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Corporate Diversification

Corporate Diversification - CORPORATE-L EVEL STRATEGY REL...

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CORPORATE-LEVEL STRATEGY: RELATED AND UNRELATED DIVERSIFICATION
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Corporate Strategy What are the concerns of corporate strategy according to Porter? What businesses should we be in? How should the corporate office manage its array of business units?
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What enables a firm to diversify?
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Free Cash Flow – Allows Diversification “...cash in excess of that required to fund investments in the company’s existing industry...” What else can be done with free cash flow??
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Why Diversify – what are the advantages?
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Advantages Share resources/competencies Tighten ownership of the value chain Enhance market share Limit competition
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What are the Disadvantages of Diversification?
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Disadvantages/Limits of Diversification Changes in Industry/Company Diversification for the Wrong Reasons Bureaucratic Costs of Diversification Competition occurs at the BU level Shareholders can diversify themselves Business cycles still affect most firms
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Difference between Related & Unrelated Diversification?
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Types of Diversification Related - entry into new business in different industry: Related to company’s existing business/activities Has commonalities between one or more components of each activity’s value chain Unrelated - entry into industries with no
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