Diversification

Question 1

Types of Diversification

Answer 1

1. Horizontal Diversification
2. Vertical Diversification
3. Geographic Diversification

Question 2

Horizontal Diversification

Answer 2

• Is it a new product for same customers?
• Firm moves into different product market that is on the same “level” of value chain (share resources or cx)
  How to find in case: company starts offering a new product or service that targets the same cx base)

Question 3

Vertical Diversification

Answer 3

• Is it a “supplier” or “retailer” task they used to pay someone else for?
• Firm moves to a different stage of its own supply chain (upstream/backward integration or downstream/forward integration )

Question 4

Geographic Integration

Answer 4

• Is it the same product but in a new city or country?
• company moves existing business into new country
• Allows firms to take advantage of local laws. reduce risk of being tied to one economy

Question 5

Diversification Related vs. Unrelated

Answer 5

1. Related Diversification: highest performing level
   - Firm pursues when it enters a new business that shares link within existing operations or similar products (economies of scope, market power, operational synergy)
2. Unrelated Diversification: more complex to manage
   - Firm pursues when it manages a portfolio of businesses that have no significant links (restructuring, risk reduction)