The Degree of Risk Reduction in Diversification

THE DEGREE OF RISK REDUCTION IN DIVERSIFICATION harmonise to Roberts (2004, p214), variegation is when several businesses are combined under virtuoso ownership for the singular aim of reducing risk. The combination of wholly the businesses is less risky than individual businesses standing al star. According to Chandler (1959), thither are three types of diversification: 1. Full line fraternity require, market and control supplies of its single line of product, that is, the company has manufacture business building block, market business unit and a unit that takes care of supplies. 2. Multi line involves company dealing in seven-fold line of products each unit producing its own particular product. 3. chronic product turnover company continuously and systematically demote new products out of research. In the view of Roberts (2004), managers of the different businesses in a firm allow information to flow substantially among the businesses which can eventually result in an efficient allocation of capital among the businesses in the firm. Human capital can besides be developed when there is diversification (Roberts, 2004). Example of a company where this is seen is General Electric.

Also, expansion in multi line diversification allows superior managers to create more value to the firm because they leave alone now have better access to bigger resources (Roberts, 2004 p217). This was seen in the case of ITT, this allows for complete utilization of resources in a firm. In the view of Rugman (1976), there is reduction in risk in making sugar incurred by multinational companies with foreign motion than a similar company that sells its products only in one national market. Also, Rugman (1976) demonstrated in his works that there is a relationship between the stable earnings observed by firms that are diversified with ratio of foreign to total operations. In the views of Westerfield (1974), diversification will only reduce variance of profit flows of portfolios that are not... If you want to get a full essay, point it on our website: Orderessay

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