Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries.
Which statement is true concerning the pursuit of growth through unrelated diversification?
Which statement is true concerning the pursuit of growth through unrelated diversification? It can be misguided if the growth is not profitable growth. usually occurs when a diversified company acquires a new business that is underperforming.
Is one form of diversification similar and unrelated?
A company’s diversification strategy can be either related or unrelated to its original business. Related diversification makes more sense than unrelated because the company shares assets, skills, or capabilities.
What is an advantage of 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.
Which is an example of unrelated diversification strategy?
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. Reliance entered into retailing by allocating Rs25, 000 crore in a phased manner is a typical example. 1. Manage and allocate cash flow:
How is diversification related to other business units?
Related diversification provides the potential to attain synergies by the exchanged or sharing of skills or resources. One business unit must have skills or resources that are ‘exportable’ to another company or business unit.
Which is the best reason to diversify your business?
A basic diversification motivation is to improve ROI by moving into business areas with high ROI prospects. One approach is to enter high growth business areas. According to life style consumption study by Edelweiss Securities, organized retail trade in India is now finding its feet.
How is diversification related to economies of scale?
Related diversification can sometimes provide economies of scale. Two smaller consumer product firms, for example, may not be able to afford an effective sales force, new product development or testing programme, or warehousing and logistics systems. However, the two firms together may be able to operate at an efficient level.
