Firms have several options for diversifying their operations, including mergers and acquisitions, strategic alliances and joint ventures, or internal development. Mergers and acquisitions involve combining two separate firms into one, which allows them to fully integrate their operations, acquire valuable resources, and leverage core competencies. This can result in increased market power and the ability to enter new market segments. However, there are also downsides to mergers and acquisitions, including the high financial costs involved, the potential for imitation by competitors, and the challenges of integrating two corporate cultures.
Strategic alliances and joint ventures are a less costly method of diversification that involve collaborating with partner firms to achieve strategic objectives. This approach can help firms enter new markets, reduce costs in the value chain, and develop and diffuse new technologies. However, there are also challenges to this approach, including the need to invest in building close relationships with partner executives and the necessary human and social capital to make the partnership successful. Additionally, there is a risk of working with a partner who is unwilling or unable to invest adequate resources to achieve the objectives.
Reference
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