Synergies of Product Diversification Strategy

Synergies of Product Diversification Strategy Introduction Nowadays large firms have to survive in the face of economic competition. They have to keep an eye on the competitors performance. Managers try to progress and run their businesses well in order to grow and be competitive. When a large firm has reached a mature life-cycle stage it often has to explore the possibility of how to still grow. Ansoff (cited by Johnson, Scholes and Whittington, 1998) presents four basic growth alternatives: a) increased market penetration, b) market development, c) product development and d) diversification. Choosing the right path is major decision for managers. Finding out if there are reasons which may lead a large firm to prefer diversification, more specific, product diversification as the growth alternative strategy instead of other strategies is a main question. Firms who spread their activities and businesses across different product markets that are more or less related between each other are said to follow a product diversification strategy. (Pils, 2009, p.10) Product diversification strategy definition has evolved during the last decades. Some definitions are evolutional and complementary but some others contradict each other (Goold and Luchs, 1993). Therefore, it is important for managers to have a clear definition. The benefits of product diversification have been divided into two categories depending on the type of diversification: related or unrelated. Related product diversification refers to entries into new products or service businesses that have a connection to the firms existing markets (Peng, 2008). Researches (Hoskisson, 2007) and business experiences (such as Mondi AG, Procter Gamble, CHR plc., etc.) have proven that some of the benefits of this type of diversification are: Operational synergy: economies of scale Utilizing excess productive capacity Reinvesting earnings Unrelated product diversification refers to the development of products or services beyond the current capabilities and value network (Johnson et al. 2008). Some of the benefits and reasons for this type of diversification are: Financial synergy: economies of scope Increasing market power Spreading risk across a range of businesses The challenge for any large firm, once product diversification is chosen as the growth path, is to decide which type of diversification is most appropriate and what strategic plan to follow. Product diversification gives also other challenges to managers such as the need of new skills to manage a wider group of businesses, new techniques, sometimes new facilities, large capital to test the viability of the new product, produce it and market the product, hire and train new employees, etc. Therefore, diversification has some inconveniences as it involves taking a step into a territory where the parameters are unknown to the firm (Peng, 2008). Product diversification can be achieved by acquiring an existing firm in the business it wants to enter, starting up a new business subsidiary or entering into joint ventures. For large firms knowing the different growth strategies including its benefits and inconveniences is fundamental to giving managers practical recommendations. For a better understanding of these fundamental issues this research will analyze whether related or unrelated product diversification strategy leads large firms to exploit more synergies and creates more value for the firm. Based on this research question, the following sub-questions are going to be addressed in this research: Should large firms, such as Mondi AG, aim to focus on related or unrelated businesses to exploit operational synergies? How is Mondis life cycle related to the right time of diversifying? Which recommendations on product diversification strategy can be given to large firms regarding financial synergy? To answer the above questions, I will present a detailed and methodical literature review on product diversification strategy concept, categories, synergies, its relation with large firms life cycle and explore the effects of a financial crisis on large firms who have chosen this type of diversification to identify the appropriate strategy for the research goal. This research is based on the hypothesis that related product diversification is the right strategy to be chosen if operational synergies are to be achieved while for financial synergies, unrelated product diversification strategies are more appropriate. The strength of this hypothesis is tested through a case study of a large firm: The Mondi Group. The Mondi Group has been chosen as the large firm to be explored in this research because it is an international firm with one of its largest teams and headquarters in Austria. Trend, an Austrian financial magazine, ranked Mondi as the 13th top Austrian large firm out of 500 firms in 2008 having 5.159,00 Mio. Euro net sales and 26.425 employees worldwide. Product Diversification In the 20th century many researchers have written about product diversification strategy (PDS). This research will analyse how PDS is seen by managers because of the larger experience there is nowadays. Diversification has been specially growing after the whole post-war period. Whereas in 1950 only around one third of large firms in France, Germany, and the United Kingdom were diversified, by the 1990s it increased to two thirds or more (Whittington and Mayer 2003). Size and Product diversification strategy This research is focused on how large firms have reacted to the different paths of growth. The firm size: small, medium or large is an important parameter while analysing a firm strategy. In the financial and economical studies and researches the relation between size and firm variables remains a controversial subject. Some argue that size is the primary factor that determines structure whether others say that size is irrelevant (Jackson and Morgan, 1978). In my opinion, it is true that product diversification can be applied both by small and large firms, but I believe that a small firm has more limitations and can not fully develop this strategy in its organization due to limited resources: human, financial and technological. I also believe that as a consequence a firm applying product diversification strategy will increase its size. With larger number of products, the complexity of processes and production is greater. Therefore the craft needed is greater. As mentioned before, some researchers agree with this point of view like the study realized by Dewar and Hage (n.d., cited by Jackson and Morgan, 1978) which suggests that large firms facilitate changes in structure in a way that small firms can not afford. On the other hand, Woodward, Zwerman and Harvey (n.d., cited by Jackson and Morgan, 1978) concluded that instead of size, the production systems used by the firms are more connected and explain better the firm structure and feature. In other words, an efficient production system can explain the success of one large or small firm and therefore the relationship between size and differentiation is not linear. Diversification and Product Diversification Strategy Terminology Diversification The root of the word is, obviously, diverse. Pitts and Hopkins (1982) define it as literally meaning different, unlike, distinct, and separate (p.620). Therefore, if this definition is applied to the context of product diversification, we can say that it means firms having their products in various and different lines. Pils (2009) also confirms this definition as he points out that product diversified firms are understood to be active in multiple, distinct product-markets (p.10). The various definitions, forms and ways of managing diversification are the main topics of this research. Product diversification strategy There is a common denominator in the way product diversification is defined in the literature. For instance, Pils (2009) defines it as firms spreading their activities and products across different product-markets that are more or less related between each other. He also affirms that product diversification strategy determines which businesses a corporation should be in, defining the scope of the firms activities and being of high relevance for creating value for the firm. Berry (1971, p.380) defines product diversification as an increase in the number of industries in which firms are active. However, he does not point out that it can be also increasing the number of products in the current industry. Pitts and Hopkins (1982, p.620) consider firms product diversification if operating multiple different businesses at the same time. Hoskisson (2007), on the other hand, says that the firms level of diversification is a function of decisions about the number and type of businesses in whic h it will compete as well as how it will manage the business. These definitions have surely been influenced by the work of Ansoff (1957) in which he presented diversification as a possible growth strategy as mentioned in the introduction. Ansoff presented two ways of diversification: market diversification and product diversification. Although this research only focuses on the product diversification side, few lines are dedicated to explain the difference and characteristics of these two strategies. Market diversification is a strategy that takes the firm from its existing market to new ones. It exploits the current products and capabilities in new markets looking for geographical spread. This strategy is more and more used in the current times where globalization is facilitating the firms internationalisation. It also presents some challenges like cultural barriers, adding management costs and government restrictions among others. Product diversification is about adding new product to the firms portfolio whereas market diversification is about entering in new markets offering the firms current products. Reasons and Challenges Reasons and Motivations for Diversification: Any firm has a start. Normally starting as a small business it focuses on a single product. This is known as a single business strategy. The natural reasons are commonly due to a lack of cash, experience and know-how. Over time, the resources, capabilities and core competences are rooted and stabilized. At that point, firms may choose product diversified strategy, with two broad categories (related or unrelated). Large firms use product diversification strategy for a variety of reasons. Pearce and Robinson, (2005) and Hoskisson ( 2007) mention among others, the following reasons: To increase the growth rate of the firm For a better use of the companies funds than investing them into internal growth To balance the product line Diversifying the product line when the firm has reached its mature life cycle To increase efficiency and profitability, especially, if there is operational or financial synergy To increase the firms value by improving its overall performance To increase revenues or reduce costs To match and neutralize competitors market power To reduce managerial risk To increase the firms size and thus managerial compensation Product diversification challenges The above mentioned reasons and motivations for PDS can also bring along challenges and costs. One could say that PDS needs new facilities, technologies, skills, know-how, employee and managerial training, etc. It is important to know that it can have a great negative impact on the firms current products if a new product is launched with the firms brand name and the product is not well accepted in the market. The reasons for the market rejection can be e.g. lower quality than expected from the firm, high price, poor distribution, etc. At that point, the whole company will be negatively affected by a bad move. This argument is also supported by various authors such as Hoskisson, (2007); Grant, Jammine, and Thomas (1998); Goold and Luchs (1993), (cited by Pils, 2009). They state that some of the challenges are information processing, coordination, and control problems due to increase of information asymmetries difficult for a single business to deal with. In case of applying a PDS a fi rm has to change its structure and adopt new systems. Moreover Hoskisson (2007) elaborates that the data and information a firm using PDS requires is substantially greater. Furthermore increasing portfolio