the complementary technologies (Hamel, 1991). Through the partnerships,
the companies can obtain the sustainable growth and also the competitive advantage by the
combination of the capabilities and the risk level of their strategic partners while also the
capacity to change quickly with the changes in the market (Kale et al. , 2000).
5.3 Sharing resources and costs for diversification
Diversification is a major plus of the collaborative models and the sharing of resources and the
costs is a huge advantage. The formation of strategic alliances and joint ventures is the way for
firms to unite their financial, human, and technological resources to accomplish diversification
initiatives (Gaur & Delios, 2015). The combined savings result from the shared resources and
thus reduce the financial load of the individual firms and hence the firms can now work on
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bigger projects or enter new markets in a short time (Gaur & Kumar, 2009). The collaborative
diversification models are the means to the sharing of the risks, as the partners pool together the
costs and the uncertainties of the diversification project, thus, they, together, reduce the exposure
to the possible losses of the individual. Moreover, the system where two or more people work
together give them access to the specialized expertise and the capabilities that may not be
available inside the company. Thus, firms can use the external knowledge and the insights to
boost the success of the diversification initiatives (Hitt et al. , 2008). Besides, the collaboration
with the companies from different industries or geographic regions can be a great way for the
firms to access new markets and customer segments which is a good step to diversify their
revenue streams and also to reduce the dependence on any single market or product line(Gaur &
Kumar, 2009). By the means of cooperation and diversification, the companies can use the
resources, the experts and the market opportunities which they have to gain financially and make
competitive advantage in the business world where things are increasingly complicated and
dynamic. Strategic alliances and joint ventures also facilitate the process of innovation and
creativity through the assistance of collaboration and the exchange of knowledge (Hamel, 1991).
The saying true stands that when different perspectives and experiences are together, this leads to
the generation of new ideas and solving the problems, which in turn results in the creation of new
products, services, and business models (Inkpen & Beamish, 1997). Besides, the collaboration
with firms that have a different set of skills and knowledge allows firms to get new technological
advancements and market insights thus, speeding up the innovation process and product
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differentiation. Unless, the collaborative diversification of a firm raises the level of learning and
the ability to develop the business by the way of new ways of working and thinking.
5.4 Managing partnership dynamics and potential conflicts
The control of the partnership dynamics and the possible conflicts is a very important aspect for
the success of the models of diversification through the collaboration. Fisch and Zschoche (2012)
stress the need of operational flexibility when dealing with partners on the basis of the successful
partnerships. The three elements that are important for the development of successful
partnerships are the communication, trust and conflict resolution mechanisms (Gaur & Delios,
2015). The established governance structures and the roles and responsibilities which are clearly
defined help to reduce the conflicts and make the partners' interests go in the same direction
which leads to the common objectives (Gaur & Kumar, 2009). Besides, the continuous
monitoring and evaluation of partnership performance help the firms to detect the new problems
and to resolve them at the earliest which in turn will result into the long term partnership and
success (George and Kabir, 2012). Through the deliberate handling of the partnership relations
and the step-by-step solution of the possible conflicts, firms can utilize the joint diversification
and the long-term competitive advantage that is the market. Opening up the communication
between the partners and creating a culture of transparency and accountability within
partnerships are the ways to make sure that there will be no misunderstandings and the partners
will be on the same page in the company goals (Furrer, 2011). Through regular communication
channels and feedback systems partners can share their insights, raise the issues that they have to
face and adapt to the changing circumstances very well (Gaur & Delios, 2015). Moreover, the
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relationship-building activities, like the joint training sessions or social events, have a great
impact on the interpersonal bonds and trust level between the partners if these activities are
carried out (Gedajlovic & Shapiro, 2002). In addition, the propagation of a team-oriented outlook
and the emphasis on the common values and goals are the way to solve the possible disputes and
to achieve the teamwork and the teamwork both sides of the team are ready to give the support.
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