Why do companies choose unrelated diversification?
The benefits of unrelated diversification are rooted in two conditions: (1) increased efficiency in cash management and in allocation of investment capital and (2) the capability to call on profitable, low-growth businesses to provide the cash flow for high-growth businesses that require significant infusions of cash.
Unrelated diversification is preferred when each business unit's functional competences have few useful applications across industry, top managers are skilled at raising the profitability of poorly run businesses and the company's managers use their superior strategic management competences to boost the competitive ...
Unrelated Diversification —Diversifying into new industries, such as Amazon entering the grocery store business with its purchase of Whole Foods. Geographic Diversification —Operating in various geographic markets, which is the corporate strategy of Starbucks, Target, and KFC.
First and foremost, companies diversify to achieve greater profitability. Diversification is used by businesses to help them expand into markets and industries that they haven't currently explored. This is achieved by adding new products, services, or features that will appeal to the customers in these new markets.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.
How does a conglomerate benefit from following an unrelated diversification strategy? the conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
Which of the following is the best example of unrelated diversification? A producer of mens apparel acquiring a maker of golf equipment.
There are four most often cited reasons for diversification: the internal capital market, agency problems, increased interest tax shield and growth opportunities.
Another disadvantage of unrelated diversification is that it may lead to politics between divisions. There may for example be conflicts over resource allocations – with different divisions fighting over the limited financial and other resources that the company has.
Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities).
What is unrelated diversified company?
Meaning of Unrelated Diversification. Unrelated diversification involves entering into new businesses that are not related to the core business of the company. An unrelated diversified company has, under a single corporate umbrella, more than one business- units which operate their activities in different industries.
2) Unrelated diversified firms can also create value by purchasing other businesses at low prices, restructuring them, and reselling them at a higher price.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities. 15. An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.
Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification? The company has superior strategic management and organizational design.
The firms can create value by using related diversification strategy through operational relatedness and corporate relatedness. Under operational relatedness the firm share its activities; whereas, under corporate relatedness the firm relocate its core competencies.
Diversification creates value when top managers operate the company's different business units so effectively that they perform better than they would if they were separate and independent companies.
The H-Form Organization.
The H-form design is used to implement a strategy of unrelated diversification.
Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities).
The result showed that companies involved in the product diversification are more profitable and increase their tangible assets when compared to undiversified firms.
The two biggest drawbacks or disadvantages of unrelated diversification are: Demanding managerial requirements and limited competitive advantage potential.
Which of the following is the best example of unrelated diversification quizlet?
which of the following is the BEST example of unrelated diversification? a producer of men's apparel acquiring a maker of golf equipment.
Answer: Concentric Diversification: It is similar to related diversification, wherein the new business entered into by the firm is associated with the existing business by way of process, technology or market. The newly entered product is a spin-off from the already existing facilities.
1) You get more product variety
With more product variety, you capture more customer attention and your brand receives a tremendous boost as well as the profitability of the company rises. Thus having more products is good for your business.
Diversification is influenced by several factors. These include financial health attractiveness of the industry and/or market, availability of workforce resources and government regulatory policies. Availability of finances is important because diversification requires financial outlays of significant size.
| Advantages | Disadvantages |
|---|---|
| 1. Risk management2. Align with your goals3. Growth opportunity | 1. Increases chances of mistakes2. Rules differ for each asset3. Tax implications & cost of investment4. Caps growth |
“One of the main reasons that diversification fails is because businesses do not have the right strategy in place,” Shipilov said. “They must think carefully about what distinct resources or capabilities they can move between different markets to give them a competitive advantage.
Answer and Explanation: This strategy is not a good reason for a merger since it doesn't necessarily lead to the creation of value. Diversification is said to reduce unsystematic risk. Unsystematic risks refer to those risks that are unique and only apply to a particular company or industry.
