ACCA SBL Syllabus C. Strategy - Diversity Of Products And Markets - Notes ^{2 / 10}

Many large businesses consist of a corporate parent and a number of Subsidiaries / branches etc

So, often a corporate parent has no direct contact with the buyers or competitors, it only manages the overall scope of the organisation in terms of:

• Diversity of products and markets 
• International and geographic diversity

Diversity of Products and Markets

The corporate parent controls product and market diversification because of:

1. Synergies in marketing, operating, NCA investments and using common corporate management skills

2. Increased market power via a high margin business subsidising a low margin one, enabling a price advantage and achieve dominance to recover these earlier losses.

3. The environment (maybe through new technologies available) wants new products so diversification here protects existing shareholder value

4. Risk spreading (across more products) although shareholders can manage their own risk exposure better themselves by diversifying their own portfolios.

Be careful though, the expectations of powerful stakeholders can lead to inappropriate strategies generally. The pressure for growth can lead to ill-considered diversification.