diversity may involve inefficiencies due to growing conflict on top management and a lack of adaptability to environmental change. Product Diversification Strategy Categories: Related Unrelated Product Diversification Strategy As mentioned before, there are two broad categories of PDS: Related and Unrelated. Some authors such as Richard Rumel (cited by Lovallo and Mendoca, 2007), Peng (2008) also categorize PDS as: focused, moderately and highly diversified. These three categories are not deeply explored in this research. But to dedicate some words, it should be mentioned that Richard Rumelt, in 1972, was the first person to statistically prove the linkage between corporate strategy and profitability. He concluded that moderately diversified firms outperform more diversified ones. Lovallo and Mendoca (2007) sustain that this finding has been valid more than 30 years of research. Moreover, a contemporary author, Peng (2008), also points out that some moderate level of diversification is the most optimal. The main focus of this research is whether a related or unrelated strategy is more suitable for large firms while diversifying. Therefore, in the following lines a definition and a detailed explanation of both is presented. Related product diversification can be defined as a strategy that firms can choose as a growing path. As the word related signals, this diversification strategy is focused on products that have a correlation between each other and are related in some way, especially in their core competences. Normally, firms that choose related product diversification as a strategy are sharing a common factor such as the raw material, the technology or the know-how needed to produce different products. Moreover, the products offered by the firm do not necessarily need to be similar. For instance, a firm running a cinema complex and also offering soft-drinks to be sold at the movie theatres is using a related PDS. Even if their products may not be related, they must share some common ground on their value or supply chain. In this case, the customers targeted are the same. Pearce and Robinson,(2005) confirm this by defining related businesses as those relying on same or similar capabilities in order to have success and achieve competitive advantage in their product markets. Major advantages of related PDS are: concentration of strength, exploitation of a market niche, and the development of synergies. A good example, of a firm applying this strategy is CRH, an Irish company who operates in 35 countries with more than 93.500 employees. The CRH Corporate Social Responsibility Report (2007) states that the firm is a diversified building materials group which manufactures and distributes building material products from the fundamentals of heavy materials and elements to construct the frame, through value added products that complete the building envelope, to distribution channels which service construction fit-out and renewal. CRH has three closely related core businesses: primary materials (aggregates, cement, asphalt and ready mixed concrete); value-added building products (pre-cast, architectural, construction accessories, clay, gas, insulation, building envelope products); and specialist building materials (CRH, 2009). CRH initially decided to diversify to gain economies of scope and also to stretch the corporate parenting capabilities. While CRH diversified its market its power i ncreased and consequently it could afford to cross-subsidise one business from the surpluses earned by another, in a way that competitors could not. As an effect, it could drive out competitors. Before going into further details regarding related PDS, a definition of Unrelated Product Diversification is given. In this case, as the word unrelated points out this diversification strategy focuses on firms offering products that have no relation, are not complementary between each other and do not have necessarily the same raw material as their prime and main composition. Moreover, they do not need to share any part of their supply chain (customers, distributor, manufacturer, logistics, etc). For instance, the Easy Group Company is present in several industries and services that have actually no relation. Some of them are: travel companies, car rentals, internet-cafes, cinemas, cosmetics, etc. Stelio Haji-Ionannou, the founder of the company has developed a cost strategy that pretends to apply in all its businesses. It seems that he believes that his formula is valid for any business. Normally the reason why firms choose this path is known to reduce their financial risks. Peng (2008) refers to unrelated PDS as firms entering into industries new lines that have no evident connections to the present firm line of businesses. Furthermore, Hoskisson (2007) says that unrelated PDS occurs when there are no overlapping capabilities other than financial resources. This strategy is also known in the financial literature as conglomerates (Hoskisson, 2007; Peng, 2008; Pearce and Robinson, 2005) It has been widely discussed whether related is more successful or unrelated. To be able to answer this fundamental question the following pros and cons are explored: Human resources: Related product diversification is characterized by the ease of human resources relocation because the skills and capabilities needed for the introduction of the new products are very similar. On the other hand, unrelated PDS requires recruiting new personnel or training current employees in the new fields. (Tallman, 2003) Technologies Obviously, if a firm chooses unrelated PDS, it will probably not be able to share technologies. Therefore, the investment needed to apply this kind of diversification is greater than by applying a related one. Related PDS is characterised by sharing technologies needed to produce the new products. For example, a firm which produces shampoo and introduces hair conditioner may use the same technology. In that way it reduces the investment costs for the new production and gain economies of scope (also see 2.5). Tallman (2003) confirms that related products can increase the use of existing fixed investments and existing capacity for more purposes and more intensively, gaining efficiencies that reduce costs. Additionally, he says that it can improve the efficiency of its existing resource infrastructure by increasing the flow of product to a wider range of customers. Management For managers it is easier to introduce related products than unrelated ones because they are familiar to the industry and can apply the same or similar strategies. For unrelated ones, managers have to learn about the new products and often the strategy used for the current products is not applicable for the new ones. Therefore, managers should experience new strategies which at the beginning may fail. Prahalad and Hamel (1990), said that it is likely that firm managers of unrelated products may be ineffective because the routines and capabilities they have already developed are not applicable one to one to the entire range of businesses. On the other hand it could be argued that it can be effective as top management can concentrate on financial management and costs controls while leaving operational control with each business unit. Competitors It is easier for competitors to imitate the financial economies of a firm than the operational synergies derived from a related PDS. This is due to the fact that operational synergies derived from the use of current know-how, facilities, capabilities and experiences are more difficult to imitate than realizing that a firm is diversifying into new unrelated products based on the percentage of the revenue it can gain. Therefore, it is less likely that competitors will imitate a firm which introduces new related products. Peng and Delios, (2006), and Khanna and Palepu, (2005), (cited by Hoskisson, 2007) sustain that competitors find it easier to imitate financial economies than replicating the value gained by related PDS from the economies of scope developed through operational relatedness. Control Mechanism The principle control mechanism for related diversification is strategic control with rich communication between corporate and business units managers. Financial results are obviously not a fair means to measure the functioning of each business unit. One business unit may have low revenues but its main function is to support the others. For unrelated products, the best way to control is exactly the opposite. The emphasis has to be on financial control (return and investment) to evaluate the units performance. (Peng, 2008) Market saturation When the product a firm is offering is close to a market saturation or obsolescence, the best thing a firm can do is to enter into another market offering unrelated products. In that way the company has an opportunity to grow. It would be a great mistake in a saturated market to introduce related products because the competition is already very high and to get a profitable market share is unlikely. Stabilize Earnings Another reason would be to stabilize the earnings and dividends of a firm in a cyclical industry. In that case, the firm should diversify into an industry with complementary cycles independent of the relation with the current products. Independency Firms that are uncomfortable to be dependent on one product line should diversify into other businesses or industries. In that way the risk is spread and all the weight is not in one product line. All in all the benefits of both categories of diversification do not appear as the result of a magic formula that just happens but as Tallman (2003) and Peng (2008) also sustain it is the result of an active management of resources and capabilities with potential for broader application. Product diversification synergies need to be explored in more detail. Therefore the following section is dedicated. Product Diversification Synergies Pils (2009) explains that the word synergy is derived from the Greek word synergos and literally means working together. In business terminology, synergy is used to describe the ability of two or more business units or firms to make greater value working together than they would do independently (Goold and Campbell, 1998, p.133). Diversifying a large firm is considered economically positive only if synergetic effects between the different businesses units are achieved. As a consequence, the idea of maximizing synergies as the main objective of diversification strategy is presented below. Operational Synergies The emphasis of product related diversification is on operational synergies because in this strategy production resources are shared to have a cost competitive advantage. In the financial literature, the term operational synergy has been used as a synonym for economies of scope (Tanriverdi and Vendkatraman, 2005). Economies of scope and/or operational synergies are the result of two or more business units that share and transfer factors of production, its resources and capabilities. As a consequence the shared production costs will be lower than production costs of each one separately. Peng (2008) defines it as competitiveness increase beyond what can be achieved by engaging in two product markets separately. In other words, firms benefit from lowering unit costs by gaining advantage from product relatedness, i.e. 2+2=5. Some sources of operational synergy are (Peng, 2008): Technologies, such as common platforms Marketing, such as common brands, and Manufacturing, such as common logistics Conscious of these possible synergies, Zodiac a French large firm who in 1930 was focused on inflatable boats and had strong ties to the French army started to introduce new related products to its portfolio. Zodiac created 5 different divisions having inflatable materials as a common denominator. These divisions have been: marine division (recreation, military, professional, safety of life at sea, environmental solutions); pool division (pool sector and pool care and water cleaning, heating, pumps, filters); airline equipment division (passenger seats and on-board toilets and sanitation systems); aerosafety systems division (aircraft escape slides, parachute systems, helicopter floats, and flexible fuel tanks); technology division and aircraft system division. (Zodiac Aerospace, 2009) Zodiac has benefited from the operational