BUS 010 Lecture Notes - Lecture 15: Moe Williams, Capital Market
Document Summary
Diversification is the expansion of an existing firm into another product line or field of. Whereas the opportunities for economies of scope derived from exploiting joint inputs may be relatively easy to identify at an operational level, strategic relatedness is more elusive. Diversification is perceived as beneficial if it helps a firm to achieve its objectives. Options for diversification may be restricted either because the scope of the organization"s activities is limited by statute or because the organization"s mission is very focused. Most commonly cited motives for diversification: growth; risk reduction; value creation; exploiting economies of scope; internal capital markets; and internal labour markets. In the absence of diversification, firms are prisoners of their industry. The rationale for diversifying to reduce risk is captured by the advice, dont put all your eggs in one basket . The primary source of value creation from diversification is exploiting linkages between different businesses.
