Question

firm's diversification strategy. Why or why not would firms that exploit core competencies in their diversification strategies always produce products or services that are similar to each other? 7.2. A firm implementing a diver- sification strategy has just acquired what it claims is a strategically related target firm but announces that it is not going to change this recently ac- quired firm in any way. Why or why not would this type of diversifying Pr

Answer 1

This type of diversification is unlikely to help companies take advantage of the savings to the extent that outside investors can not do business on their own. To benefit from the scope savings, the newly acquired company must be linked to the existing entity in the acquired company portfolio. This chapter discusses several ways to get a scale economy - operational economy, financial economy, and others. Unless the newly acquired entity has a relationship with the rest of the organization (which will require a change in it), the company will not be able to realize the scope savings in a way that shareholders can do on their own.