Diversification strategy and firms performance: An empirical analysis of select FMCG firms in India

Abstract

An attempt has been made in this study to investigate the relationship between Product diversification and its impact on profitability in the FMCG firms listed on NSE (Nifty FMCG Index). For understanding into the performance of the diversified firms Gini-Simpson Entropy measure was used to derive the Diversification index whose results revealed that a wide variations existed between the companies under study, but an interesting factor that was noted was the absence of wide fluctuations within the companies over the years. The average index for the ten year period revealed that the fifteen companies fell into three broad categories namely high, medium and low. Those securing an index value of 0.60 and above were classified as high, and those varying between 0.30 and 0.59 as medium and below 0.30 as low. Further, trend analysis for all the fifteen companies with regard to sales, gross profit, Net Profit and Dividend is a mixture of bright, dull and intermediate performance. Some are bright on all parameters while others have a mixed future. Thus can be said the performance of Diversified companies to a large extent depends on the current pursuing diversification strategy along with the all the external factors and management of the organizations and it ability to tap and enhance to the new and already existing opportunities.