You can view samples of our professional work here. To be able to answer this fundamental question the following pros and cons are explored: Related product diversification is characterized by the ease of human resources relocation because the skills and capabilities needed for the introduction of the new products are very similar. Firms that are uncomfortable to be dependent on one product line should diversify into other businesses or industries. For large firms knowing the different growth strategies including its benefits and inconveniences is fundamental to giving managers practical recommendations. We've received widespread press coverage since 2003, Your All Answers purchase is secure and we're rated 4.4/5 on reviews.co.uk. A firm using unrelated PDS may grow, but only internally in each business unit and will not reach operational efficiencies but financial ones. It is important to know how the data was collected because the method chosen affects the final findings. Competent internal capital distribution can lead to financial synergies and reduces risk between the firm’s businesses (Higgings and Schall, 1975). For example, a firm which produces shampoo and introduces hair conditioner may use the same technology. The firm size: small, medium or large is an important parameter while analysing a firm strategy. Normally, firms that choose related product diversification as a strategy are sharing a common factor such as the raw material, the technology or the know-how needed to produce different products. The natural reasons are commonly due to a lack of cash, experience and know-how. As mentioned before, there are two broad categories of PDS: Related and Unrelated. Free resources to assist you with your university studies! Furthermore, Hoskisson (2007) says that unrelated PDS occurs when there are no overlapping capabilities other than financial resources. Some authors such as Richard Rumel (cited by Lovallo and Mendoca, 2007), Peng (2008) also categorize PDS as: focused, moderately and highly diversified. On the other hand, Woodward, Zwerman and Harvey (n.d., cited by Jackson and Morgan, 1978) concluded that instead of size, the production systems used by the firms are more connected and explain better the firm structure and feature. For unrelated products, the best way to control is exactly the opposite. Peng (2008) refers to unrelated PDS as firms entering into industries new lines that have no evident connections to the present firm line of businesses. These definitions have surely been influenced by the work of Ansoff (1957) in which he presented diversification as a possible growth strategy as mentioned in the introduction. The various definitions, forms and ways of managing diversification are the main topics of this research. A meeting for a 40 minutes exploratory semi-structured interview was organized on the 24th of November 2009 at Mondi Headquarter, Vienna. While CRH diversified its market its power increased and consequently it could afford to “cross-subsidise” one business from the surpluses earned by another, in a way that competitors could not. This strategy is also known in the financial literature as conglomerates (Hoskisson, 2007; Peng, 2008; Pearce and Robinson, 2005). Diversifying a large firm is considered economically positive only if synergetic effects between the different businesses units are achieved. Peng (2008) defines it as competitiveness increase beyond what can be achieved by engaging in two product markets separately. Product diversification can be achieved by acquiring an existing firm in the business it wants to enter, starting up a new business subsidiary or entering into joint ventures. If a firm is only interested in the returns, unrelated product diversification may be a right path of growth. Another reason would be to stabilize the earnings and dividends of a firm in a cyclical industry. Related product diversification can be defined as a strategy that firms can choose as a growing path. (Peng, 2008). In the 20th century many researchers have written about product diversification strategy (PDS). The intuitive reason ulndlerlying this value creation … This is not an example of the work produced by our Dissertation Writing Service. In my opinion, it is true that product diversification can be applied both by small and large firms, but I believe that a small firm has more limitations and can not fully develop this strategy in its organization due to limited resources: human, financial and technological. Related PDS is characterised by sharing technologies needed to produce the new products. The reasons for the market rejection can be e.g. In that way the risk is spread and all the weight is not in one product line. ‘Trend’, an Austrian financial magazine, ranked Mondi as the 13th top Austrian large firm out of 500 firms in 2008 having 5.159,00 Mio. (Tallman, 2003). Related product diversification refers to entries into new products or service businesses that have a connection to the firms existing markets (Peng, 2008). Some sources of operational synergy are (Peng, 2008): Conscious of these possible synergies, Zodiac a French large firm who in 1930 was focused on inflatable boats and had strong ties to the French army started to introduce new related products to its portfolio. This argument is also supported by various authors such as Hoskisson, (2007); Grant, Jammine, and Thomas (1998); Goold and Luchs (1993), (cited by Pils, 2009). Euro net sales and 26.425 employees’ worldwide. The means obtaining financial synergy is different from obtaining operational synergies. Hoskisson (2007) defines financial synergies as cost savings realized through a better use of financial assets based on investments inside or outside the firm. Product diversification is about adding new product to the firm’s portfolio whereas market diversification is about entering in new markets offering the firm’s current products. Therefore while choosing between related and unrelated PDS the mentioned synergy risks have to be taken into account. Contrarily, unrelated product managers can not apply the experience gained from solving the problems of one unit to the other in most cases because the problems are specific for each product. Market diversification is a strategy that takes the firm from its existing market to new ones. Therefore the craft needed is greater. The key role of firms is to identify and find profitable investment opportunities. Additionally, he says that it can “improve the efficiency of its existing resource infrastructure by increasing the flow of product to a wider range of customers”. Pils (2009) also confirms this definition as he points out that “product diversified firms are understood to be active in multiple, distinct product-markets” (p.10). • First, we value the firms involved in the merger independently, by discounting expected cash flows to each firm at the weighted average cost of capital for that firm.2.