Full Answer Section

Cost Savings from Related Diversification

There are a number of ways that related diversification can lead to cost savings. These include:

• Shared resources: Companies that are related can share resources, such as manufacturing facilities, distribution channels, and marketing materials. This can lead to lower costs for each company.
• Increased efficiency: Companies that are related can often achieve increased efficiency by sharing knowledge and expertise. This can lead to lower costs and improved products or services.
• Lower unit costs: Companies that produce a large number of units can often achieve lower unit costs. This is because the fixed costs of production are spread over a larger number of units.

Incorporated Coursework

The concept of related diversification is discussed in Chapter 8 of Thompson’s Strategy textbook. The chapter explains that related diversification can lead to economies of scale, as well as other benefits, such as increased market power and risk reduction.

Conclusion

Related diversification can be a good strategy for companies that are looking to achieve economies of scale and other benefits. However, it is important to carefully consider the potential risks of related diversification before entering a new market or acquiring another company.

Here are some additional thoughts on related diversification:

• It is important to choose industries or product categories that are closely related to the company’s existing businesses. This will help to ensure that the company has the necessary resources and expertise to succeed in the new market.
• The company should also carefully consider the potential risks of related diversification. These risks include increased competition, financial difficulty, and loss of focus.

Overall, related diversification can be a good strategy for companies that are looking to grow and expand their businesses. However, it is important to carefully consider the potential risks before making a decision.