Corporate Diversification

Corporate diversification commonly refers to the phenomenon in which a business enters a new market and explores new business opportunities. A frequent motive for the diversification is the urge to diversify the corporate and reduce the risks on the returns. Diversification strategy can be determined by evaluating the extent of participation in the new businesses. The firms tend to diversify in an attempt to reduce their probability of failure. Moreover, it is used a strategy to defend against the worsening industrial environments. There are many corporations which have failed while undergoing the diversification process due to lack of understanding and resorting to it as a final way out. In this essay, we would discuss the relationship between the corporate survival and diversification.

There is a strong link between the organizational survival and diversification. The term “survival” has both objective and subjective attributes. The objective view is the ability of a corporation to receive inputs from the suppliers and provide the output to the general public. The subjective view is the idea that the firm has not failed or in other words, failed to provide a return to investors and stakeholders. The studies show that the strong financial condition of the corporation is vital for the assurance of the survival. Performing the tasks that would ensure the strong financial condition of the corporation is necessary. The relative market share was also of vital importance that could differentiate survivors from failures. The corporations which focus on the market share more than the diversification have more chances of survival. Firm size plays a stabilizing role in the process of diversification. It can enable a corporation to understand the environment and absorb shocks. The results have shown that the fate of the corporate is not entirely dependent on the vulgarities of the environment. A manager has the idea of firm’s market share, its equity base and size.

The major question is whether the manager should decide to go for diversification or not depends on several factors. It is not advised to go for the diversification if the corporate does not have a healthy equity base and strong financial controls. The result of such an equity base and controls might be the stretching of the resources to the breaking point. An insolvent but diversified firm is prone to the failure. It is advised to increase the market share of the corporate rather than diversification. Diversification is not advised if the corporation is on its last legs and looking for the ways to survive. The industry conditions are indicators for the survival of the corporation. The presence of the firm in fast and growing industry is not enough to guarantee its continuous survival.

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