CORPORATE STRATEGY

DIVERSIFICATION AND THE MULTIBUSINESS COMPANY

NUR FILZAH BT SULAIMAN

TMA 2

1110820

In this chapter we learned about corporate strategy and actually the diversification strategy must have or entail four (4) steps which is:

First in step 1, picking new industries to enter and deciding on the means of entry.

Step 2, pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.

Step 3, establishing investment priorities steering corporate resources into the most attractive business units.

Lastly in step 4, initiating actions to boost the combined performance of the cooperation's collection of business.

After that, we look into the options of strategic diversification such as:

- sticking closely with the existing business lineup and pursuing opportunities presented by these business.

- broadening the current scope of diversification by entering additional industries.

- divesting some businesses and retrenching to a narrower collection of diversified businesses with better overall performance prospects.

-restructuring the entire firm by divesting some businesses and acquiring others to put a whole new face on the firm's business lineup.

About the testing:

• The attractiveness test: Are the industry's profits and return on investment as good or better than present business ?
• The cost of entry test: is the cost of overcoming entry barriers so great as to long delay or reduce the potential for profitability ?
• The better-off test: how much synergy will be gained by diversifying into the industry ?

The advantages and disadvantages Acquisition of an Existing Business are:

Advantages: - Quick entry into an industry.

                       - Barriers to entry avoided.

                       - Access to complementary resources and capabilities.

Disadvantages: - Cost of acquisition.

                             - Overestimating the acquisitions potential to deliver added shareholder value.

                             - Underestimating costs for integrating acquired firm.

The core concept an acquisition premium is the amount by which the price offered exceeds the preacquisition market value of the target firm.

The advantages of new venture development are avoids pitfalls and uncertain in costs of acquisition and allows entry into a new or emerging industry where there are no available acquisition candidates.

The disadvantages of intrapreneurship are must overcome industry entry barriers, requires extensive investments in developing production capacities and competitive capabilities, may fail due to internal organizational resistance to change and innovation.