You are on page 1of 3

Difference between Diversification

1.

Concentric

Diversification

and

Conglomeratic

Concentric Diversification Concentric diversification occurs when a firm adds related products or markets.

Conglomeratic Diversification 1. Conglomeratic diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. 2. The basic purpose is to increase revenue. 3. This helps the company to get a better capital markets as company gets bigger. 4. It is known as unrelated diversification. 5. When a companys basic industry is experiencing declining annual sales, conglomeratic diversification is favorable. 6. There is high risk involved because of changes of management failure. 7. For example, A company that manufactures automobile repair parts may enter into the toy production industry.

2. The basic purpose is to obtain synergy 3. This helps the company to tap that part of market which has remained untapped. 4. It is also known as related diversification. 5. When a company is competing in a nongrowth or slow growth industry, concentric diversification is favorable. 6. It involves low market failure. 7. For example, A computer manufacture that produces PC using borrowers begins to produce laptop computers.

Differentiate between Vertical Integration and Horizontal Integration.


Vertical Integration 1. Vertical Integration is the process in which several steps in the production and or distribution of a product or services are controlled by a single company. Horizontal Integration 1. Horizontal Integration is the strategy to increase the market share by taking similar company. 2. It is common especially in case of the technology industry where mergers and acquisition happens in order to increase the reach of an entity. 3. Horizontal integration eliminates competition among the units so combined. 4. All units operate as semi-autonomous units. They are not interrelated as far as raw materials are concerned. 5. Advantage: To create a weightier competition. 6. Disadvantage: The danger of forming an illegal monopoly. 7. For example, YouTube being taken over by Google.

2. It is common much more on product industry which includes integration with both suppliers and distributors. 3. Vertical integration combines units that were not competing with each others. 4. Stoppage of goods at one point or stage will affect the functioning at all subsequent stage. 5. Advantage: To establish more control and better prices. 6. Disadvantage: Decreased Flexibility. 7. For example, Bread industry being combined with flour industry.

Differentiate between Joint Venture and Strategic Alliance.


Joint ventures and strategic alliances allow companies with complementary skills to benefit from one another's strengths. They are common in technology, manufacturing and commercial real estate development, and whenever a company wants to expand its sales or operations into a foreign country. The following are the basic difference between Joint Venture and Strategic Alliance: Joint Venture 1. In a joint venture, the companies start and invest in a new company that's jointly owned by both of the parent companies. A joint venture creates a new company. Because the joint venture can access assets, knowledge and funds from both of its partners it can combine the best features of those companies without altering the parent companies. Joint ventures are often used to shield the parent companies from the risk of a new venture failing; if the new product flops, the joint venture can go bankrupt without harming the parent company except to the extent of its investment. Advantage: Completely new entity with a board, officers, and an executive team 1. Strategic Allinace A strategic alliance is a legal agreement between two or more companies to share access to their technology, trademarks or other assets.

2. 3.

2. A strategic alliance does not create a new company. 3. These agreements often have a limited scope and function, such as trading access to a strong brand for access to an emerging technology. Strategic alliances are usually undertaken to allow each company to pursue a new market, product or strategy that they can't manage on their own.

4.

4.

5.

5. Advantage: core strengths; proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities and mostly to retain control. 6. Disadvantage: A handshake agreement. 7. contractual or

6. Disadvantage: If the joint venture fails, dividing the spoils can be a challenge. 7. For example, Dow Chemical formed a joint venture that same month with Japanese firm Ube to create a factory for a particular high-tech battery

For example, In July 2011, FaceBook announced a strategic alliance with Skype, which had been recently acquired by Microsoft.

Differentiate between Divestiture and Liquidation.


Divestiture
4. Divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. 5.

Liquidation
A strategic alliance is a legal agreement between two or more companies to share access to their technology, trademarks or other assets.

6. 7.

A divestment is the opposite of an investment. A firm may divest (sell) businesses that are not part of its core operations so that it can focus on what it does best. Divestiture is done with a motive to obtain funds. Divestitures generate funds for the firm because it is selling one of its businesses in exchange for cash. in order to create competition.

3. A strategic alliance does not create a new company. 5. These agreements often have a limited scope and function, such as trading access to a strong brand for access to an emerging technology. Strategic alliances are usually undertaken to allow each company to pursue a new market, product or strategy that they can't manage on their own.

6.

6.

7.

7. Advantage: core strengths; proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities and mostly to retain control. 8. Disadvantage: A contractual or handshake agreement. 8. 9. Failing

"break-up" value is sometimes believed to be greater than the value of the firm as a whole 9. under-performing 10. Divestiture has become a very popular strategy
8.

as firms try to focus on their core strengths, lessening their level of diversification. 11. When firm has pursued retrenchment but failed to attain needed improvements

10.

When both retrenchment and divestiture have been pursued unsuccessfully

You might also like