Which of the following divisions would you invest in heavily?
Cargo inspection
Shipping
Railroad loading
Freight forwarding
Use your knowledge of diversification to select the words or phrases that best complete the following sentences.
In-n-Out Burger acquires an independently owned chicken fast food chain. This is an example of
When a company purchases a supplier or a customer, the purchasing company is using a strategy of
Pretend that you own a small coffee shop. You have decided that this year is a good time to grow your business, and you acquiring another coffee shop one town over. This is an example of
The correct answer and explanation is:
1. Division to Invest in Heavily: Freight Forwarding
Freight forwarding stands out as a strategic investment because it functions as a vital intermediary in global logistics, providing services like cargo consolidation, customs clearance, and supply chain optimization. Freight forwarding is more adaptable and scalable compared to the other divisions, as it does not rely heavily on fixed infrastructure (e.g., ships, railroads) but instead leverages partnerships and technology. With increasing globalization and e-commerce, demand for efficient freight forwarding services is expected to grow.
Diversification into freight forwarding also allows for capitalizing on a wide range of industries, thus reducing the risk of dependency on a single sector. This division provides high potential for innovation through digitalization and automation, making it an appealing choice for long-term growth.
2. Diversification Scenarios
Scenario 1: In-n-Out Burger acquires an independently owned chicken fast food chain. This is an example of horizontal diversification.
- Explanation: Horizontal diversification occurs when a company expands into a market that is at the same level of the value chain but offers different products. In this case, In-n-Out Burger, a burger chain, is acquiring a chicken fast food chain. This strategy helps expand the product range, attract a broader customer base, and reduce reliance on a single product line.
Scenario 2: When a company purchases a supplier or a customer, the purchasing company is using a strategy of vertical integration.
- Explanation: Vertical integration involves expanding control along the supply chain, either backward (e.g., acquiring suppliers) or forward (e.g., acquiring distributors or customers). This strategy allows the company to control costs, improve efficiency, and ensure quality.
Scenario 3: You acquire another coffee shop one town over. This is an example of horizontal integration.
- Explanation: Horizontal integration occurs when a business expands by acquiring a competitor operating at the same level of the supply chain. By acquiring another coffee shop, you reduce competition, increase market share, and create economies of scale. This approach is efficient for growth within the same industry and geographical proximity. It enables faster market penetration, improves brand recognition, and optimizes operational efficiencies through shared resources.