Unrelated-product diversification involves entering another industry. Management Term Paper

Question 3
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August 11, 2020
Understanding the importance of market forces, internal circumstances, and strategic decisions are crucial for any manager. It allows him to be able to analyze the best course of a decision based on a given situation and decide for the most effective and efficient way of producing goods. Accordingly, one of the strategies that could be helpful in reducing costs is through the implementation of unrelated product diversification. With this strategy, the company undertakes a new service or adds a new product to its current line up that is different from its main products or even unrelated to its industry. For example, this could be seen in Samsung’s acquisition and production of different technologies outside the mobile devices that they usually offer.
In terms of strategic management, the use of unrelated product diversification could be beneficial in achieving economies of scope. This is the reason why managers usually use this strategy in order to improve the company’s profits through the reduction of costs, mitigation of risks, or the improvement of the profit margins per unit of goods sold, among others. In order to understand this, one must first look at the economies of scope. The economy of scope is an economic term that refers to the situation whereby the production of various products or provision of services could lead to long-term savings on the part of the company. This principle is usually achieved by either acquiring smaller companies or producing complementary products. Thus, in relation to the concept of unrelated pr...