Corporate diversification

Question 1

Corporate diversification

Answer 1

A firm operates in multiple industries or markets simultaneously.

Question 2

Product diversification strategy

Answer 2

When a firm operates in multiple industries simultaneously, the firm implements a product diversification strategy.

Question 3

Geographic market diversification strategy

Answer 3

When a firm operates in multiple geographic markets simultaneously, the firm implements a geographic market diversification strategy.

Question 4

Single-business firms

Answer 4

Firms with greater than 95 percent of their total sales in a single-product market

Question 5

Dominant-business firms

Answer 5

Firms with between 70 and 95 percent of their total sales in a single-product market

Question 6

Related corporate diversification

Answer 6

When less of 70 percent of a firm’s revenue comes from a single-product market and these multiple lines of business share important economies of scope, the firm has implemented a strategy that is called related corporate diversification.

Question 7

Economies of scope

Answer 7

Economies of scope exist when the value created by several business operated together is greater than the value of these business operated separately. If the different businesses that a single firm pursues realize different types of economies of scope, this corporate diversification strategy is called related-linked.

Question 8

Unrelated corporate diversification

Answer 8

When less of the revenues of a firm comes from a single-product market and when the businesses in a firm’s portfolio share few, if any, economies of scope, then that firm is pursuing a strategy of unrelated corporate diversification.

Question 9

Less-costly-to-duplicate economies of scope

Answer 9

1. Shared activities
2. Risk reduction
3. Tax savings
4. Employee compensation

Question 10

Costly-to-duplicate economies of scope

Answer 10

1. Core competencies
2. Internal capital allocation
3. Multipoint competition
4. Exploiting market power

Question 11

Organizational structure

Answer 11

The most common organizational structure for implementing a corporate diversification strategy is the M-form, also known as the multidivisional structure.

The multidivisional structure is a firm that is managed through divisions. And profit and loss is central in these types of firms. The most important component of an M-form organization is a firm’s board of directors.

Question 12

Board of directors

Answer 12

The board of directors monitors decision making in a firm to ensure that its consistent with the interest of outside equity holders