Q3.

Diversification strategies are used to expand firms' operations by adding markets, products,
services, or stages of production to the existing business. The purpose of diversification is to
allow the company to enter lines of business that are different from current operations.

A move to diversify into a new business must pass the following three Tests of Corporate
Advantage-

 The Industry Attractiveness Test:

An industry chosen for diversification must have a structure that will support returns
that exceed the cost of capital or that can be restructured into a favorable structure.
The industry analysis and a crucial step in determining the possibility of success for a particular
organization and its products or services among the identified customers. Here, I have to find out is
that the industry is attractive or not and the chance of make profit from it.

 The Cost of Entry Test:

Companies can enter new industries by acquisition or start-up. An acquirer can beat the efficient merger
market if it pays a price below the price that fully reflects the value of the new unit. However, this is
difficult when multiple bidders are commonplace and information flows rapidly through investment
bankers and intermediaries. Startups, on the other hand must overcome entry barriers that tend to be
high for entry into attractive industries.

So, if I can justify that the cost of entry is lower, and then my logic is justified.

 The Better-off Test:

The better-off test means that the corporation must gain a one time, or continuous competitive
advantage in some way as a result of the diversification, to is it possible makes position better from
diversification it like create synergy.

Synergy is the concept that the value and performance of two companies combined will be greater than
the sum of the separate individual parts. If two companies can merge to create greater efficiency or
scale, the result is what is sometimes referred to as a synergy merge.

If I can create synergy then I can able to diversify.