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Discuss some of the various means that firms can use to diversify. What are the pros and cons associated with each of these?


Discuss some of the various means that firms can use to diversify. What are the pros and cons associated with each of these?

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Firms have different ways to diversify their operations, such as through mergers and acquisitions, strategic alliances and joint ventures, or internal development.

Mergers and acquisitions involve two separate firms coming together as one. This allows firms to fully integrate their operations, acquire valuable resources, and leverage their core competencies. They can also consolidate the industry and enter new market segments. However, there are also downsides to mergers and acquisitions. The financial costs can be significant, especially for acquisitions. The benefits gained from mergers and acquisitions can also be easily replicated by competitors. Moreover, managers' credibility may be tied to the success of mergers and acquisitions, leading to sub-optimal decision-making. Additionally, the merging of two corporate cultures can result in issues that are costly to resolve.

Strategic alliances and joint ventures, on the other hand, involve collaboration with partner firms. They offer a way to achieve the benefits of mergers and acquisitions without incurring significant financial costs. These partnerships allow firms to achieve strategic objectives such as entering new markets, reducing manufacturing costs in the value chain, and developing and diffusing new technologies. However, there are also downsides to strategic alliances and joint ventures. It can be challenging to work with a partner that is unwilling or unable to invest adequate resources to achieve objectives. Firms must also invest time and effort in nurturing close working relationships with partner executives and in building human and social capital to ensure a successful partnership.

In summary, firms have various options for diversifying their operations, each with its advantages and disadvantages. It is essential for firms to carefully consider their options and weigh the costs and benefits of each to make informed decisions.

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Answered on June 4, 2020 12:20 pm

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