Advertisement

Diversification

  • W. Stewart Howe
Chapter

Overview

This chapter begins by adopting a working definition of the term diversification. This is followed by an examination of the forces which encourage businesses to diversify from a market in which they are established or to operate from the beginning on a diversified front. It is then asked if there is any particular direction in which firms are likely to diversify from a particular market base. This is followed by a discussion of the ultimate form of diversification — the conglomerate company. The chapter concludes by analysing the wider economic issues for the working of the economy as a whole which are raised by corporate diversification.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    J. Latham, Takeover: The Facts and the Myths of the GEC-AEI Battle, Iliffe, London (1969), p. 21Google Scholar
  2. 2.
    L. R. Amey, Diversified Manufacturing Businesses, Journal of the Royal Statistical Society Ser. A, Vol. CXXVII (1964), 253Google Scholar
  3. 3.
    J. Downie, The Competitive Process, Duckworth, London (1958), p. 146Google Scholar
  4. 4.
    L. R. Amey, Ref. 2, 265Google Scholar
  5. 5.
    P. K. Gorecki, An Inter-Industry Analysis of Diversification in the U.K. Manufacturing Sector, Journal of Industrial Economics, Vol. XXIV (1975), 131CrossRefGoogle Scholar
  6. 6.
    See G. Whittington, Changes in the Top 100 Quoted Manufacturing Companies in the United Kingdom 1948 to 1968, Journal of Industrial Economics, Vol. XXI (1972), 25–27Google Scholar
  7. 7.
    D. F. Channon, The Strategy and Structure of British Enterprise, Macmillan, London (1973), pp. 12–13CrossRefGoogle Scholar
  8. 8.
    M. R. Fisher, Towards a Theory of Diversification, Oxford Economic Papers, Vol. XIII (1961), 293Google Scholar
  9. 9.
    See W. S. Howe, The Inflation Accounting Debate: An Economic Viewpoint, Moorgate and Wall Street (Spring 1973), 21–33Google Scholar
  10. 10.
    M. L. Kastens “How much is an Acquisition Worth?”, Long Range Planning, Vol. VI (1973), 53Google Scholar
  11. 11.
    See H. I. Ansoff, T. A. Anderson, F. Norton and J. F. Weston, Planning for Diversification through Merger in H. I. Ansoff (ed.), Business Strategy, Penguin, Harmondsworth (1969), pp. 291–5Google Scholar
  12. 12.
    L. G. Goldberg, The Effect of Conglomerate Mergers on Competition, Journal of Law and Economics, Vol. XVI (1973), 138. Sec. 18 of the Celler-Kefauver Amendment (1950) prohibits the acquisition of ‘the whole or any part of the assets of another corporation engaged also in commerce where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’Google Scholar
  13. 13.
    G. Bannock, The Juggernauts, Weidenfeld and Nicolson, London (1971), p. 989Google Scholar
  14. 14.
    In the early 1960s, for example, Dundee and district accounted for 89.2% of U.K. jute spinning and 94.2% of the industry’s weaving capacity. At this time 20% of the insured population of Dundee was employed directly in jute manufacture. See A. M. Carstairs and A. V. Cole, Recent Developments in the Jute Industry, Scottish Journal of Political Economy, Vol. VII (1960), 117CrossRefGoogle Scholar
  15. 15.
    See J. H. Leveson, Industrial Organisation of the Jute Manufacturing Industry: Decline and Diversification, Dundee College of Technology, Dundee (1973)Google Scholar
  16. 16.
    See Cosmetics, Financial Times (24 August 1974)Google Scholar
  17. 17.
    J. F. Weston, The Nature and Significance of Conglomerate Firms, St. John’s Law Review, Vol. XLIV (1970), 71Google Scholar
  18. 18.
    R. Dafter, Why plastics is good for Guinness, Financial Times (20th September, 1974)Google Scholar
  19. 19.
    D. Thomas, Why Cadbury’s had to change, Management Today, (July 1968), 52Google Scholar
  20. 20.
    See A Vice, Blending Cadbury Schweppes in The Strategy of Takeovers, McGraw Hill, Maidenhead (1971), pp. 63–81Google Scholar