How does a conglomerate benefit from following an unrelated diversification strategy? The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
This is a good example of unrelated diversification, which occurs when a firm enters an industry that lacks any important similarities with the firm's existing industry or industries. Luckily for Coca-Cola, its investment paid off—Columbia was sold to Sony for $3.4 billion just seven years later.
ADVERTIsem*nTS: Unrelated diversification: Unrelated diversification lacks commonality in markets, distribution channels, production technology, and R&D thrust to provide the opportunity for synergy through the exchange or sharing of assets or skills.
How would you differentiate related diversification strategy for unrelated diversification strategy?
Understanding related diversification
While unrelated diversification involves going into markets that are not connected to the firm's prior activities, related diversification specifically tries to move to areas that the firm already has some strengths.
Which of the following is an advantage of pursuing an unrelated diversification strategy over a related diversification strategy? The company doesn't need coordination between business units.
- Apple | From Computers to MP3 Players and Phones. ...
- Disney | From Cartoons to Cruises, Theme Parks, and Media. ...
- Volkswagen | Selling Cars to Everyone. ...
- Estée Lauder | Cosmetics, Personal Care, and Perfumes. ...
- Pepsi and Coca-Cola | Beverages to Snacks and Energy Drinks.
The Walt Disney Company (Disney) utilizes a related diversification strategy. Related diversification “involves diversifying into businesses whose value chains possess competitively valuable 'strategic fits' with value chain(s) of [a] firm's present business(es)” (Geiger, 2004).
Firms that use an unrelated diversification strategy are referred to as conglomerates. An unrelated diversification strategy means: a highly-diversified firm that has no relationships between its businesses.
Which statement is true concerning the pursuit of growth through unrelated diversification? It can be misguided if the growth is not profitable growth.
There are three types of diversification: concentric, horizontal, and conglomerate.
This is a good example of unrelated diversification, which occurs when a firm enters an industry that lacks any important similarities with the firm's existing industry or industries (Table 8.1).
Which of the following is the best example of unrelated diversification? A producer of mens apparel acquiring a maker of golf equipment.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.
Why is conglomerate or unrelated diversification strategy adopted?
The rationale behind most conglomerate diversifications is that expanding into unrelated areas has great potential. Typically, corporate strategists look for organizations that meet certain characteristics, such as: Whether or not the organization will be able to reach its profit and return on investment targets.
Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm's existing industry or industries.
How does a conglomerate benefit from following an unrelated diversification strategy? The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities. 15. An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.
Which of the following is the best example of unrelated diversification? A producer of mens apparel acquiring a maker of golf equipment.
Conglomerates are generally formed for two reasons: to diversify risk by participating in unrelated businesses or to expand a business within an industry to include suppliers and product purchasers.
The two biggest drawbacks or disadvantages of unrelated diversification are: A. the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense.
There are four most often cited reasons for diversification: the internal capital market, agency problems, increased interest tax shield and growth opportunities.
Answer and Explanation: This strategy is not a good reason for a merger since it doesn't necessarily lead to the creation of value. Diversification is said to reduce unsystematic risk. Unsystematic risks refer to those risks that are unique and only apply to a particular company or industry.
Answer: Concentric Diversification: It is similar to related diversification, wherein the new business entered into by the firm is associated with the existing business by way of process, technology or market. The newly entered product is a spin-off from the already existing facilities.
What is the difference between related and unrelated diversification?
Understanding related diversification
While unrelated diversification involves going into markets that are not connected to the firm's prior activities, related diversification specifically tries to move to areas that the firm already has some strengths.
Unrelated diversification can create value through two types of financial economies: efficient internal capital market allocation and restricting a firm's assets.
Which statement is true concerning the pursuit of growth through unrelated diversification? It can be misguided if the growth is not profitable growth.
Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification? The company has superior strategic management and organizational design.
which of the following are negatives or disadvantages of pursuing unrelated diversification strategies? no potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own.
Which of the following is an advantage of pursuing an unrelated diversification strategy over a related diversification strategy? The company doesn't need coordination between business units.
