MGEC40H3 Lecture Notes - Engineering Fit, Agency Cost, Snow Blower
24 Jun 2014
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Document Summary
This chapter examines the numerous rationales for diversification. While all reasons for diversification may logically follow the manager"s perspective as an agent to company shareholders, some reasons make more economic sense than do others. Diversification has, no doubt, played an important role in shaping the landscape for american businesses. Over the last century, firms have experienced four waves of diversification, including the beginning of the. Economies of scope provide the primary rationale for diversification. These economies can be derived by selling similar products. For example, products with similar production technology, similar raw materials, or similar engineering fit into this group. Economies can also be derived by selling to similar markets, such as selling products in different geographical regions. Dominant general management logic can also motivate diversification. Some business analysts argue that the way in which managers conceptualize business and make critical resource allocations can generate economies of scope in merged companies.