synergies through the use of inflatable products technology and has also used market synergies because it has supplied the same customers with different produc ts. Conversely, unrelated diversification does not need to have advanced levels of operational relatedness. Rather, each business unit has its own strategic and operational responsibility and the management can focus on the financial synergies. (Tallman, 2003) Investment synergies are very much related to the operational synergies. It can be argued that one is the consequence of the other or that they are developed hand in hand. Investment synergies are the result of products sharing the same plant, resource and development (RD) and machinery. This is more probable to happen with a related product diversification because of the previous explanations. For unrelated products, the machinery is improbable the same and each product need its own RD. Financial Synergies The means obtaining financial synergy is different from obtaining operational synergies. The key role of firms is to identify and find profitable investment opportunities. The parameter to measure if financial synergies are to be achieved is whether managers can exceed the job of identifying and taking advantage of profitable opportunities compared to external capital markets (Peng, 2008). Hoskisson (2007) defines financial synergies as cost savings realized through a better use of financial assets based on investments inside or outside the firm. Competent internal capital distribution can lead to financial synergies and reduces risk between the firms businesses (Higgings and Schall, 1975). A firm using unrelated PDS may grow, but only internally in each business unit and will not reach operational efficiencies but financial ones. That means, the revenue of each business unit will be greater when functioning as a conglomerate rather than functioning independently. This idea is supported by Peng (2008) who states that competitiveness increases for each unit financially further than what can be achieved by each unit competing independently as an individual firm. Many different products that are not necessarily related offer opportunities of high returns. If a firm is only interested in the returns, unrelated product diversification may be a right path of growth. Sales synergies: These occur from sharing salespeople, warehouses, distribution channels, and advertising. Salespeople have more chances to be able to sell to the same customer a wide range of related products than unrelated ones. Salespeople will try to sell a complete pack of product to the same customer and in that way take advantage of the sales synergies that related product diversification presents. Imagine a company selling sport shoes and refrigerators, in a selling process it is more unlikely to be able to sell both products to the same customer than if he would offer sport shoes and sport clothes. On the other hand, if a firm has developed a well-known brand, the use of the brand-name in other products, related or unrelated, can increase and facilitate sales because it can have build before customer loyalty to the brand. For example, Mars chocolate confectionery successful launched ice-creams. Much of it success could be related to the brand name. So, sales synergies do not occur only withi n related products but also within unrelated ones if the brand name is positively perceived and recognized by the customers. Management synergies It arises from managers accumulating experiences from handling problems in one business unit that can be applied and used to solve problems in a related business unit. Even more, the accumulated experience and know-how allows answering faster to the industry trends and challenges. Managers are able to transfer their skills, experiences and strategies (Enz, 2009, p.222). Contrarily, unrelated product managers can not apply the experience gained from solving the problems of one unit to the other in most cases because the problems are specific for each product. All these synergies can be undermine due to additional layers of management, delays due to organization and information complexity, communication costs for coordination, imaginary synergies that in fact do not exist, incompatible production processes, etc. Therefore while choosing between related and unrelated PDS the mentioned synergy risks have to be taken into account. Research Methodology In this section an explanation of how the data for the case study was collected and how it was analyzed is presented. It is important to know how the data was collected because the method chosen affects the final findings. The information and content of The Mondi Group Case Study was obtained through an expert interview with Mr. Wolfgang Kropiunik, Mondis Marketing Manager of Uncoated Fine Paper. A questionnaire was sent as a guide and overview of the face-to-face interview questions. A meeting for a 40 minutes exploratory semi-structured interview was organized on the 24th of November 2009 at Mondi Headquarter, Vienna. Mondi Group was chosen as the large firm to be analyzed as it is a large firm with more than 33.000 employees worldwide and has its headquarter in Vienna (Mondi, 2009). Therefore the results presented in this research are very much related to Mondis functioning and successful method. It might be possible that if the studied firm had been another one, the results of the research question could have been different. The interview was recorded and the data obtained was transcribed (see appendix). The transcription of the interview allowed a deeper comprehension of Mondis product diversification strategy, synergies and challenges. Moreover, the recommendations presented to the company (see 4.7) are inspired from the challenges Mr. Kropiunik mentioned during the interview. The interview gave a number of information about Mondis life cycle, PDS and challenges especially during the current financial crisis The Mondi Group Case Study Mondi is a large and international packaging and paper firm represented in around 35 countries. In 2008, it had revenues of 6.3 billion EUR and about 33.400 employees (Mondi, 2009). It has a strong presence in Western Europe, Russia and South Africa. Mondis Europe and International Division has its headquarter in Vienna while the corporate headquarter is located in Johannesburg. In Vienna, there are three businesses: Uncoated Fine Paper, Corrugated and Bags Specialties. Mondi has reached to be fully integrated having the control of its supply chain. It grows trees, manufactures pulp and paper and converts packaging paper into corrugated packaging an Synergies of Product Diversification Strategy Synergies of Product Diversification Strategy Introduction Nowadays large firms have to survive in the face of economic competition. They have to keep an eye on the competitors performance. Managers try to progress and run their businesses well in order to grow and be competitive. When a large firm has reached a mature life-cycle stage it often has to explore the possibility of how to still grow. Ansoff (cited by Johnson, Scholes and Whittington, 1998) presents four basic growth alternatives: a) increased market penetration, b) market development, c) product development and d) diversification. Choosing the right path is major decision for managers. Finding out if there are reasons which may lead a large firm to prefer diversification, more specific, product diversification as the growth alternative strategy instead of other strategies is a main question. Firms who spread their activities and businesses across different product markets that are more or less related between each other are said to follow a product diversification strategy. (Pils, 2009, p.10) Product diversification strategy definition has evolved during the last decades. Some definitions are evolutional and complementary but some others contradict each other (Goold and Luchs, 1993). Therefore, it is important for managers to have a clear definition. The benefits of product diversification have been divided into two categories depending on the type of diversification: related or unrelated. Related product diversification refers to entries into new products or service businesses that have a connection to the firms existing markets (Peng, 2008). Researches (Hoskisson, 2007) and business experiences (such as Mondi AG, Procter Gamble, CHR plc., etc.) have proven that some of the benefits of this type of diversification are: Operational synergy: economies of scale Utilizing excess productive capacity Reinvesting earnings Unrelated product diversification refers to the development of products or services beyond the current capabilities and value network (Johnson et al. 2008). Some of the benefits and reasons for this type of diversification are: Financial synergy: economies of scope Increasing market power Spreading risk across a range of businesses The challenge for any large firm, once product diversification is chosen as the growth path, is to decide which type of diversification is most appropriate and what strategic plan to follow. Product diversification gives also other challenges to managers such as the need of new skills to manage a wider group of businesses, new techniques, sometimes new facilities, large capital to test the viability of the new product, produce it and market the product, hire and train new employees, etc. Therefore, diversification has some inconveniences as it involves taking a step into a territory where the parameters are unknown to the firm (Peng, 2008). Product diversification can be achieved by acquiring an existing firm in the business it wants to enter, starting up a new business subsidiary or entering into joint ventures. For large firms knowing the different growth strategies including its benefits and inconveniences is fundamental to giving managers practical recommendations. For a better understanding of these fundamental issues this research will analyze whether related or unrelated product diversification strategy leads large firms to exploit more synergies and creates more value for the firm. Based on this research question, the following sub-questions are going to be addressed in this research: Should large firms, such as Mondi AG, aim to focus on related or unrelated businesses to exploit operational synergies? How is Mondis life cycle related to the right time of diversifying? Which recommendations on product diversification strategy can be given to large firms regarding financial synergy? To answer the above questions, I will present a detailed and methodical literature review on product diversification strategy concept, categories, synergies, its relation with large firms life cycle and explore the effects of a financial crisis on large firms who have chosen this type of diversification to identify the appropriate strategy for the research goal. This research is based on the hypothesis that related product diversification is the right strategy to be chosen if operational synergies are to be achieved while for financial synergies, unrelated product diversification strategies are more appropriate. The strength of this hypothesis is tested through a case study of a large firm: The Mondi Group. The Mondi Group has been chosen as the large firm to be explored in this research because it is an international firm with one of its largest teams and headquarters in Austria. Trend, an Austrian financial magazine, ranked Mondi as the 13th top Austrian large firm out of 500 firms in 2008 having 5.159,00 Mio. Euro net sales and 26.425 employees worldwide. Product Diversification In the 20th century many researchers have written about product diversification strategy (PDS). This research will analyse how PDS is seen by managers because of the larger experience there is nowadays. Diversification has been specially growing after the whole post-war period. Whereas in 1950 only around one third of large firms in France, Germany, and the United Kingdom were diversified, by the 1990s it increased to two thirds or more (Whittington and Mayer 2003). Size and Product diversification strategy This research is focused on how large firms have reacted to the different paths of growth. The firm size: small, medium or large is an important parameter while analysing a firm strategy. In the financial and economical studies and researches the relation