STRATEGIES FOR GROWTH: DIVERSIFICATION AND VERTICAL INTEGRATION
OBJECTIVES
• To analyse motivations for related and unrelated diversification
• To analyse diversification strategies
• To evaluate related and unrelated diversification with evidence
INTRODUCTION
• Many firms are multi-output firms selling products in different markets
• Some firms produce related products – related diversification e.g. Philips produces a range of electronic home equipment
• Some firms produce unrelated products – unrelated diversification e.g. Saab produces motor cars and fighter aircraft
• Seek to explain why related and unrelated diversification occurs and assess the performance of such diversification
MOTIVATIONS
Economies of scope
• Exist where it is cheaper to produce two or more products within one firm rather than independent firms producing each product
• Other sources of economies of scope come from using firms’ underutilised resources
? Exploit common technologies, assets, distribution channels
• Dominant general management logic
? managers that have invested in management skills believe they can use them across a variety of product markets
Synergy
• A Resource has greater utilisation when used in conjunction with a complementary resource
• Complementarity between resources exist when revenues (costs) are higher (lower) when two resources are owned by one firm rather than t ...