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The advantages and disadvantages of conglomerate diversification are as follows:

Advantages of conglomerate diversification

a. Risk spreading ? entering new products into new markets offers protection against failure of current products and markets.

b. High profit opportunities ? Ability to move into high growth profitable industries especially important if current industry is in decline.

c. Escape ? from the present business if competition is too hot!

d. Better access to capital markets.

Disadvantages of conglomerate diversification

a. The dilution of shareholders earnings if diversification is into growth industries with high P/E ratios.

b. Lack of a common identity and purpose in a conglomerate organization. A conglomerate will be successful only if it has high quality of management and financial ability at head office where diverse operations are brought together.

c. Failure in one business will drag down the rest.

d. Lack of management experience..

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The difference between concentric diversification and conglomerate diversification?

Concentric diversification occurs when a firm adds related products or markets. The goal of such diversification is to achieve strategic fit. Strategic fit allows an organization to achieve synergy. In essence, synergy is the ability of two or more parts of an organization to achieve greater total effectiveness together than would be experienced if the efforts of the independent parts were summed. Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification.


Difference between concentric and conglomerate diversification?

Concentric diversification occurs when a firm adds related products or markets. The goal of such diversification is to achieve strategic fit. Strategic fit allows an organization to achieve synergy. In essence, synergy is the ability of two or more parts of an organization to achieve greater total effectiveness together than would be experienced if the efforts of the independent parts were summed. Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification.


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