BS 12 Diversification

Question 1

When is the time for a business to diversify?

Answer 1

1. In order to spread the operational risk throughout more than one business.
2. Single business company’s can face challenges such as markets drying up etc.

Question 2

List the advantage concentraiting single business companies:

Answer 2

1. Less ambuity (zweideutigkeit)
2. Devotion of full force of ressources for competive advantage.
3. Expanding into geographic areas
4. Fast responding to market condition and evolving customer preferences.

Question 3

Factors that signal when to diversify are three factors. Please list them first.

Answer 3

1. Your market opportunities are disminishing (verringern) + Stagnation in sales.
2. It can expand into other induestries whose technologies and products complement its present business.
3. Diversifying can be done into related and unrelated businesses
4. Leverage of existing competencies into other businesses where the same resource strenghts are valuable competitive assets.
5. With a well-known and brand name that can be transferred to the products of other businesses.

Question 4

Diversification makes only sense when the company can create shareholder value. There are three tests to pass. List those three!

Diversification that satisfy all three tests have the best potential to grow shareholder value over a long time.

Answer 4

1. Industry attractiveness test (Industry must be attractive enough)
2. Cost of entry (Cost must be low, in order not to erode profitability)
3. Better-Off -Test (Must offer the new & existing business to perform better)

Question 5

List three strategies for entering new businesses:

Answer 5

1. Acquisition and merger
2. Internal startup
3. Joint Ventures/strategic partnerships

Question 6

Explain the process of acquistion of an existing business.

Answer 6

1. Most popular way to diversify
2. Challenge is to find the right company
3. Wether paying a high price for a good running firm VS:
4. To buy a struggling firm for a low price and push it up.
   5.

Question 7

Explain the process of internal start ups.

What are the biggest challenges ? Begin with them first after that explain briefly.

Answer 7

1. Biggest challenge for an internal start up are: Cost of entry barrier & the extra time to build a competitive position.
2. Internal Startup = Building a subsidiary business from scratch.
3. Entry option takes longer than acquisition
4. It only makes sense when:
5. Parent companies have the right resources , skills needed
6. There is time left to launch the business
7. The cost are lower than those of acquire another firm.

Question 8

Distinguish between Joint Venture and Strategic partnership / alliances.

Answer 8

1. Joint Venture applies when two or more firms are establishing a new company from scratch.
2. Strategic partnerships can be terminated whenever one of the partners so chooses.

Question 9

Determine the three situations where Strategic partnership and Joint Ventures can be useful.

Answer 9

1. To pursue an opportunity that is : Too complex, too risky or uneconomical for a single firm alone.
2. When opportunity requires a more competencies and know-how than a single firm can handle
3. To gain entry to foreigh markets especially when the foreign government a secure local partner.