Session 3: Growth strategies and diversification

Question 1

• Economies of scale

Answer 1

– Spreading of fixed costs over a larger number of units

Question 2

• Economies of scope

Answer 2

– Synergies between different products/customers

Question 3

Implications of growth for the firm

Answer 3

Pressures on existing financial resources / HR / Management

Question 4

Matrix: Market / Product

Answer 4

• Penetration strategies
• Product development strategies
• Market development strategies
• Diversification strategies

Question 5

Diversification

Answer 5

Diversification refers to the expansion of an existing firm into another product line or market. Diversification may be related or unrelated.”

Question 6

Related Diversification

Answer 6

Same or similar industry
– Horizontal diversification
– Vertical diversification

Question 7

Unrelated Diversification

Answer 7

Different industry

Diversifying into businesses with
– No strategic fit
– No meaningful value chain relationships
– No unifying strategic theme

Question 8

Reasons for related diversification

Answer 8

• Exploiting economies of scale.

- Exploiting economies of scope.

Question 9

Double-marginalization problem

Answer 9

Doppelter Preisaufschlag verursacht in einem mehrstufigen Produktionsprozess einen Preis, der höher ist als der Monopolpreis.

Question 10

Reasons for unrelated diversification

Answer 10

• Continue to grow after a core business has matured or started to decline
• Increase in sales, profits, growth rate and market share
• No longer being reliant on a single market

Question 11

Problems of diversification

Answer 11

• Mehr Bürokratie und höhere Investitionen führt zu eingeschränkter Flexibilität
• Höhere Kosten, wenn das Unternehmen nicht in der Lage ist, neue Aktivitäten effizient zu verwalten

Question 12

A diversification move must pass three tests

Answer 12

• The industry attractiveness test
• The cost-of-entry test
• The better-off test