Question

what is a disadvantage of related diversification? group of answer choices firms select new businesses and industries based on financial considerations. firms are able to look for promising investment opportunities for future profit

Answer 1

The disadvantage of related diversification is that firms are able to look for promising investment opportunities for future profit, which means option B is the right answer.

Diversification is the act of inducing more branches of a business to expand it in the preexisting operations in areas where it is not present. Related diversification enhances shareholder value by taking control over cross-business strategic fits. It enables transfer of skills and capabilities from one business to another. It causes a combination of new resources to produce batter capacities and capability. Related diversification can allow a firm to share and transfer critical success factors across different businesses leading to efficiencies in resource allocation. The disadvantages are often too optimistic and are harder to manage. Also, several significant barriers are present which actually capitalize on shared synergies and related diversification is often overvalued.

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