between size and firm variables remains a controversial subject. Some argue that size is the primary factor that determines structure whether others say that size is irrelevant (Jackson and Morgan, 1978). In my opinion, it is true that product diversification can be applied both by small and large firms, but I believe that a small firm has more limitations and can not fully develop this strategy in its organization due to limited resources: human, financial and technological. I also believe that as a consequence a firm applying product diversification strategy will increase its size. With larger number of products, the complexity of processes and production is greater. Therefore the craft needed is greater. As mentioned before, some researchers agree with this point of view like the study realized by Dewar and Hage (n.d., cited by Jackson and Morgan, 1978) which suggests that large firms facilitate changes in structure in a way that small firms can not afford. On the other hand, Woodward, Zwerman and Harvey (n.d., cited by Jackson and Morgan, 1978) concluded that instead of size, the production systems used by the firms are more connected and explain better the firm structure and feature. In other words, an efficient production system can explain the success of one large or small firm and therefore the relationship between size and differentiation is not linear. Diversification and Product Diversification Strategy Terminology Diversification The root of the word is, obviously, diverse. Pitts and Hopkins (1982) define it as literally meaning different, unlike, distinct, and separate (p.620). Therefore, if this definition is applied to the context of product diversification, we can say that it means firms having their products in various and different lines. Pils (2009) also confirms this definition as he points out that product diversified firms are understood to be active in multiple, distinct product-markets (p.10). The various definitions, forms and ways of managing diversification are the main topics of this research. Product diversification strategy There is a common denominator in the way product diversification is defined in the literature. For instance, Pils (2009) defines it as firms spreading their activities and products across different product-markets that are more or less related between each other. He also affirms that product diversification strategy determines which businesses a corporation should be in, defining the scope of the firms activities and being of high relevance for creating value for the firm. Berry (1971, p.380) defines product diversification as an increase in the number of industries in which firms are active. However, he does not point out that it can be also increasing the number of products in the current industry. Pitts and Hopkins (1982, p.620) consider firms product diversification if operating multiple different businesses at the same time. Hoskisson (2007), on the other hand, says that the firms level of diversification is a function of decisions about the number and type of businesses in whic h it will compete as well as how it will manage the business. These definitions have surely been influenced by the work of Ansoff (1957) in which he presented diversification as a possible growth strategy as mentioned in the introduction. Ansoff presented two ways of diversification: market diversification and product diversification. Although this research only focuses on the product diversification side, few lines are dedicated to explain the difference and characteristics of these two strategies. Market diversification is a strategy that takes the firm from its existing market to new ones. It exploits the current products and capabilities in new markets looking for geographical spread. This strategy is more and more used in the current times where globalization is facilitating the firms internationalisation. It also presents some challenges like cultural barriers, adding management costs and government restrictions among others. Product diversification is about adding new product to the firms portfolio whereas market diversification is about entering in new markets offering the firms current products. Reasons and Challenges Reasons and Motivations for Diversification: Any firm has a start. Normally starting as a small business it focuses on a single product. This is known as a single business strategy. The natural reasons are commonly due to a lack of cash, experience and know-how. Over time, the resources, capabilities and core competences are rooted and stabilized. At that point, firms may choose product diversified strategy, with two broad categories (related or unrelated). Large firms use product diversification strategy for a variety of reasons. Pearce and Robinson, (2005) and Hoskisson ( 2007) mention among others, the following reasons: To increase the growth rate of the firm For a better use of the companies funds than investing them into internal growth To balance the product line Diversifying the product line when the firm has reached its mature life cycle To increase efficiency and profitability, especially, if there is operational or financial synergy To increase the firms value by improving its overall performance To increase revenues or reduce costs To match and neutralize competitors market power To reduce managerial risk To increase the firms size and thus managerial compensation Product diversification challenges The above mentioned reasons and motivations for PDS can also bring along challenges and costs. One could say that PDS needs new facilities, technologies, skills, know-how, employee and managerial training, etc. It is important to know that it can have a great negative impact on the firms current products if a new product is launched with the firms brand name and the product is not well accepted in the market. The reasons for the market rejection can be e.g. lower quality than expected from the firm, high price, poor distribution, etc. At that point, the whole company will be negatively affected by a bad move. This argument is also supported by various authors such as Hoskisson, (2007); Grant, Jammine, and Thomas (1998); Goold and Luchs (1993), (cited by Pils, 2009). They state that some of the challenges are information processing, coordination, and control problems due to increase of information asymmetries difficult for a single business to deal with. In case of applying a PDS a fi rm has to change its structure and adopt new systems. Moreover Hoskisson (2007) elaborates that the data and information a firm using PDS requires is substantially greater. Furthermore increasing portfolio diversity may involve inefficiencies due to growing conflict on top management and a lack of adaptability to environmental change. Product Diversification Strategy Categories: Related Unrelated Product Diversification Strategy As mentioned before, there are two broad categories of PDS: Related and Unrelated. Some authors such as Richard Rumel (cited by Lovallo and Mendoca, 2007), Peng (2008) also categorize PDS as: focused, moderately and highly diversified. These three categories are not deeply explored in this research. But to dedicate some words, it should be mentioned that Richard Rumelt, in 1972, was the first person to statistically prove the linkage between corporate strategy and profitability. He concluded that moderately diversified firms outperform more diversified ones. Lovallo and Mendoca (2007) sustain that this finding has been valid more than 30 years of research. Moreover, a contemporary author, Peng (2008), also points out that some moderate level of diversification is the most optimal. The main focus of this research is whether a related or unrelated strategy is more suitable for large firms while diversifying. Therefore, in the following lines a definition and a detailed explanation of both is presented. Related product diversification can be defined as a strategy that firms can choose as a growing path. As the word related signals, this diversification strategy is focused on products that have a correlation between each other and are related in some way, especially in their core competences. Normally, firms that choose related product diversification as a strategy are sharing a common factor such as the raw material, the technology or the know-how needed to produce different products. Moreover, the products offered by the firm do not necessarily need to be similar. For instance, a firm running a cinema complex and also offering soft-drinks to be sold at the movie theatres is using a related PDS. Even if their products may not be related, they must share some common ground on their value or supply chain. In this case, the customers targeted are the same. Pearce and Robinson,(2005) confirm this by defining related businesses as those relying on same or similar capabilities in order to have success and achieve competitive advantage in their product markets. Major advantages of related PDS are: concentration of strength, exploitation of a market niche, and the development of synergies. A good example, of a firm applying this strategy is CRH, an Irish company who operates in 35 countries with more than 93.500 employees. The CRH Corporate Social Responsibility Report (2007) states that the firm is a diversified building materials group which manufactures and distributes building material products from the fundamentals of heavy materials and elements to construct the frame, through value added products that complete the building envelope, to distribution channels which service construction fit-out and renewal. CRH has three closely related core businesses: primary materials (aggregates, cement, asphalt and ready mixed concrete); value-added building products (pre-cast, architectural, construction accessories, clay, gas, insulation, building envelope products); and specialist building materials (CRH, 2009). CRH initially decided to diversify to gain economies of scope and also to stretch the corporate parenting capabilities. While CRH diversified its market its power i ncreased and consequently it could afford to cross-subsidise one business from the surpluses earned by another, in a way that competitors could not. As an effect, it could drive out competitors. Before going into further details regarding related PDS, a definition of Unrelated Product Diversification is given. In this case, as the word unrelated points out this diversification strategy focuses on firms offering products that have no relation, are not complementary between each other and do not have necessarily the same raw material as their prime and main composition. Moreover, they do not need to share any part of their supply chain (customers, distributor, manufacturer, logistics, etc). For instance, the Easy Group Company is present in several industries and services that have actually no relation. Some of them are: travel companies, car rentals, internet-cafes, cinemas, cosmetics, etc. Stelio Haji-Ionannou, the founder of the company has developed a cost strategy that pretends to apply in all its businesses. It seems that he believes that his formula is valid for any business. Normally the reason why firms choose this path is known to reduce their financial risks. Peng (2008) refers to unrelated PDS as firms entering into industries new lines that have no evident connections to the present firm line of businesses. Furthermore, Hoskisson (2007) says that unrelated PDS occurs when there are no overlapping capabilities other than financial resources. This strategy is also known in the financial literature as conglomerates (Hoskisson, 2007; Peng, 2008; Pearce and Robinson, 2005) It has been widely discussed whether related is more successful or unrelated. To be able to answer this fundamental question the following pros and cons are explored: Human resources: Related product diversification is characterized by the ease of human resources relocation because the skills and capabilities needed for the introduction of the new products are very similar. On the other hand, unrelated PDS requires recruiting new personnel or training current employees in the new fields. (Tallman, 2003) Technologies Obviously, if a firm chooses unrelated PDS, it will probably not be able to share technologies. Therefore, the investment needed to apply this kind of diversification is greater than by applying a