Question

Diversification is the process of firms expanding their operations by entering new businesses. s a strategist, critically discuss some of the various means that firms can use to diversify. What are the Advantages and disadvantages associated with each of these? Support your answer with examples.

Write the answer as a 350 word count report
Do not write the answer with paper.

Answer 1

There are various methods using which companies can diversify and increase their scope of business operations. The major methods for the diversification are through mergers and acquisitions, joint ventures and strategic alliances or through the internal development.

Mergers and Acquisitions refers to the involvement and joining of two separate organisations into one organisation. This technique enable the firms to operate filly to integrate their operations, avail valuable and better resources, exploit the opportunities and resources using leveraging the core competencies, building market power, sharing activities, consolidate and enable them to enter new markets.

On the other hand, the cons of the same technique would include having the financial costs to conduct the diversification especially in the case of acquisition, competition level would also increase, managers’ commitment to make the diversification work also increase as manager’s credibility is effectively associated with the same mergers and acquisition technique. It also requires optimal decision making, which may also lead the company to such management and operational issues which would require time and costs to resolve the same.

Joint Ventures and strategic alliances is the method of diversification that would involve collaboration and working together with the partner firms. They both are the method to gain the advantages of mergers and acquisitions without paying and getting the load of financial costs. Benefits of the same strategy would include the firms to achieve strategic goals like reducing manufacturing and other costs, entering new markets, increase the value chain analysis and also integrating and diffusing new technologies.

The cons on the other hand would include the increased risk level, problematic decision making methods, working on bettering the relationships and communication and also the investment made in the social and the human capital that it needed to forge a better and successful partnership for better goodwill and operational working in the market.