Question

How is profit generally achieved with a related diversification strategy? How is profit generally achieved with an unrelated diversification strategy? Why do both often fail?

Answer 1

Profit generated with the related diversification strategy :

a. With the related diversification strategy profit is earned by expanding the company's existing market or product line. It helps in growing the business and creating the brand identification while achieving more number of potential customers.

Profit generated with the unrelated diversification strategy :

a. Wit the unrelated diversification strategy company usually invest in the products or the businesses which do not directly fit the existing business or portfolio of the company. It is done to achieve the market share by introducing new product line in the market and add new products.

Failure :

Both the strategies fails as potential synergy do not exist, if the merger or acquisition is involved in these strategies, there are risk related to the local laws which might fail these strategies. Especially in the unrelated diversification strategy, already many knowledgable companies are present in market, therefore the product may not be able to delight the customers.