efficient internal capital market allocation can lead to...
financial economies.. aka cost saving realized through improved allocations of financial resources based on investments inside or outside the firm.
The greater the incentives and the more flexible the resources...
the higher the level of expected diversification.
Mixed related and unrelated firm...
the diversified company with a portfolio of businesses that only have a few links between them is called this and is using the related linked diversification strategy
economies of scope
are cost savings that the firm creates by successfully SHARING some of its resources and capabilities or TRANSFERRING one or more corporate level core competencies that were developed in one of its businesses to another of its businesses.
Firms can create operational relatedness by...
SHARING either a PRIMARY activity (such as inventory delivery systems) or a SUPPORT activity (such as purchasing practices).
What are the two ways to create value through financial economies? (one of the reasons for related business diversification.)
-efficient internal market allocation (portfolio management) -restructuring of assets
What does efficient internal capital market allocation (portfolio management) entail?
-making strategic changes in its businesses, discipline underperforming management teams, etc.
What does restructuring of assets entail?
-seek out undeveloped, problematic & sick industries -buy low, restructure, sell high -WORKS BETTER with manufacturing than in high tech businesses & service based assets--intangible assets (High tech is too uncertain)
For both high tech and service based, few..
tangible assets can be restructured to create value and sell profitable.
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