ECONOMICS OF CORPORATE STRATEGY

Economics of Corporate Strategy

Economics of Corporate Strategy

Introduction

The confused environment of the business is consisting of rigid behavior and preference of the customers, competition, technological innovations and the quick flow of services and products. Corporation uses different strategies with different circumstances with in the business procedures. One of the major corporate strategies is diversification strategy in order to increase the competitive advantage. It has two main objectives, increasing the situation and structures of business units and enhancing the focus and execution of process and core business. Diversification includes the efforts to the new business with obtainable strategies; this increases the level of competitive advantage for the company.

Diversification has two major dimensions related or unrelated, related diversification is when a company expands its operation with existing product line and unrelated diversification is when a company expands its operation with unrelated product line, without any knowledge or physical resource, this strategy requires only financial resource. The corporations that seek to expand and uses diversify their operations related or unrelated, they are seen running away from one thing to get another, such as competitive advantage, maximizing profit, minimizing cost etc.

Discussion

Diversification

Any company which has several businesses, may be related or unrelated is said to be diversified company. Diversification is a concept that comes in when companies have to decide regarding their business portfolios. In today's modern and competitive business environment, every company is concerned about its growth and development. Today's businesses create several challenges for the managers. One of the most important challenges is to select the right portfolio for businesses in order to sustain the growth. Moreover, strategic planning has become extremely important to undertake the challenges of the business world (Graham, 2009 Pp. 75-90).

One of the strategic options available to today's business managers is to 'diversify' in order to make their business grow. Diversification on one hand help companies to invest in different sectors or industries also making the risk diversified across sectors. This risk diversification help companies survive when any one of the industry sectors suffers. However, operating in different industries require such business leaders who are able to completely understand the core differences prevailing within industries. Here comes the main problem of diversification. Business leaders or managers usually assume that the way they have been running one business, the other diversified business can also be run in the same manner. This approach is wrong and creates difficulties for the companies to survive in the long run (Roy, 1956 Pp.1-25).

Companies which are engaged in the process of diversification usually believe that they can run away from the problems of their current business by getting involved in some other business simultaneously. Companies tend to think that the problems existing within current business can be over shadowed by the positives and profit patterns of the extended businesses. This approach is certainly incorrect (Kay, 1995). Companies must realize that they just cannot run away from their core business by getting involved in some other ...