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Assignment #11 Diversification Strategy

This document contains self-study questions submitted by a student for their management course. The questions cover topics related to diversification strategy, including: 1) How an ice cream maker acquiring a soup maker could balance seasonal sales; 2) Why the large Tata Group in India has diversified across many industries; 3) Whether the fashion brand Armani should develop new business lines internally or through licensing; 4) If companies like GE, Berkshire Hathaway, and Virgin have unrelated diversification; and 5) Potential synergies from Amazon's diversification into cloud, tablets, and media. The student provides multi-paragraph answers to each question analyzing the diversification strategies.

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Patricia Cruz
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128 views

Assignment #11 Diversification Strategy

This document contains self-study questions submitted by a student for their management course. The questions cover topics related to diversification strategy, including: 1) How an ice cream maker acquiring a soup maker could balance seasonal sales; 2) Why the large Tata Group in India has diversified across many industries; 3) Whether the fashion brand Armani should develop new business lines internally or through licensing; 4) If companies like GE, Berkshire Hathaway, and Virgin have unrelated diversification; and 5) Potential synergies from Amazon's diversification into cloud, tablets, and media. The student provides multi-paragraph answers to each question analyzing the diversification strategies.

Uploaded by

Patricia Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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New Era University.

College of Accountancy
SCHOOL OF MANAGEMENT
No.9 Central Avenue, New Era, Quezon City 1107 Philippines
Tel. Nos. (632) 8981-4227/Fax: (632) 8981-4240
E mail add: [email protected]

Title of the Activity:


ASSIGNMENT #11 DIVERSIFICATION STRATEGY

Submitted by: Submitted to:


Patricia Nicole Y. Cruz Prof. Mario Brillante Wesley C. Cabotage

Date Submitted: April 06, 2022


Section Schedule: 2BSA-2 (MW-2:30-4:00 PM)
Self‐Study Questions

1. An ice‐cream manufacturer is proposing to acquire a soup manufacturer on


the basis that, first, its sales and profits will be more seasonally balanced
and, second, from year to year, sales and profits will be less affected by
variations in weather. Will this risk spreading create value for shareholders?
Under what circumstances could this acquisition create value for
shareholders?

This is an example of Risk Minimization through Unrelated Diversification in


practice. According to shareholders, any strategic expansion/diversification must
be accompanied by a proportionate rise in income. These seasonal changes
diversification will only work in terms of revenue if the peak in ice-cream demand
during the summer months is equal to the peak in soup demand during the winter
months. This is a hypothetical scenario that may or may not work in reality.

Rather than investing in a new soup set - up, each method to guarantee that
risk-spreading strategy works for equity investors is to delegate soup
manufacturing operations to a located near local company who will use the firm's
brand image to draw buyers during the winter months/months with expected high
soup demand. This will ensure cash flow during months when the company's major
income generator, ice cream manufacture, isn't performing well. At the same time,
there is no need for the company to invest in new equipment or staff.

2. Tata Group is one of the India's largest companies, employing 424,000


people in many different industries, including steel, motor vehicles, watches
and jewelry, telecommunications, financial services, management
consulting, food products, tea, chemicals and fertilizers, satellite TV, hotels,
motor vehicles, energy, IT, and construction. Such diversity far exceeds that
of any North American or Western European company. What are the
conditions in India that might make such broad‐based diversification both
feasible and profitable?
Because the Tata Group's enterprises are so broad, they don't have tight
operational relationships. The Tata Group creates value through dispersing
investment funds and personnel among its various companies, leveraging top
managerial skills, and establishing and growing new enterprises. Tata must be
more efficient in handling these procedures than external markets in order for this
to succeed. Apart from financial and human resources, Tata may also employ
influence and commercial links across its various industries. In a highly regulated
country like India, political clout is crucial.

3. Giorgio Armani SpA is an Italian private company owned mainly by the


Armani family. Most of its clothing and accessories are produced and
marketed by the company (some are manufactured by outside contractors).
For other products, notably fragrances, cosmetics, and eyewear, Armani
licenses its brand names to other companies. Armani is considering
expanding into athletic clothing, hotels, and bridal shops. Advise Armani on
whether these new businesses should be developed in‐house, by joint
ventures, or by licensing the Armani brands to specialist companies already
within these fields.

Armani should lease its brands to professionals who already operate in


these industries, because professionals who already work in these fields will
ensure the greatest quality product, which clients already trust. The majority of the
market will be captured by Armani's collaboration with a wide range of products
and services. Consumers will definitely recognize this strategic link because
Armani's brand name is well-known worldwide, and it will not simply lend its name
to any service provider. Armani will save money on operations by outsourcing all
of its responsibilities. As a consequence, licensing existing companies to expand
Armani's product portfolio is a viable alternative.
4. General Electric, Berkshire Hathaway, and Richard Branson's Virgin Group
each comprise a wide range of different businesses that appear to have few
close technical or customer linkages? Are these examples of unrelated
diversification? For each of the three companies, can you identify linkages
among their businesses such that bringing them under common ownership
creates value?

The companies who contributed were mentioned as follows. All three


companies, GE, Berkshire Hathaway, and Richard Branson's Virgin Group, sell
branded goods and services to clients. When it comes to investment, Berkshire
Hathaway takes a cautious approach. It provides steady, established, and low-tech
companies with limited competition from firms from other countries. The operations
of GE are enormous, capital-intensive, and require a substantial amount of money.
As a result, we can see that these two groups' businesses have some minimal
overlap.

5. Amazon has diversified from online retailing into cloud computing services
(Amazon Web Services), tablet computers (Amazon Fire), and the production
of movies and TV shows (Amazon Studios). What synergies might justify
these diversifications?

When companies diversify through mergers and acquisitions, joint ventures,


or collaboration on a new model, companies become more powerful. In addition,
there is the transmission of knowledge, a helping hand, and the combination of
funds and resources.

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