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Diversification

In: Business and Management

Submitted By joeff
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ST 504 E

Session 3. 1
Corporate Strategy Diversification
Maryam Nasiriyar maryam.nasiriyar@esc-rennes.fr

Key Strategic Choices
Business level (CA)
Cost Leadership (Volume) Differentiation Focused (Niche)

Corporate level (CA)
Expansion within the same industry versus Diversification Vertical Integration along the value chain or Outsourcing Internationalization

Learning Objectives
1.Understand when and how business diversification can enhance shareholder value. 2.Gain an understanding of how related diversification strategies can produce cross-business strategic fit capable of delivering competitive advantage. 3.Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. 4.Gain command of the analytical tools for evaluating a firm’s diversification strategy. ’

When to Diversity
A firm should consider diversifying when:
• It can expand into businesses whose technologies and products complement its present business. • Its resources and capabilities can be used as valuable competitive assets in other businesses. • Costs can be reduced by cross-business sharing or transfer of resources and capabilities. • Transferring a strong brand name to the products of other businesses helps drive up sales and profits of those businesses.

Testing Whether Diversification Will Add Value
The Attractiveness Test: • Are the industry’s returns on investment as good or better than present business(es)? The Cost of Entry Test: • Is the cost of overcoming entry barriers so great that profitability is too long delayed? The Better-Off Test: • How much synergy will be gained by diversifying into the industry?
• Note: Synergy (1+1=3) is realized when financial benefits of operating in two businesses will be greater than the sum of the separate individual business.

Strategies For Entering New Businesses

Diversifying into New

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