Why did ITC enter into diversification?

Answer 1

In February 2001, the Government of India (GoI) announced a ban on advertising by cigarette companies and restrictions on the sale and consumption of tobacco products. The proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001 prohibits smoking in public places and the sale of tobacco products to people under the age of 18. According to the Bill, no tobacco related business would be allowed to advertise in any type of media. Even surrogate advertising, like sponsoring sports and cultural events, by such companies was to be banned. International brands, however continued to advertise on satellite TV channels. Naturally, this put the domestic players at a disadvantage. To make matters worse, tobacco companies had already been badly affected by rising excise duties and competition from smuggled products. In fact, the number of cigarettes sold declined between 1997 and 2002, and major cigarette companies saw a decline in sales volumes. The declining sales of cigarettes, the proposed ban on advertising, the increasing anti-tobacco campaigns and the experience in developed countries seemed to suggest that tobacco would no longer be a profitable business in the future. Consequently, ITC decided to diversify into non tobacco businesses.

Answer 2

ITC entered into diversification to reduce risk by not relying solely on one business or industry for revenue. Diversification also opens up new growth opportunities and allows the company to enter into new markets and expand its product offerings, ultimately increasing its competitiveness and financial stability.