Barney Chapter 7 for Spring 2011 - Corporate...

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Unformatted text preview: Corporate Diversification Chapter 7 Corporate Diversification? Corporate diversification strategy A firm is pursuing a corporate diversification strategy when it operates in multiple industries or markets at the same time General case with more specific forms Product diversification strategy When a firm operates in multiple industries Geographic market diversification strategy When a firm operates in multiple geographic markets Product-market diversification strategy When a firm does both product and geographic market 2 Corporate Diversification? Three types of corporate diversification: 1. Limited corporate diversification 2. Related corporate diversification 3. Unrelated corporate diversification 3 Corporate Diversification? (1) Limited corporate diversification Exists when all or most of a firm’s business activities fall within a single industry and geographic market Two sub-types Single-business firms 95% of sales in a single product market E.g., WD-40 Dominant-business firms 70 to 95% of sales in single product market E.g., Donato’s pizza 4 Corporate Diversification? (2) Related corporate diversification Exists when (a) less than 70% of firm’s revenues come from a single product market AND (b) multiple businesses are linked in some way E.g., PepsiCo and Disney Two sub-types Related-constrained Exists when businesses share significant number of inputs, production technologies, distributions channels, customers, etc. Diversification is constrained to product markets that share numerous resource/capability requirements Related-linked 5 Corporate Diversification? Unrelated corporate diversification Exists when firm’s businesses share few, if any, common attributes E.g., General Electric or Siemens 6 Value of Corporate Diversification Main source of value of corporate diversification is some kind(s) of economies of scope Economies of scope Exist to the extent that value of products/services firm sells increases because the firm simultaneously operates in other businesses Note: This is a super broad definition Scope refers to the number of businesses the firm operates in Economies of scope produce value by: Reducing costs Increasing revenues 7 Value of Corporate Diversification Three kinds of economies of scope (Table 7.1) 1. Operational economies of scope 2. Financial economies of scope 3. Anticompetitive economies of scope 8 Value of Corporate Diversification (1) Operational economies of scope...
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This note was uploaded on 04/01/2012 for the course MGT 4893 taught by Professor Staff during the Spring '08 term at The University of Texas at San Antonio- San Antonio.

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Barney Chapter 7 for Spring 2011 - Corporate...

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