related one. Related PDS is characterised by sharing technologies needed to produce the new products. For example, a firm which produces shampoo and introduces hair conditioner may use the same technology. In that way it reduces the investment costs for the new production and gain economies of scope (also see 2.5). Tallman (2003) confirms that related products can increase the use of existing fixed investments and existing capacity for more purposes and more intensively, gaining efficiencies that reduce costs. Additionally, he says that it can improve the efficiency of its existing resource infrastructure by increasing the flow of product to a wider range of customers. Management For managers it is easier to introduce related products than unrelated ones because they are familiar to the industry and can apply the same or similar strategies. For unrelated ones, managers have to learn about the new products and often the strategy used for the current products is not applicable for the new ones. Therefore, managers should experience new strategies which at the beginning may fail. Prahalad and Hamel (1990), said that it is likely that firm managers of unrelated products may be ineffective because the routines and capabilities they have already developed are not applicable one to one to the entire range of businesses. On the other hand it could be argued that it can be effective as top management can concentrate on financial management and costs controls while leaving operational control with each business unit. Competitors It is easier for competitors to imitate the financial economies of a firm than the operational synergies derived from a related PDS. This is due to the fact that operational synergies derived from the use of current know-how, facilities, capabilities and experiences are more difficult to imitate than realizing that a firm is diversifying into new unrelated products based on the percentage of the revenue it can gain. Therefore, it is less likely that competitors will imitate a firm which introduces new related products. Peng and Delios, (2006), and Khanna and Palepu, (2005), (cited by Hoskisson, 2007) sustain that competitors find it easier to imitate financial economies than replicating the value gained by related PDS from the economies of scope developed through operational relatedness. Control Mechanism The principle control mechanism for related diversification is strategic control with rich communication between corporate and business units managers. Financial results are obviously not a fair means to measure the functioning of each business unit. One business unit may have low revenues but its main function is to support the others. For unrelated products, the best way to control is exactly the opposite. The emphasis has to be on financial control (return and investment) to evaluate the units performance. (Peng, 2008) Market saturation When the product a firm is offering is close to a market saturation or obsolescence, the best thing a firm can do is to enter into another market offering unrelated products. In that way the company has an opportunity to grow. It would be a great mistake in a saturated market to introduce related products because the competition is already very high and to get a profitable market share is unlikely. Stabilize Earnings Another reason would be to stabilize the earnings and dividends of a firm in a cyclical industry. In that case, the firm should diversify into an industry with complementary cycles independent of the relation with the current products. Independency Firms that are uncomfortable to be dependent on one product line should diversify into other businesses or industries. In that way the risk is spread and all the weight is not in one product line. All in all the benefits of both categories of diversification do not appear as the result of a magic formula that just happens but as Tallman (2003) and Peng (2008) also sustain it is the result of an active management of resources and capabilities with potential for broader application. Product diversification synergies need to be explored in more detail. Therefore the following section is dedicated. Product Diversification Synergies Pils (2009) explains that the word synergy is derived from the Greek word synergos and literally means working together. In business terminology, synergy is used to describe the ability of two or more business units or firms to make greater value working together than they would do independently (Goold and Campbell, 1998, p.133). Diversifying a large firm is considered economically positive only if synergetic effects between the different businesses units are achieved. As a consequence, the idea of maximizing synergies as the main objective of diversification strategy is presented below. Operational Synergies The emphasis of product related diversification is on operational synergies because in this strategy production resources are shared to have a cost competitive advantage. In the financial literature, the term operational synergy has been used as a synonym for economies of scope (Tanriverdi and Vendkatraman, 2005). Economies of scope and/or operational synergies are the result of two or more business units that share and transfer factors of production, its resources and capabilities. As a consequence the shared production costs will be lower than production costs of each one separately. Peng (2008) defines it as competitiveness increase beyond what can be achieved by engaging in two product markets separately. In other words, firms benefit from lowering unit costs by gaining advantage from product relatedness, i.e. 2+2=5. Some sources of operational synergy are (Peng, 2008): Technologies, such as common platforms Marketing, such as common brands, and Manufacturing, such as common logistics Conscious of these possible synergies, Zodiac a French large firm who in 1930 was focused on inflatable boats and had strong ties to the French army started to introduce new related products to its portfolio. Zodiac created 5 different divisions having inflatable materials as a common denominator. These divisions have been: marine division (recreation, military, professional, safety of life at sea, environmental solutions); pool division (pool sector and pool care and water cleaning, heating, pumps, filters); airline equipment division (passenger seats and on-board toilets and sanitation systems); aerosafety systems division (aircraft escape slides, parachute systems, helicopter floats, and flexible fuel tanks); technology division and aircraft system division. (Zodiac Aerospace, 2009) Zodiac has benefited from the operational synergies through the use of inflatable products technology and has also used market synergies because it has supplied the same customers with different produc ts. Conversely, unrelated diversification does not need to have advanced levels of operational relatedness. Rather, each business unit has its own strategic and operational responsibility and the management can focus on the financial synergies. (Tallman, 2003) Investment synergies are very much related to the operational synergies. It can be argued that one is the consequence of the other or that they are developed hand in hand. Investment synergies are the result of products sharing the same plant, resource and development (RD) and machinery. This is more probable to happen with a related product diversification because of the previous explanations. For unrelated products, the machinery is improbable the same and each product need its own RD. Financial Synergies The means obtaining financial synergy is different from obtaining operational synergies. The key role of firms is to identify and find profitable investment opportunities. The parameter to measure if financial synergies are to be achieved is whether managers can exceed the job of identifying and taking advantage of profitable opportunities compared to external capital markets (Peng, 2008). Hoskisson (2007) defines financial synergies as cost savings realized through a better use of financial assets based on investments inside or outside the firm. Competent internal capital distribution can lead to financial synergies and reduces risk between the firms businesses (Higgings and Schall, 1975). A firm using unrelated PDS may grow, but only internally in each business unit and will not reach operational efficiencies but financial ones. That means, the revenue of each business unit will be greater when functioning as a conglomerate rather than functioning independently. This idea is supported by Peng (2008) who states that competitiveness increases for each unit financially further than what can be achieved by each unit competing independently as an individual firm. Many different products that are not necessarily related offer opportunities of high returns. If a firm is only interested in the returns, unrelated product diversification may be a right path of growth. Sales synergies: These occur from sharing salespeople, warehouses, distribution channels, and advertising. Salespeople have more chances to be able to sell to the same customer a wide range of related products than unrelated ones. Salespeople will try to sell a complete pack of product to the same customer and in that way take advantage of the sales synergies that related product diversification presents. Imagine a company selling sport shoes and refrigerators, in a selling process it is more unlikely to be able to sell both products to the same customer than if he would offer sport shoes and sport clothes. On the other hand, if a firm has developed a well-known brand, the use of the brand-name in other products, related or unrelated, can increase and facilitate sales because it can have build before customer loyalty to the brand. For example, Mars chocolate confectionery successful launched ice-creams. Much of it success could be related to the brand name. So, sales synergies do not occur only withi n related products but also within unrelated ones if the brand name is positively perceived and recognized by the customers. Management synergies It arises from managers accumulating experiences from handling problems in one business unit that can be applied and used to solve problems in a related business unit. Even more, the accumulated experience and know-how allows answering faster to the industry trends and challenges. Managers are able to transfer their skills, experiences and strategies (Enz, 2009, p.222). Contrarily, unrelated product managers can not apply the experience gained from solving the problems of one unit to the other in most cases because the problems are specific for each product. All these synergies can be undermine due to additional layers of management, delays due to organization and information complexity, communication costs for coordination, imaginary synergies that in fact do not exist, incompatible production processes, etc. Therefore while choosing between related and unrelated PDS the mentioned synergy risks have to be taken into account. Research Methodology In this section an explanation of how the data for the case study was collected and how it was analyzed is presented. It is important to know how the data was collected because the method chosen affects the final findings. The information and content of The Mondi Group Case Study was obtained through an expert interview with Mr. Wolfgang Kropiunik, Mondis Marketing Manager of Uncoated Fine Paper. A questionnaire was sent as a guide and overview of the face-to-face interview questions. A meeting for a 40 minutes exploratory semi-structured interview was organized on the 24th of November 2009 at Mondi Headquarter, Vienna. Mondi Group was chosen as the large firm to be analyzed as it is a large firm with more than 33.000 employees worldwide and has its headquarter in Vienna (Mondi, 2009). Therefore the results presented in this research are very much related to Mondis functioning and successful method. It might be possible that if the studied firm had been another one, the results of the research question could have been different. The interview was recorded and the data obtained was transcribed (see appendix). The transcription of the interview allowed a deeper comprehension of Mondis product diversification strategy, synergies and challenges. Moreover, the recommendations presented to the company (see 4.7) are inspired from the challenges Mr. Kropiunik mentioned during the interview. The interview gave a number of information about Mondis life cycle, PDS and challenges especially during the current financial crisis The Mondi Group Case Study Mondi is a large and international packaging and paper firm represented in around 35 countries. In 2008, it had revenues of 6.3 billion EUR and about 33.400 employees (Mondi, 2009). It has a strong presence in Western Europe, Russia and South Africa. Mondis Europe and International Division has its headquarter in Vienna while the corporate headquarter is located in Johannesburg. In Vienna, there are three businesses: Uncoated Fine Paper, Corrugated and Bags Specialties. Mondi has reached to be fully integrated having the control of its supply chain. It grows trees, manufactures pulp and paper and converts packaging paper into corrugated packaging an

