9.2. A firm implementing a diversification strategy has just acquired what it claims is a strategically related target firm but announces that it is not going to change this recently acquired firm in any way. Will this type of diversifying acquisition enable the firm to realize any valuable economies of scope that could not be duplicated by outside investors on their own? Why or why not?

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Dillan Solomon

Business

23 August, 03:16

9.2. A firm implementing a diversification strategy has just acquired what it claims is a strategically related target firm but announces that it is not going to change this recently acquired firm in any way. Will this type of diversifying acquisition enable the firm to realize any valuable economies of scope that could not be duplicated by outside investors on their own? Why or why not?

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Damon Lane · Answer 1

In my opinion, what can happen is that the fact that the company makes the acquisition of a strategically related target company and does not intend to make changes in its strategic operations, it can be configured as a loss of efficiency and gains in scope savings that the company intends to achieve together with the new acquired company.

Not making changes in the new company will not be a useful strategy, as an organization is an integrated set of systems, which to be integrated must have some similar characteristics regarding the production process, technology and others.

Therefore, not changing anything in the new company could be a conflict of know-how, technological, which would make gains in scope savings difficult.