Assessing the diversification strategies and its advantage in business
Diversification strategy is a mean to obtain strategic advantages in business. Hence, academics worldwide have elaborated different ways to evaluate its effectiveness in different situations and sectors.
4.2 The objective of the study
Hence, the purpose of my study is to analyze how the impact of the concept of diversification in the banking and insurance sector has influenced the profitability, growth and the firm performance.
4.2.1 Research objective
Determine the level of diversification in the banking and insurance sector in Mauritius.
Reason and motivations of management of financial institutions for diversification
The diversification strategy used by these firms
Assess growth strategies vis a vis diversification
The relationship between market power and profits
The relationship between market efficiency and profits
The relationship between market diversification and profits
The relationship between market diversification and liquidity
The relationship between market diversification and firm performance
4.3 Exploratory research
A case study method would be used for the exploratory research. The company selected will be the MCB for the banking sector and the AMASL for the insurance sector. Data will be gathered through the financial statements, the internet and through surveys.
The main advantage of the case study is that in depth investigation can be carried out. This will allow us to make a better evaluation on the diversification strategies used and the new financial innovations implemented in the firms.
4.4 Explanatory research
In this section, different hypotheses listed above will be tested.
Hence, the data collected, will be tested against the theory in order to see how diversification has influenced the insurance and banking sector in Mauritius.
4.5 Research Design
Research design is a strategy used to collect evidence, to analyze findings and drew conclusions. It is used to answer research questions. It is a way of testing or investigating questions or hypotheses. It addresses the types of evidence or data required to answer the research questions. The data required can be largely quantitative or qualitative or both.
The key to understanding a particular research design is to examine the way it links theory and data, measure data and the way it controls the process of gathering data.
4.5.1 Types of Research Design
The 3 types of research design are;
The Deduction type of research designs examines the relationships between variables to test hypotheses deduced from theory. Theory precedes data. The theory is tested against the data collected. In our case, theories explain the concept of diversification.
The induction type of research design accumulates data to build ‘grounded theory’ (Glaser & Strauss, (1967). The induction method begins by gathering data then ideas are developed and theory evolves from it. This type of research design would not be appropriate for my study.
The interpretive type of research explores subjective meaning. This type of research will be used for my study as a theoretical framework needs to be established about the diversification concept and the performance of firms in the banking and insurance sector.
4.6 Primary and secondary research
Both primary and secondary research will be carried out.
4.6.1 Primary data
Primary data will be fundament for our study as the data collected will fit exactly to our research problem. The primary data collected will be mainly through interviews which will be both in the form of mail surveys and personal interviews.
4.6.2 Secondary data
Great importance will also be given to secondary data in my research. Secondary data is that which has been collected for other purposes, but relevant to the present study.
The following secondary data has been used in my study;
Government publications and acts of parliaments; e.g Bank of Mauritius act 2004, Banking act, Insurance act
Annual financial reports of financial institutions; Financial statements of AMASL, MCB, etc
Article and reports in newspapers and magazines
Texts books and archived dissertations
Some advantages of secondary data:
It is economical as it saves efforts and expenses.
It is less time consuming
Secondary data helps us to evaluate exactly the information that need to be collected from primary data
It helps to have a better understanding of the problem.
Secondary data was used in the literature review and comparison could be made among different research.
4.7 Research Design Techniques
Basically there are four basic design techniques for research, they are:
Experiments and observations are not relevant for my study, as these two techniques are more reliable for descriptive and causal research. Secondary data and surveys will be more appropriate for my research.
The most common method of generating data is through surveys. A survey is a research technique in which information is gathered from a sample of people by the use of a questionnaire and/or interview. Research investigators may choose to contact respondents by telephones, by post, email, or in person.
Hence in my case, a mail survey was carried out during the month of January 2011. The questionnaires were sent to the directors of the Banking and insurance company. However, a high rate of non response might be registered and consequently, personal interviews will be conducted for certain major firms.
Interviews could also be carried out to gather data. There are three main types of interviews, which are;
A structured interview may be carried out with a prescribed set of questions, asked in a fixed order, with pre-fixed options. The advantages of structured interviews are that data coding and analysis could be done rapidly.
On the other hand an unstructured interview is where the researcher has the possibility to address any or all themes of interest, which are related to the research questions. The questions are mainly open ended.
Questionnaire will be used for carrying out of my survey. Questionnaires are cheap. The fact that my research question would basically deductive, questionnaires are appropriate means for data collections.( Sudman & Bradman, 1982)
However, factors like questions contents are correct wording of question important issues to take into consideration while designing a questionnaire.
A copy of the questionnaire is available in Appendix **. The questions set is in simple forms and easy to understand. Strategic questions have also been inserted at different interval in the questionnaire. A funnel format (khan & cannel, 1957) has been used for the questionnaire.
Some types of questions used are:
4.8.3 Questionnaire design
Section A of the questionnaire is related to the concept of diversification in the banking and insurance sector
Question 1: Is set out to identity the company
Question 2: to find out to main business of the company
Question 3: Is to find out if the company is engaged in any other activity apart from its main business
Question 4: Is to find out how diversified is the company
Question 5: Is to evaluate what diversification strategy are used to increase firm performance
Question 6: This question is about the future plans of the co. and about what type of diversification the firm is up to.
Question 7: will confirm whether the firm is looking for related or unrelated diversification
Question 8: Is to find the reason, why firms diversify.
Question 9: Is about how the financial crisis has affected the company profitability.
Question 10: Is to rate the opinion of the respondents about the relationship between different variables and the concept of diversification.
Section B of the questionnaire is related to the SWOT analysis in the financial sector. Part 1 is likert questions and Part 2 is open ended questions. These are set to analyse the Strengths, weaknesses. Opportunities and Threats in the firm itself and the financial sector
4.9 Sampling plan
A sampling plan describes how to select a sample from the entire population. The following factors are important in considering the sampling plan:
The target population to be surveyed
The size of the sample
The method to be used to select the respondent
Moreover, there are two approaches of conducting a survey; either through sample survey or census survey. In my case, a census survey is going to be carried out as it targets the whole population which is 38. That is 17 banking companies and 11 insurance companies. The list of these companies is available in appendix **
4.10 Pilot testing
A first draft of the questionnaire has been given to few persons for a critical assessment. Henceforth, the understanding of the questions, the time factor to answer questions, the willingness to answer questions and any difficulty registered by the persons has been evaluated. Relevant modifications were made in the questionnaire as per the response obtained. Issues like formatting, overall presentation and questions structure was modified as per the suggestions of the respondents. The questionnaires were finalised and sent by mail to the banking and insurance firm. In certain cases, a one to one interview will be carried out.
Hence, where the questionnaires will be returned back, the response collected will be arranged and inserted of the relevant software for analysis. The software used will SPSS 16.0 and Microsoft Excel 2007. Then, based upon the response of the survey and the data collected from financial reports;
A case study on the MBC bank and AMASL will be carried out.
A detailed analysis about the impact of diversification concepts on banking and insurance company in Mauritius will be carried out.
High rate of non response.
Time and data constraints were encountered.
Many firms were not willing to disclose information.
Follow up of the survey questionnaire was time consuming and costly.
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