The Xia Dynasty Essay

The first prehistoric dynasty is said to be Xia, from about the twenty-first to the sixteenth century B.C. Xia-dynasty was founded by the Si-clan, who were descendants of the clan’s foundation father, Yu. Because of the lack of written sources, historians have still not gained a correct idea of how the people lived at that time. According to the later tradition, Yu spent thirteen years to dig out channels and maintain dikes. When emperor Shun died, the officials disagreed with the imperial decision of letting Shun’s son inherit the throne. They wanted Yu instead, who after his death was followed by his son. It was Yu who founded the first imperial dynasty in China. Until scientific excavations were made at early bronze-age sites at Anyang, Henan Province, in 1928, it was difficult to separate myth from reality in regard to the Xia. But since then, and especially in the 1960s and 1970s, archaeologists have uncovered urban sites, bronze implements, and tombs that point to the existence of Xia civilization in the same locations cited in ancient Chinese historical texts. At minimum, the Xia period marked an evolutionary stage between the late neolithic cultures and the typical Chinese urban civilization of the Shang dynasty. Xia was conquered by Tang, and a new era had begun, the Shang-dynasty was founded. Created by Yang Lu Stunning Capital of Xia Dynasty Unearthed Chinese archaeologists recently found a large-scale building foundation in Erlitou Ruins of Yanshi, central China’s Henan Province, which belongs to the later period of Xia Dynasty. The discovery, the first of its kind in China, again excited the archaeological field after the heated discussion on the division of Xia and Shang dynasties . â€Å"The site causes great concern because it was founded at the key moment when the Xia Dynasty (c. 2100 BC – c. 1600 BC) was replaced by the Shang Dynasty (c. 1600 BC – c. 1100 BC),† said Dr. Xu Hong, head of the Erlitou Archaeological Team under the Chinese Academy of Social Sciences. â€Å"Was it built by people of the Xia or the Shang? Further excavation will help find the final resolution and provide new materials for periodization of the two dynasties.† Erlitou Ruins, a new mystery The Erlitou Ruins were discovered by Chinese scholars in their field research of Xia culture. In the following 40 years’ outdoor excavation, they obtained rich relics and references. As a result, the Erlitou Ruins were confirmed as the ruins of an important capital existing between the Xia and Shang dynasties. The first-hand information and scientific materials laid a solid foundation for the research of Xia culture. Meanwhile, since its discovery, disputes about it have never ended. Situated in the central area of the Xia Dynasty as shown in historical records chronologized as in the Xia Dynasty, the Erlitou Ruins naturally became a key site in the exploration of the Xia culture as well as the division between Xia and Shang dynasties. The question remaining is whether it is a Xia-dynasty capital or the Shang capital Xibo. Disputes also center on the nature of the Erlitou culture. Some think it featured Xia culture in early period and Shang culture in later period, while others believe it was of pure Xia culture. After the periodization of the Xia, Shang and Zhou (c. 1100 BC – 221 BC) was completed, more and more experts tended to believe Erlitou was a site of Xia ruins and it once served as the capital during the dynasty’s middle and later periods. â€Å"This means people can almost touch the pulse of China’s first dynasty. I say ‘almost’ because many mysteries about the Erlitou Ruins remain unsolved,† Dr. Xu Hong said. â€Å"We’ve got only an outline of the information it has provided, such as the internal layout, evolution process, culture, social life, organizational structure and ethnics, of this capital.† â€Å"The final solution to the mysteries of Erlitou culture and Xia culture still depends on more historical witnesses, such as the creation of characters,† Xu said. â€Å"With further investigation, excavation and research on the Erlitou  Ruins, people will better understand the significance of the ruins in exploring the source of Chinese culture, Chinese early civilization and formation of state.† Palace complex: the earliest ever found Under the No.2 site of Erlitou Ruins, which is the foundation of a large-scale palace complex, archaeologists recently discovered a new site of rammed earth, which indicates an earlier, larger and more complicated structure once existed there. It pushes the age of China earliest palace complex back 100 years. According to Dr. Xu Hong, the site, encoded No.3, should belong to early-period Erlitou culture. To date, it has been confirmed that the structure was about 150 meters long, and its major body comprises at least three courtyards. Before the discovery, archaeologists believed the No.1 and No.2 sites of Erlitou were the earliest large-scale palaces in China, leading to the conclusion that the early period palace was simple in structure and usually had one gate and one courtyard. The excavation of No.3 site, however, made them change minds. The Erlitou Ruins, dating back 3,850-3,550 years, were found in 1959. As early as in 1978, archaeologists had noticed large-scale rammed earth under the No.2 palace site and decided to explore its scale, structure and date. In recent years, the Erlitou Archaeological Team has focused their field work on early buildings of Erlitou and its relationship with later buildings. Since autumn 2001, more than 3,000 square meters have been excavated. The result is the discovery of the more complicated No.3 and No.5 palace sites, which sit side by side, one in the east, the other in the west. Under the passageway between them, there is a 100-meter-long wooden-structured drainage culvert. In the middle and south courtyards of No.3 site, archaeologists also found rows of medium-sized tombs, of which five have been cleaned up. All of the tombs are paved with cinnabar and traces of coffins can still be seen. Burial articles unearthed include bronze, jade, lacquer and white pottery ware as well as glazed pottery inlayed with turquoise and artifacts made from seashells. Many items, such as white pottery in shape of wide-rimmed bamboo hat, jade ornament looking like a bird’s head, large vessel inlayed with turquoise and ornament composed of nearly 100 gear-like holed clams, had never been seen before. The discovery of the tombs with so many aristocrats is of great significance to the study of the nature of No.3 site and the burial ceremonies of the Erlitou culture. Basic structure of Erlitou made clear In the past half a century, Chinese archaeologists have dedicated themselves to seeking relics of the Xia Dynasty and their work centers on western Henan Province. Historical records show the western part of Henan Province was the central area for activities in the Xia Dynasty. In 1959, historian Xu Xusheng found the large ruins of Erlitou in Yanshi of western Henan Province. Since then, three generations of archaeologists have conducted more than 40 excavations. Research proves this was the largest living community in China and even in East Asia in the first half of c. 2000 BC. It boasted the earliest palace building group of China, earliest bronze sacrificial vessel group and earliest bronze smelting workshop. It is the earliest capital city which can be confirmed to date. Dr. Xu Hong, head of the Erlitou Archaeological Team under the Chinese Academy of Social Sciences, stresses the academic significance of the work: it helps better understand the nature of Erlitou Ruins as a capital, the emergence of city, and the early form of state. The palaces in the Erlitou Ruins had three avenues: the one in the east was nearly 700 meters long, the other two in the north and south were over 300 meters each, with a distance of 400 meters between them. Also, several paths were discovered in the palace area. Between No.1 and No.2 sites, large areas of earth, hundreds square meters of pebble and some rammed-earth foundations were found. The latest exploration and excavation show the palace ruins were distributed in a northwest-southeast trend along the ancient Yiluo River. The longest distance from east to west was 2,400 meters, and that from north to south, 1,900 meters. The northern part of it had been damaged by the Luohe River, with only a three-square-kilometer area left. The most important part was the highland in the southeast, with palace foundation ruins, bronze smelting workshop ruins and medium-sized tombs. The western part of it was relatively low and used to be common residential areas. On the edge of the eastern part a ditch extending 500 meters intermittently was found. It was believed to be a ditch providing earth for construction or pottery making in the past. Also, it formed the eastern border of the palace. Background: Journey into the Xia Dynasty Erlitou is a common village on the northern bank of the Luohe River, Henan Province. Few has known it was the location of the capital of China’s first dynasty, Xia between c.1900 BC to c. 1600 BC. It witnessed the prosperity of the Xia and the transmission from the Xia to the Shang. However, the memory about the Chinese nation seemed to dim from people’s mind and some even doubted if there had been such a brilliance. In the 20th century, the discovery of inscriptions on tortoise shells or animal bones and excavation of the Yin Ruins of Anyang proved the existence of the Shang Dynasty. This greatly encouraged Chinese scholars, who hoped to restore the real appearance of the Xia Dynasty by seeking relevant relics. Since Erlitou was discovered by Xu Xusheng and his archaeological team in 1959, Chinese archaeologists have entered a new stage in the exploration of  the Xia culture. The continuous excavation brought to light ruins of large-scale palace foundations, large-scale bronze smelting workshop, pottery making and bone article workshops as well as buildings related to religious sacrifice, 400 tombs, sets of bronze and jade sacrificial vessels. All these have proven Erlitou was the earliest capital ever founded in China. Along with new discoveries, the disputes over Xia culture and the division of the Xia and Shang dynasties have heated up again, attracting both domestic and overseas scholars. The periodization of the Xia, Shang and Zhou dynasties greatly promoted the study of Xia culture. The initial building of the Shang city in Yanshi has been confirmed as a boundary mark between the Xia and Shang dynasties, and Erlitou Ruins, a capital of the Xia Dynasty. More and more scholars begin to accept the view that the mainstay of Erlitou culture was Xia culture. Now the exploration on the source of Chinese civilization and Xia culture is still going on. Dr. Xu Hong, as well as other scholars devoted to this study, is fully confident of the future: â€Å"The discovery of the Yin Ruins astounded the world in the 20th century. We believe the Erlitou Ruins will lead the study of Chinese ancient civilization to a new stage in the 21st century.