When a company employs an unrelated diversification strategy What term is used to describe the many businesses that make up the resulting corporation?

Firms that use an unrelated diversification strategy are referred to as conglomerates. An unrelated diversification strategy means: a highly-diversified firm that has no relationships between its businesses.

What is a unrelated diversification strategy?

Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries.

How can companies benefit from unrelated diversification?

The benefits of unrelated diversification are rooted in two conditions: (1) increased efficiency in cash management and in allocation of investment capital and (2) the capability to call on profitable, low-growth businesses to provide the cash flow for high-growth businesses that require significant infusions of cash.

What are the two ways an unrelated diversification strategy can create value through financial economies?

Unrelated diversification can create value through two types of financial economies: efficient internal capital market allocation and restricting a firm’s assets.

What companies use unrelated diversification?

Unrelated Diversification —Diversifying into new industries, such as Amazon entering the grocery store business with its purchase of Whole Foods. Geographic Diversification —Operating in various geographic markets, which is the corporate strategy of Starbucks, Target, and KFC.

Should a company pursue an unrelated diversification strategy the types of companies?

In companies pursuing a strategy of unrelated diversification, each business is on its own in trying to build a competitive edge and the consolidated performance of the businesses is likely to be no better than the sum of what the individual businesses could achieve if they were independent.

How does unrelated diversification create value?

Unrelated diversification can create value through two types of financial economies (cost savings). 1) Unrelated diversified firms can more efficiently allocate capital among the component businesses than can the external financial market.

Which of the following is a value creating mechanism of unrelated diversification strategy?

An unrelated diversification strategy can create value through two types of financial economies: (1) efficient internal capital allocations, and (2) purchasing other firms, restructuring their assets, and selling them.

Which of the following is most likely to be an important advantage of unrelated diversification?

An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities. 15. An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.

When should firms pursue unrelated diversification?

Unrelated diversification is preferred when each business unit’s functional competences have few useful applications across industry, top managers are skilled at raising the profitability of poorly run businesses and the company’s managers use their superior strategic management competences to boost the competitive …

What is diversification in business strategy?

Diversification is a business development strategy in which a company develops new products and services, or enters new markets, beyond its existing ones. Diversification strategy can kick-start a struggling business, or it can further extend the success of already highly profitable companies.

How does Coca Cola use diversification?

As growth in the carbonated soft drinks market slows and consumer’s preference shifts towards healthier beverages, Coca Cola is diversifying its portfolio to establish a strong presence in other beverages. … The investment will primarily fund new manufacturing lines, distribution capabilities and cold drink equipment.

What are the reasons a company should not get into unrelated diversification?

Many companies avoid unrelated diversification as a general business rule because of the lack of synergy that exists. When you have related diversity, you can more easily integrate your company brand, philosophies, resources and partnerships to take full advantage.

Why is following an unrelated diversification strategy especially?

How does a conglomerate benefit from following an unrelated diversification strategy? the conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

What does unrelated diversification provide quizlet?

Unrelated Diversification. Involves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firm’s present business(es) Unrelated Diversification involves. No strategic fit. No meaningful value chain relationships.

Will your company diversify into a related unrelated or related unrelated business?

A company’s diversification strategy can be either related or unrelated to its original business. Related diversification makes more sense than unrelated because the company shares assets, skills, or capabilities. But many successful companies, such as Tyco and GE, continue to buy unrelated businesses.

What is unrelated diversification and what is its disadvantage?

Disadvantage 1: No shared resources

While in related diversification there can be cost savings from sharing of resources, in unrelated diversification, with unconnected business areas, there is not the opportunities for sharing resources between areas.

When should a company diversify?

Entering an unknown market puts a significant risk on a company. Therefore, companies should only pursue a diversification strategy when their current market demonstrates slow or stagnant future opportunities for growth.