Question

Which of the following is a result of over-diversification through acquisition? Select one:

1. Corporate-level executives will have a rich understanding of all of the firm’s business units
2. Corporate-level executives tend to rely on strategic control when evaluating their business units’ performance.
3. Firms use acquisition as a substitute for innovation.
4. Managers become long-term in their orientation.

Answer 1

3) Corporations use acquisition as a substitute for innovation.

Step-by-step explanation:

The fastest way in which a corporation can enter a new market or develop new products is through buying existing companies that already operate in the new target markets or have developed the new products that the corporation wishes to sell.

Research and development is very costly and time consuming, and on many occasions the results aren't even good or are not as good as expected. By acquiring a smaller company that has already developed the product, then the corporation might even save money.