† The first prehistoric dynasty is said to be Xia, from about the twenty-first to the sixteenth century BC. Until scientific excavations were made at early bronze-age sites at Anyang, Henan Province, in 1928, it was difficult to seperate myth from reality in regard to the Xia. But since then, and especially in the 1960s and 1970s, archaeologists have uncovered urban sites, bronze implements, and tombs that point to the existence of Xia civilization in the same locations cited in ancient Chinese historical texts. At minimum, the Xia period marked an evolutionary stage between the late neolithic cultures and the typical Chinese urban civilization of the Shang Dynasty. The Xia Dynasty is traditionallly supposed to have begun with the reign of Yu the Great and ended with the fall of Jie,lasting for more than 400 years, from approximately the 21st century BC to a little earlier  to the 16th century BC. THere were altogether seventeen kings in fourteen generations. According to an ancient version of history, however, it was not Yu, but his son Qi, who founded the dynasty. Towards the end of the Xia Dynasty, social contradictions and confict grew sharper. Tradition has it that in the 16th century BC, the last ruler of Xia, Jie, abused his power and increased oppression. He exhausted the resources of the people to build palaces and pavilions for himself. The people were also forced to go to war. Filled with hatred for Jie, the people could no longer put up with his despotic rule and fled in large numbers. Even his court officials cursed him and wished his death, although that might mean that they themselves would perish. The origin of Xia Dynasty — The Great Yu and the terrible Flood Shang Tang sezed this opportunity. took a revolt and finally overthrew the Xia Dynasty and founded the house known as the Shang Dynasty. Legend has it that some four or five thousand years ago there occurred once in the Yellow River valley a terrible flood which washed away whole villages with their houses and inundated large areas of cropland. Many people lost their lives in the flood and those who were fortunate enough to survive were forced to abandon their homes and go and live on hillsides or migrate to places far, far away. At that time, the leader of the confederation of tribes was a man named Yao who at once summoned together the chieftains of all the tribes to discuss how to get the flood under control. At the meeting, a man named Gun was elected by unanimous vote to take charge of the fight against the flood. Under Gun’s leadership, the people spent nine long years building dams and dykes to stop the flow of the rivers. All the efforts however ended only in more disastrous floods. It happened more than once that no sooner was a dam or dyke built than it was destroyed by flood which carried sands and mud downstream until the mouth of the Yellow River was choked up and the afflicted areas became larger and larger while the number of victims  increased. By this time Yao himself was getting very old and so he yielded his place to one named Shun who attached great importance to flood control and went to the work sites for a personal inspection. When he found that Gun had failed in his mission, he first had him incarcerated on Feather Hill and then killed. After that he gave orders that Gun’s son Yu should carry on the work of fighting the flood. There have been many mythical stories about Yu’s birth. One is that three years after Gun was killed, his dead body still showed no signs of putrefaction and when someone cut it open, out bounded the boy Yu. Another has it that Yu’s mother gave birth to him after eating a kind of wild fruit. Anyway, in ancient times everyone seemed to believe that Yu was the son of a god, an ingenious, capable and peerless hero. It was barely four days after he got married when Yu received Shun’s order. Determined to have the flood under control and remove the menace to the people, he left his wife behind and set off for the work site. Yu first made a study of the causes that had led to his father’s failure. Then he made a careful survey of the afflicted areas and asked for advice from experienced workers. Knowing that water tends to flow from higher to lower regions, he abandoned Gun’s method of building dams and dykes to stop the flow of waters. Instead he led his men in digging ditches and canals to divert the flood and also in dredging the river channels so as to provide outlets for the floods into the sea. In those days there was a high mountain, Mount Longmen, in the upper reaches of the Yellow River that blocked the way of the river. When the turbulent waters reached the mountain, it overflowed the banks, causing floods in the vicinity. In order to cut a canal into the mountain, Yu turned himself into a bear and stole into the mountains to do the digging. He also enlisted the help of Ying Long, Huang Di’s brave warrior. Eventually, he succeeded in cutting a canal through Mount Longmen an d thus made it possible for the floods to flow by way of this canal and the dredged rivers into the sea. Rain or shine, Yu worked in the midst of his men, digging and taking earth away all through the four seasons of a year. His face became sun-burnt and his body spare and thin. Even the hair on his calves was worn away. But he was so dedicated that it was said that he had three times refrained from entering the door of his home when he was passing by. One story has it that he happened to be passing the door when his wife was giving birth to his son Qi. He heard the baby crying, but in order to get the flood under control as early as he could he turned away from his door. Thus after thirteen long years of continuous efforts, Yu and his men succeeded in dredging all the rivers, big and small, and in doing away with the evil of flood. Those who had gone to live on hillsides or had migrated to remote places now came back to their native places. Under Yu’s leadership, they tilled the land and planted crops and developed agricultural production. As a result, people were beginning to lead a good life. Yu was held in great reverence by all the tribes who now addressed him as Yu the Great. Shun was convinced that Yu had both fine qualities and great competence and so recommended him as his successor. After the death of Shun, Yu became the head of the tribal confederation. Later his own son Qi set himself as the successor and it was Qi that set up the first slave-owning state in Chinese history – the Xia Dynasty Xia Dynasty 2100 BC – 1700 BC According to legend, the Chinese people originated in the Huang He (Yellow River) valley created by the god, Pan Ku. There is little archaeological evidence of this, although remains of Homo Erectus dating back 460,000 years have been found near Beijing. Several villages & farms from about 10,000 BC have been found by archaeologists in northern China. Although little is known about the Xia Dynasty, the Xia are assumed to be descended from the Huang He people. Until recently the dynasty was thought of as mythical but archaeological evidence has now proved its existence. In about 3000 BC the  Lungshan people emerged and were the first people of the Xia Dynasty. They made silk, fine pottery and bricks baked in ovens to build their homes. They learned how to control floods and irrigate fields and had great engineering skills. There are no written records although it is assumed that they had a writing system of some sort. This first hereditary dynasty lasted some 400 years and tradition says it ended when a Xia ruler started mistreating the people and was overthrown. The Xia Dynasty is portrayed as the tutorial missions in Emperor. In prehistoric ancient China several nomadic families joined together and settled along the fertile banks of the Wei River. The settlement of Banpo starts very small requiring only the basics of life but, as the years pass, the settlement prospers and they establish farms together with the manufacture of luxuries such as beautiful ceramics. Later still, explorers go out from the town to search for other communities and a new town is established on the plains of Erlitou and rudimentary trade between cities is started. At last the silk-worm and the beautiful fabric that can be made from it are discovered. As with most societies, war threatens and copper is mined to make weapons and arm soldiers. Taxes have to be levied with the tax collectors using wooden ledgers for record keeping. Finally the tutorials (and Xia Dynasty) end with victory in battle The establishment of the Xia Dynasty (21st – 17th century BC) is an important milestone in the history of Chinese civilization and marks the end of the Primitive Society and the beginning of the Class Society. It is the first dynasty in Chinese history, and lasted nearly 500 years including the reigns of 17 emperors. It is thought that most of the Xia people probably inhabited the western area of Henan Province and southern Shanxi Province. Political History It is Yu the Great who first set up the dynasty under the Abdication System (choosing the leader according to their ability). After he died, his son Qi broke up this system and made himself the Xia emperor. From that time onwards, the Abdication System gave way to the Hereditary System. Following the system of hereditary, 15 offspring of Qi succeeded him after  his death. Among them, emperors like Shaokang, and Huai made great contributions to the development of Chinese society. However, there were also many tyrannical emperors during this period such as Taikang, Kongjia, and Jie. Economy and Crafts During this dynasty, many achievements were made. People lived mainly through agriculture using tools made of stone or bone. The Jade ware at that time was quite delicate and bronze vessels were well smelted. Craftwork made of bronze embedded with jade also appeared. Commodity exchanges developed. A calendar system was devised which used both lunar and solar movements. Decline Xia ended under the reign of Jie, a very notorious tyrannical emperor in Chinese history. After he succeeded to the throne, he lived an extravagant life day and night without any thought for his country or its people. In addition, he killed the patriotic ministers who presented him with good advice. All of his actions enraged the people so much that at last they rose up under the leadership of Tang (the chief of the Shang tribe and latter set up Shang Dynasty (17th – 11th century BC) and overthrew Xia. The realm of China has been well renowned for its sundry and unique culture – that is why a lot of researchers, students, and tourists became very much fascinated with the historical background and roots of this culture. For decades, Chinese history and culture have undergone huge tons of changes – from the places, food, clothing, political beliefs, spiritual choices, attitude of people, structure of buildings and residences, government types, arts, and others alike. All of the alleged factors have undergone change and innovation throughout the point in time, living massive impact on its people. To better acquire an understanding of the up-to-date transformation in the ethnicity and traditions of China, it is better to be aware of the roots of modernization where innovation and colossal amendment took place. According to unswerving sources, there are proof and substantiation that the immense variations on the Chinese history and culture was distinguished and  took consign during the Xia Dynasty, roughly around 2100 B.C. to 1600 B.C. The Xia Dynasty lasted for nearly 500 years and during those long years, a lot of modification has been made doable under diverse leaders from one generation to another. All through those years, the nation of China has been under the leadership of 17 different emperors that has left a lot of remarkable changes in the country’s culture. The Origins and Development of the Xia Dynasty First, it is important to go through the origin of the Xia Dynasty – where did it all start? There are a lot of different versions and story lines on the subject of the roots of the Xia Dynasty but regardless of those speculations, lone factor will remain the same, and that is Xia was the very first established dynasty system in China. Long before, the Xia Dynasty had been established through battles between two tribes that had long existed – the two battling tribes are the Xia tribe and Chiyou’s tribe. The Patriarch of the Xia Tribe The Xia tribe was noted to progressively develop and took place during the time of Zhuanxu, who is well acknowledged as one of the five great emperors of China. According to classical research, reviews and historical texts, a lot of evidences have proved that Yu the Great, which is the first leader of China during the Xia Dynasty was the grandson of Zhuanxu. Other