Diversifying its business will lead to the company creating an edge over rest of its competitors which lead to sustainability of the business. To decrease a company’s value: Here the main motive behind use of such strategy is not the organizational growth,
instead increased compensation and reduced managerial risk
.
What motives might encourage managers to diversify their firms?
What motives might encourage managers to over diversify their firm?
Increased compensation
– through diversification the company can generate more revenue which will enable them to increase the compensation level of their employees, resulting in better employee satisfaction and an increased level of motivation.
What are three reasons a firm chooses to diversify its operations?
There are four most often cited reasons for diversification:
the internal capital market, agency problems, increased interest tax shield and growth opportunities
.
Why is diversification important in business?
Diversification can
help an investor manage risk and reduce the volatility of an asset’s price movements
. … You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock and so it is also important to diversify among different asset classes.
How does diversification create value for a company?
However, diversifying by acquiring a company in a related product market can enable a company to reduce its technological, production, or marketing risks. If these
reduced business risks
can be translated into a less variable income stream for the company, value is created.
What is corporate-level strategy Why is it important to the diversified firm?
Corporate-level strategies
help companies to select new strategic positions — positions that are expected to increase the firm’s value
. Firms use corporate-level strategies as a means to grow revenues and profits, but there can be additional strategic intents to growth.
What is corporate-level strategy and why is it important?
A corporate-level strategy affects a company’s finances, management, human resources, and where the products are sold. The purpose of a corporate-level strategy is
to maximize its profitability and maintain its financial success in the future
.
What are the three levels of diversification?
- Low Levels of Diversification.
- Moderate to High Levels of Diversification.
- Moderate to High Levels of Diversification.
What is the main reason for diversification?
The Reasons for diversification is
to increase organizational capabilities
. Diversification strategies are used to expand firms’ operations by adding markets, products, services, or stages of production to the existing business.
What factors affect the likelihood a firm will take a competitive action?
Research indicates that three factors determine the likelihood that a firm will respond to a competitive move:
awareness, motivation, and capability
. These three factors together determine the level of competition tension that exists between rivals (Figure 6.11 “Competitive Tension: The A-M-C Framework”).
What is diversification strategy in business?
Diversification is
a growth strategy that involves entering into a new market or industry
– one that your business doesn’t currently operate in – while also creating a new product for that new market.
What is diversification and its importance?
Diversification is a
technique that reduces risk by allocating investments among various financial instruments, industries and other categories
. It aims to maximize return by investing in different areas that should each react differently to changes in market conditions.
What are the three ways in which geographic diversification can positively affect financial performance?
Geographical/international diversification can improve firm performance by
increasing sales in foreign markets, reducing the risk of economic downturn in the home market
, lowering costs through economies of scale in manufacturing, R&D, marketing and distribution system (Sarathy, Terpstra and Russow,2006 ; Contractor, …
What is diversification example?
A
company may decide to diversify its activities by expanding into markets or products that are related to its current business
. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. … Another strategy is conglomerate diversification.
Is it a good business strategy to diversify?
Diversification is about
building new products
, exploring new markets, and taking new risks. But as risky as it can be, it may also be a great way to maintain a measure of stability.
What companies use diversification strategy?
- Apple | From Computers to MP3 Players and Phones. …
- Disney | From Cartoons to Cruises, Theme Parks, and Media. …
- Volkswagen | Selling Cars to Everyone. …
- Estée Lauder | Cosmetics, Personal Care, and Perfumes. …
- Pepsi and Coca-Cola | Beverages to Snacks and Energy Drinks.
