Diversification can have neutral effects-reduce firm value

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Levels of Diversification Low levels of Diversification Single business: 95% or more revenue comes from a single business. Dominant business: Between 70% and 95% of revenue comes from a single business. Moderate to High Levels of diversification Related constrained: Less than 70% of revenue comes from the dominant business and all businesses share product, technological and distribution linkages. Related linked (mixed related and unrelated): 70% of revenue comes from the dominant business and there are only limited links between businesses. The advantages to diversifying their operations lead to growth strategies that lead to an increase in sales, and increase a firm’s value by improving their over-all performance. There are other reasons for diversification. Diversification can have neutral effects and can reduce a firm’s value. The reason for this is to match their competitor’s market. “Such as to neutralize another firm’s advantage by acquiring a similar distribution outlet.”

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Reference no: EM131639753

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