a) 3 benefits of unrelated diversification strategy to Selama Secrities when it acquired

Lubuk Kaya, Coca-Coca and Purple Communication

The unrelated diversification strategy would lead to efficient capital allocation in financial
economies. A portfolio of businesses with different risk profiles will be developed. This will
lead to efficient internal capital allocations which will reduce the risk among the Selamat
Securitiess businesses.
Second benefit is, the available resources will be distributed among many businesses in
different industries. Lubuk Kaya, Coca and Purple Communication are in different field of
business which if one of the business needs to be liquidated, the Selamat Securities still has
other businesses as back up. This is due to diversification of Selamat Securities businesses
enable them not to lose all
Next benefit is, diversification strategy enables Selamat Securities to enjoy financial
economy through acquiring other company. Selamat Securities buys other thype of
businesses which the restructures the assets to operate more profitably. The businesses
then can be sold for a profit in the external market.
Lastly, it increases the value of business by improving its overall performance. This will result
of increasing in revenue and decreasing in cost which ultimately increase the profitability of
Selamat Securities.

b) Discuss one benefit of Selamat Securitiess downscoping strategy

The benefit of downscoping is Selamat Securities can refocus to their core business that is
providing securities services for small and large businesses. When Selamat Securities able
to focus on the securities services core operation then it would be able to emphasize on
strategic controls. Plus Selamat Securities can increase the ability to compete in order to
increase its performance. Debts in Selamat Securities also can be reduce by downscoping
Lubuk Kaya, Coca-coca and Purple Communication. When Selamat Securities eliminate
businesses that are not related to its core business, it would be able to raise money or funds
because it reducing scope of operations and only focuses on operation of its core business.
The increasing of money or funds can be used to repay all debts and reduce debt cost.
Gearing ratio of Selamat Securities will improved and would lead to higher performance.

c) What may be the two managerial motives for Selamat Securities to diversify its
business beyond value creating and value-neutral levels?
Managerial motives means managers acting in their own self-interest rather than to
maximize long-term shareholder value. Top level managers in Selamat Securities will
desire for increased compensation due to diversification. This is because diversification
would provide additional benefits to top level managers. There are huge incentives for
executives as the business expands under the diversification strategy. Executives
compensation would also increase because of larger firms are more complex and more
difficult to manage. Top managers of Selamat Securities will enjoy more prestige, greater
incomes and more job security.
Diversification also would reduce managerial risk as Selamat Securities has a wider
range

of

business

portfolios

which

is

Lubuk

Kaya,

Coca-coca

and

Purple

Communication. Risk can be spread to all of the business portfolio through diversification
or minimize the risk of failure. Top level executives of Selamat Securities may diversify a
business in order to diversify their own employment risk. Top level executives would also
make sure that profitability of the business does not suffer excessively to safeguard
them.