Question

The value of determining the relative competitive strength of each business a company has diversified into is to compare resource strengths and weaknesses, business by business. to have a quantitative basis for appraising the competitive strength of each business unit in its respective industry. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth. to have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-a-vis the rivals in their respective industries. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability. Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over business rivals whose operations do not offer comparable strategic-fit benefits is what fuels 1+1=3 gains in shareholder value-the necessary outcome for satisfying the better-off test and proving the business merit of a company's diversification effort. is essential if a diversified company is to pass the value chain test, the profit test, and the resource fit test. is essential if a diversified company is to pass the industry attractiveness test, the competitive advantage text, and the cross-business transfer test. is a diversified company's clearest and best path to global market leadership in those industries where it operates. enhances a company's ability to build a valuable portfolio of distinctive competencies, boost its rate of revenue growth, and drive rapid increases in earnings per share.

Answer 1

Determining the relative competitive strength of each business within a diversified company helps in resource analysis, contribution to revenue, and profitability, as well as assessing competitive advantages, which is essential for strategic business decisions and maximizing shareholder value in line with the concept of dynamic comparative advantage.

Step-by-step explanation:

The question pertains to the concept of dynamic comparative advantage within the context of diversification strategy in business. Determining the relative competitive strength of each business unit within a diversified company facilitates several vital analyses. These include identifying resource strengths and weaknesses, providing a quantitative basis for rating businesses in terms of contribution to revenue growth and profitability, assessing competitive advantages or disadvantages, and ultimately, guiding strategic decisions related to potential synergies and shareholder value maximization.

Understanding the dynamic nature of comparative advantage is crucial for business strategy. It implies that comparative advantages evolve over time due to factors such as learning, specialization, and the exploitation of economies of scale. These dynamic aspects can lead to competitive gains, and businesses can leverage these by focusing on their core competencies—a strategy that often results in more successful outcomes compared to those trying to offer a wide range of products. Economic base analysis and the location quotient formula come into play when identifying economic bases at various geographic scales, which can also inform business strategies about where to locate aspects of their operations to maximize their comparative advantage and success in specific markets.