What are the primary benefits and risks associated with related diversification - Coursework Example

The Primary Benefits and Risks Associated With Related Diversification Diversification is the decision made by a company in order to enter more than one industry and benefit from available business model and competencies. Related diversification is a process whereby a business expands its existing line of production and does things that are similar to or are related to those it currently offers.The primary benefits associated with related diversification include increased productivity of corporate resources through operating interactions.

When two activities are combined, the result is more than the sum of the results of two different activities. Related diversification also helps in spreading the risk. This is done by manufacturing similar good or those that are related to them, therefore leading to similar services being offered, or penetrating new markets. When a company can use existing resources and experience, it gets to enjoy a better quality due to the company producing part of the raw material or components for its main production line.

This eventually leads to lower prices and eventually widening the market. It also assures the company of regular supplies. This in turn puts the company in a strategic position, therefore, less competition.Another benefit is that strategic goals can be combined. When everyone has the same objective, then there is the possibility of achieving even more and, as a result, opportunities resulting throughout the production can be shared and fully utilized. It also an opportunity to a firm to share technologies, acquired skills and experiences that the companies have.

They are also able to enjoy the same distribution channels, similar techniques of running a business and adapting resources. It also leads to economies of scale being achieved through the elimination of different types of expenditure when more than one business activity is developed in a common company (Corporate Strategy).The risks associated with related diversification include changing conditions, failure to predict future success because there may be divestment due to changing situations.

If diversification is done for wrong reasons, it could lead to failure of creating value. The company also faces a risk of reduction in profit.Work CitedCorporate Strategy - Related and Unrelated Diversification. (n.d.). Web. 24 March 2015. Print.