classical facts and historical rites profess that Xia is a member of the fifth generation of Zhuanxu. Whether of the alleged facts are true or not, the only fact that will remain the same is that the first conqueror and leader of China’s Xia Dynasty originated from the Zhuanxu, evidently making it possible that the Xia clan was mainly the descendants of the great emperor. Areas of Habitation and the Abdication System The development of the Xia Dynasty served as a very significant part of the Chinese history and culture since during those periods the development has marked the end of the Primitive civilization and highlighted the beginning of the class and more modernized society. Most people during the Xia Dynasty period localized in the western area of the province of Henan and some also inhabited the northern and southern part of the province of Shanxi. During  the earlier times of Xia Dynasty, the approach in selecting the right leader was first set up by Yu the Great, who made the Abdication System the way of choosing the right leader. The Abdication System is an approach where a leader is chosen according to their advanced ability and competence. Gun’s Mission to Stop the Flooding at the Yellow River Throughout the Xia Dynasty, the main problem that Yu the Great had to deal with was the flooding of the Yellow River. Long before the time of Gun, known as the earliest member of the Xia clan and also the father of Yu the Great, Gun and other tribe members attempted to solve the problems of flooding. Gun was appointed by Yao to stop the flooding of the Yellow river; Yao ordered the establishment and construction of large line of defense and blockade that would stop the flooding and destruction of their farm or field crops. The attempt of Yu’s father to build a defense and effective barrier to prevent and control the flood lasted for nine long years, but in the end they still failed to attain their goal since the flood became stronger and more uncontrollable. That failure has lead to the order of execution of Yu the Great’s father Gun, who was ordered by Shun the succeeding leader of the throne. Gun’s Execution and Yu’s Mission Gun was ordered to be executed on the mountain located between the Donghai countries – because of his father’s failure to solve the flooding, Yu the Great was motivated to continue his father’s attempt to stop the flooding of the Yellow River. Since Yu the Great was highly trusted by Shun, he was then assigned to continue his father’s work – the method and technique of Yu greatly differ from his father’s approach. As you can recall, the method used by Gun was to build a blockade that will redirect the path of the water to stop the flood but since it is a failure, Yu the Great tried a whole lot of different approach. The first step that Yu considered was to acquire help from other tribes. What he did was unite people coming from the different tribes and ordered them to lend him a hand in solving their flooding problems by effectively building canals in all the major rivers around China, which will redirect the water into its way to the sea, co nsequently preventing it from flooding their farms. Yu’s Dedication to Stopping the Yellow River Floods Yu the great has dedicated 13 years of his life in order to complete his mission and during those 13 years, he did not go home to see his family. It was said that throughout that 13 years he only passed by looking at his house without going inside and talking to his family. He was very much dedicated and highly motivated, he was an epitome of strength and intelligence may be that is the reason why all his hard work eventually paid off, and his technique was successful in leading the water directly into the sea, thus preventing the flood. Mission Accomplished: Prosperity Ensues The prevention of the flood eventually lead to the affluence and growth of the farm crops that was usually destroyed by the flood and this growth has lead to the strengthening of the Xia tribe, making Yu the leader of other surrounding tribes. Then eventually after several years, Shun abdicated his throne to Yu since Shun himself is getting old and needs to pass the throne and authority to a competent leader – he then chose Yu to succeed on his position. And that was noted as the first year of Yu’s leadership and also the birth of the Xia Dynasty. After several years of leadership, Yu was ought to pass the throne to a worthy leader but instead of choosing according to the competence and ability Yu chose to give the throne to his son Qi; that act marked the start of the Hereditary System in selecting a leader and began the era of clan leadership style of governing. The throne was continuously passed to sons of the kings, from generation to generation until the time of Jie took place. Jie was the last ruler of the Xia dynasty he was perceived as a corrupt leader, which lead to the rebellion of the people against his leadership that eventually lead him to be overthrown by Tang who started the Shang Dynasty. Xia Dynasty Technology & Innovation Other changes that were noted from the period of Xia Dynasty was subsequent, the use of stone tools like the hand axe, they also made use of fire in perfecting the stone tools that they created. Agriculture was also improved during the Xia period and pasturing was started. Irrigation technology was also greatly improved, the production of dried and earthen goods also took place, the use of ships and vehicles arose, the use of varnish became common practice. Silk production and weaving also took place during the Xia dynasty  as well as drilling and carving technology. But the most recognized innovation during this period was the creation of the calendar based on two different patterns, the use of jade, bronze vessels, and bronze casting also became popular at this era. XIA Dynasty Religion Government Geography Economy Society First Chinese Dynasty Marked the transition between primitive society and class society. First began with an abdiction system Choosing leader by ability. After Yu the great died, his son Qi changed to the hereditary system choosing the leader by the bloodline. The Xia Dynasty had no written records so at times they are considered myth. There society was based on slavery. Their culture was very into astronomy. They were among the first to chart constellations and supernovas. Most of the Xia was learned from ancient records from other civilizations because the Xia themeselves had no form of writing. Some of these records include the Bamboo Annals and the Records of the Grand Historian. They were believed to be Aryans who migrated into the area and they were able to take down the locals and conquer it. There are credited for discovering silk and an early lunar calendar. In the beginning they believed in natural religion. This included shamans, spirits, and cremation of the dead bodies. With time the larger population became Buddhist. Tangut monks translated many sutras to the Xia language. After the 11th century the Xia went into Lamaism Thats another form of Buddhism. Smaller religion present was Chinese Daoism. They were very family oriented, they honored their family. Most of the myths about the Xia had godlike leaders or gods included in them. They had a large amount of cattle herds that they used to make a lot of woolen products. They depended on their resources. For example fishermen depend on fish. They had no trade with others because they were involved in so much war. Had frontier market to supply their own country. Made coins to buy within their country. Made tools and weapons out of stone, bone, and wood. In the time of Yu the Great there were many floods that destroyed the crops and home of the people. Due to excessive floods, Yu built canals leading to the river and the sea. The canals also helped with agriculture when they began farming. There were a total of 17 emperors The first one was Xiayu, who was in power for 45 years The Xia was based on  slavery The leader that ended the Xia dynasty was named Jie he was a tyrant. Jie was in charge for 52 years They lived next to the yellow riverbend. The Xia were very good fishers. The Xia had descended from a wide-spread Yellow River valley Neolithic culture known as the Longshan culture. There is only some written records of this. The Xia dynasty lasted 500 years. On a warm spring day, in Xia times, some children went out in the fields to play. In those days, if you had a problem you went to see the local wise woman. In this village, the wise woman’s name was Loawnu. Alarmed at what they saw in the fields, the children ran up the hill to Loawnu’s house. â€Å"Loawnu,† they shouted. â€Å"The sky is falling down!† Loawnu smiled at the children. â€Å"Don’t be worried. Find all the pieces of sky that have fallen, and bring them to me. I’ll sew them together again in time for the festival.† The spring festival was nearing. This was a time when the young people gathered from many villages to meet one another and to find husbands and wives. The children’s village had been honored this year as the meeting village. It would be a horrible time for the sky to fall down. The village would be disgraced! Off the children ran to pick up the pieces. But some were missing! â€Å"Loawnu!† cried the children, as they tore up the hill, breathing heavily. Loawnu only smiled. The next day, the children ran outside and looked up. The sky looked as it always looked on a warm spring day, clean and fresh and blue. They were so happy. That night, they were amazed! The sky had always been dark at night. That night, it was filled with light! Loawnu had patched the missing pieces of sky with bright twinkling light! How beautiful! How clever! We shall have the happiest spring festival in all the land! How lucky we are to know Loawnu! All the village agreed. From the canals that Yu built, he was praised and was made him the leader of the Xia Dynasty Archeologists found bronze implements and tombs proving that the Xia dynasty lived through 2100- 1800 BC.

Travel Is The Best Education

In the technologically advanced era that we are living in, travelling has become not only easier, but also more accessible to almost everyone. Therefore, more and more people have the opportunity to get to places they have never been to before, making the experience interesting and, at the same time, educational. It has become in this way, the best form of education. Millions of people travel around the world at any given time, through various means of transport.This means that a very big number of people have the chance to see something they have never seen before, learn from the new experiences and broaden their horizons, as they get new ideas from the new people they meet, realize that the differences between them make everybody unique and so they also learn to respect those differences. Travelling gives the chance to people to strengthen and develop their character and mind, as it helps them to learn how to manage themselves in various situations, such as asking directions in a d ifferent countries , to give the simplest example.Therefore, travelling means having to do with new people, new places and new situations that require critical thinking. In addition to that, travelling doesn’t only provide knowledge about new cultures and interesting facts about the countries and their people, but it also makes the travelers understand and value more their own culture, home and lifestyle. There is also the planning phase of the trip, which can be an education opportunity in itself.For example, the maps. What route will you take? Geography. What sites will you visit? History and culture. How long will it take you to get to each city and how will this work in your budget? Math. And, for a dose of social skills, you can always interact with interesting people: waitresses, hotel owners, tour guides, market sellers and anyone else you come into contact with can be ideal sources of local information.More and more people every year get to travel to other countries a nd experience the educational character travelling has to offer in a fun way, a lot better in practice than in theory. Who needs a textbook (although you can still bring them along) when you can visit historical sites, art galleries, museums, and sporting events in person? That’s why, it is right to say that travelling constitutes the best form of education.