SEVI 3013 QUIZ 4 (DIVERSIFICATION
AND VERTICAL INTEGRATION)
QUESTIONS AND ANSWERS
Unrelated Diversification Affecting Performance - Answer--Financial economies from
restructuring
-internal capital markets
Vertical Integration - Answer-Practice where a single entity controls the entire process
of a product, from the raw materials to distribution
backward integration - Answer-occurs when a firm owns or controls the inputs it uses
Related Linked - Answer-Less than 70% of revenue comes from the dominant business,
and there are only limited links between businesses
Very High Diversification - Answer-unrelated diversification
Unrelated Diversification - Answer-Less than 70% of revenue comes from the dominant
business, and there are no common links between businesses
Unrelated Diversification Example - Answer-Berkshire Hathaway owning Dairy Queen
and Geico Insurance. No connection whatsoever, run them separately.
Related Diversification Affecting Performance - Answer--Economies of Scale: reduced
cost
-Economies of Scope: reduced costs, increased value
forward integration - Answer-occurs when a firm owns or controls the customers or
distribution channels for its main products
Product Diversification - Answer-•Increase in range and variety of products / services
•Active in several product markets
Market Diversification - Answer-Expansion of array of geographic regions where the
company is active
Levels of Diversification - Answer-Low, Moderate, and High
Types of Low Diversification - Answer--Single-Business Model
-Dominant Business
Single-Business Model - Answer-Derives more than 95% of its revenues from a single
business
AND VERTICAL INTEGRATION)
QUESTIONS AND ANSWERS
Unrelated Diversification Affecting Performance - Answer--Financial economies from
restructuring
-internal capital markets
Vertical Integration - Answer-Practice where a single entity controls the entire process
of a product, from the raw materials to distribution
backward integration - Answer-occurs when a firm owns or controls the inputs it uses
Related Linked - Answer-Less than 70% of revenue comes from the dominant business,
and there are only limited links between businesses
Very High Diversification - Answer-unrelated diversification
Unrelated Diversification - Answer-Less than 70% of revenue comes from the dominant
business, and there are no common links between businesses
Unrelated Diversification Example - Answer-Berkshire Hathaway owning Dairy Queen
and Geico Insurance. No connection whatsoever, run them separately.
Related Diversification Affecting Performance - Answer--Economies of Scale: reduced
cost
-Economies of Scope: reduced costs, increased value
forward integration - Answer-occurs when a firm owns or controls the customers or
distribution channels for its main products
Product Diversification - Answer-•Increase in range and variety of products / services
•Active in several product markets
Market Diversification - Answer-Expansion of array of geographic regions where the
company is active
Levels of Diversification - Answer-Low, Moderate, and High
Types of Low Diversification - Answer--Single-Business Model
-Dominant Business
Single-Business Model - Answer-Derives more than 95% of its revenues from a single
business
