What are the 3 diversification strategies?

There are three types of diversification: concentric, horizontal, and conglomerate.

What are Porter’s three diversification tests?

The three tests are: The Attractiveness Test: How attractive is the new market? The Cost of Entry Test: How expensive is it to enter the market? The Better Off Test: How will the company be in a better position?

What is related diversification and unrelated diversification?

Related Diversification —Diversifying into business lines in the same industry; Volkswagen acquiring Audi is an example. Unrelated Diversification —Diversifying into new industries, such as Amazon entering the grocery store business with its purchase of Whole Foods.

What are the three tests of corporate advantage?

The attractiveness test – The industry must be structurally attractive or have the potential to be made attractive. 2. The cost-of-entry test – The cost of entry must not consume all future profits. 3.

What are the four methods of diversification?

Types of diversification strategies

  • Horizontal diversification.
  • Vertical diversification.
  • Concentric diversification.
  • Conglomerate diversification.
  • Defensive diversification.
  • Offensive diversification.

What is diversification strategy with example?

Concentric diversification refers to the development of new products and services that are similar to the ones you already sell. For example, an orange juice brand releases a new “smooth” orange juice drink alongside it’s hero product, the orange juice “with bits”.

Which essential test for diversification is most important?

Cost of entry test
Cost of entry test Ensures the cost of entry does not capitalise all future profits (i.e. only do it if it can be done cheaply). This test tends to act as the main culling factor for diversification.

What is unrelated diversification example?

This is a good example of unrelated diversification, which occurs when a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries. Luckily for Coca-Cola, its investment paid off—Columbia was sold to Sony for $3.4 billion just seven years later.

What is related diversification strategy with example?

Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification.

Is diversification a good strategy?

Diversification can help an investor manage risk and reduce the volatility of an asset’s price movements. You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock and so it is also important to diversify among different asset classes.

What are the three Tests of diversification in business?

Explain the concept of diversification. Be able to apply the three tests for diversification. Distinguish related and unrelated diversification. enter entirely new industries.

Which is an example of unrelated diversification strategy?

Unrelated diversification lacks commonality in markets, distribution channels, production technology, and R&D thrust to provide the opportunity for synergy through the exchange or sharing of assets or skills. Reliance entered into retailing by allocating Rs25, 000 crore in a phased manner is a typical example. 1. Manage and allocate cash flow:

What is a core competency in diversification strategy?

Some firms that engage in related diversification aim to develop and exploit a core competency to become more successful. A core competency is a skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business. [2]

What are the benefits of diversification in business?

Some firms that engage in related diversification aim to develop and exploit a to become more successful. A core competency is a skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business (Prahalad & Hamel, 1990).