1 Diversification

　　A parent's ability to add value through its resources and competences determines whether it should diversify in a particular direction. Diversification may be either related to the product or unrelated to the product.

　　1.1 Advantages of Diversification

　　Economies of scale may arise through synergy (e.g. in marketing, operations, investment, management, etc);

　　Corporate managerial capabilities may be expandable (e.g. Virgin);

　　Increased market power through cross-synergy;

　　Ability to cross-subsidise, allowing parents to use the surpluses of one product to benefit the company and customers in the short term.*

　　Diversification due to environmental change;

　　Risk spreading; and

　　Expectation of powerful stakeholders including powerful managers.

　　1.2 Disadvantages of Diversification

　　Time and costs involved in top management at the corporate level trying to ensure that the benefits are achieved through sharing or transfer across business units; and

　　Difficulty for SBU managers to adapt to corporate-wide policies (strategies), especially when they are rewarded on the basis of performance of their own business unit.

　　2 Related Diversification

　　A firm may choose diversification related to an existing product with vertical integration, both forward and backward, and horizontal integration.

　　2.1 Forward Vertical Integration

　　Forward vertical integration means moving into product/ market areas previously occupied by the organisation's customers.

　　Sometimes called "downstream" integration, this can be pursued either by acquisition or by organic growth.

　　2.2 Backward Vertical Integration

　　Backward vertical integration means moving into product/market areas previously occupied by the organisation's suppliers. Sometimes called "upstream" integration, this also can be pursued either by acquisition or by organic growth.

　　2.3 Horizontal Integration

　　Companies integrate horizontally by using current capabilities to develop activities and product lines that are competitive with or directly complementary to the company's present activities.

　　It means specifically the merger with, or acquisition of, rival organisations.

　　3 Unrelated or Conglomerate Diversification

　　Conglomerate diversification introduces the company to unrelated product and market areas, which are likely to be beyond the current capabilities or value networks.

　　Although it can be pursued by organic growth, normally it is an acquisition strategy.