DECADECA Travel and Tourism Practice Exam

What is a conglomerate diversification strategy?

1. A growth strategy involving new technological enhancements

2. A strategy that focuses solely on a single market

3. A product growth strategy seeking businesses unrelated to the current product line

4. A strategy centered on competitive pricing

The correct answer is: A product growth strategy seeking businesses unrelated to the current product line

A conglomerate diversification strategy refers to a business approach where a company expands its operations by incorporating products or services that are largely unrelated to its existing offerings. This strategy is often employed to spread risk, leverage existing resources and capabilities, and tap into new market opportunities that can drive growth. By entering diverse markets, a company can reduce its reliance on any single revenue stream, which can help safeguard against volatility in specific sectors. In this context, the strategy involves layering new and distinct businesses onto the company’s portfolio, which can result in synergistic benefits as well. For instance, a company known for manufacturing electronics might consider entering the food industry, thereby creating a diverse array of revenue sources. This is particularly valuable during times of economic uncertainty when demand may wane for certain products. The other options reflect strategies that do not align with the concept of conglomerate diversification. A growth strategy involving new technological enhancements focuses more on innovation within a specific product line rather than expanding into unrelated fields. A strategy centered on a single market may create a niche focus but lacks diversification, while a competitive pricing strategy centers on pricing tactics within markets rather than broadening product categories. Therefore, the focus on seeking unrelated businesses clearly signifies the essence of a conglomerate diversification strategy.