Strategic
Position
Business
Corporate
Strategic
Choices
Innovation
International
Strategy in Action
Acquisitions
& Alliances
CORPORATE STRATEGY AND
DIVERSIFICATION
Learning objectives
After reading this chapter, you should be able to:
Key terms
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Identify alternative strategy options, including market penetration, product development, market development and diversification. ●
Distinguish between different diversification strategies (related and conglomerate diversification) and evaluate diversification drivers. ●
Assess the relative benefits of vertical integration and outsourcing. ●
Analyse the ways in which a corporate parent can add or destroy value for its portfolio of business units.
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Analyse …show more content…
Second, having a diversified range of businesses increases the power to cross-subsidise one business from the profits of the others. On the one hand, the ability to cross-subsidise can support aggressive bids to drive competitors out of a particular market. On the other hand, knowing this power to cross-subsidise a particular business, competitors without equivalent power will be reluctant to attack that business.
Where diversification creates value, it is described as ‘synergistic’.8 Synergy refers to the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of the parts (the famous 2 + 2 = 5 equation). Thus a film company and a music publisher would be synergistic if they were worth more together than separately.
However, synergies are often harder to identify and more costly to extract in practice than managers like to admit.9
Indeed, some drivers for diversification involve negative synergies, in other words value destruction. Three potentially value-destroying diversification drivers are:
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Responding to market decline is one common but doubtful driver for diversification.