ould diversify. Companies which are undergoing a high degree of success are less likely to consider diversification than those companies which are struggling and which may be experience a decline in their market share. These companies are likely to consider additional opportunities through diversification (Bruton, Oviatt & White, 1994, p. 975).
Mergers and acquisitions are a time-proven method for organizations to gain entry to markets, to increase their present market share, and to implement economies of scale. For some companies, mergers and acquisitions offer diversification of risk as the companies are able to enter markets where they did not previously compete and where the risks are different from the company's primary (core) business segments. In this way, larger companies can withstand shocks to one business segment which might pose critical problems to smaller competitors.
Companies anticipating economic downturns or a general decline in the demand for their product may seek out diversification opportunities before the problem becomes acute. This puts the company in a much better situation to formulate a successful strategy and find attractive diversification opportunity. However, companies considering diversification must determine how they are going to fund the new activity. Because of this, companies which are already experience difficulty may not be in a position to diversify in order to solidify their position. These companies may find that their only hope for survival lies in merging with another organization and being absorbed into that organization (Carroll, 1995, p. 01150257).
There are essentially four types of business strategies related to diversification: single business, dominant business, related business, and unrelated business (Berger & Ofek, 1995, p. 39). The single business is one where 95 percent or more of annual sales come from one end-product or service business. This is the least dive...