  21. 21.
    These details are taken from Monopolies Commission, British Match Corporation Ltd. and Wilkinson Sword Ltd., H.M.S.O. (1973), Cmnd 5442Google Scholar
  22. 22.
    J. K. Galbraith, The Affluent Society, Hamish Hamilton, London, 2nd ed. (1969), pp. 98 and 100Google Scholar
  23. 23.
    D. F. Channon, Ref. 7, pp. 3–4Google Scholar
  24. 24.
    See M. A. Utton, Diversification, Mergers and Profit Stability, Business Ratios (Spring 1969), pp. 24–27. As further examples of research in this area see: Econtel Research Ltd., Conglomerates, London (1969); and A-M. Kumps, Conglomerate Mergers: The Case of Great Britain, Document de Travail C.R.I.D.E., No. 751 (1975)Google Scholar
  25. 25.
    See N. Hood and S. Young, Growth, Performance and Strategy in 400 U.K. Holding Companies, unpublished paper, Paisley College of Technology (1975)Google Scholar
  26. 26.
    G. Foster, Blunt Truth at Wilkinson Sword, Management Today (June 1965), 46. See also J. Thackray, Close Shave at Gillette, (May 1968), 102–5Google Scholar
  27. 27.
    A. Moreton, Bookers: the great unknown, The Director (July 1972), 56–9Google Scholar
  28. 28.
    R. S. Edwards and H. Townsend, Business Enterprise, Macmillan, London (1958), p. 55Google Scholar
  29. 29.
    Ibid., p. 45. See also the same authors’ Business Growth, Macmillan, London (1966), pp. 193–201; and A. Moreton, The surprising saga of Guinness, The Director (October 1971), 80–85Google Scholar
  30. 30.
    Harp Lager is now owned 50% by Guinness, 25% by Courage (Imperial Tobacco) and 25% by Scottish and Newcastle Breweries.Google Scholar
  31. 31.
    S. Caulkin, Rockware’s Remoulding, Management Today (April 1974), 77Google Scholar
  32. 32.
    Bridon: The Significance of 50 years, Doncaster (1974)Google Scholar
  33. 33.
    J. Thackray, The Conglomerate Catastrophes, Management Today (June 1971), 75Google Scholar
  34. 34.
    R. Winsbury, Slater Walker’s Non Conglomerate, Management Today (August 1969), 82. For examples of the success which has attended this policy in the past see: A. Vice, op. cit. 1–11, How Jim Slater Bought Forestal; and also an account of how S.W.S. acquired Greengate and Irwell Rubber Co. in C. F. Pratten, A Case Study of a Conglomerate Merger, Moorgate and Wall Street (Spring 1970), 27–54Google Scholar
  35. 35.
    See his article, Conglomerates: case for more mergers, Financial Times (15 February 1969) and also his letter in The Times (9 April 1969)Google Scholar
  36. 36.
    This categorisation was suggested in R. V. Buxton, Conglomerates in the Cold, Management Today (November 1969), 93Google Scholar
  37. 37.
    See Monopolies Commission, The Rank Organisation Ltd. and The De La Rue Co. Ltd., H.M.S.O. (1969), Cmnd 298, para. 12Google Scholar
  38. 38.
    See G. Bannock, Ref. 13, p. 97Google Scholar
  39. 39.
    See D. Thomas, What Marketing Means for Imps, Management Today (April 1968), 78–83Google Scholar
  40. 40.
    See S. McLachlan, The Strategic Spread of B.A.T., Financial Times (15 May 1973); and E. Foster and G. Bull, The new man astride the B.A.T. colossus, The Director (September 1971), 334–8Google Scholar
  41. 41.
    R. V. Buxton, Ref. 36, 93Google Scholar
  42. 42.
    H. H. Lynch, Financial Performance of Conglomerates, Harvard University Press, Boston (1971), p. 9Google Scholar
  43. 43.
    R. Winsbury, Ref. 34, 87. For the other side of the story on this particular acquisition see M. Hope, On Being Taken Over by Slater Walker, Journal of Industrial Economics, Vol. XXIV (1976), 161–79Google Scholar
  44. 44.
    For a more detailed treatment of this, see S. E. Boyle and P. W. Jaynes, Conglomerate Merger Performance, United States Federal Trade Commission, Washington (1972), Ch. V, Information Loss from Conglomerate Expansion.Google Scholar
  45. 45.
    See T. Lester, B.S.R.’s Record Round-Up, Management Today (June 1971), 96Google Scholar
  46. 46.
    K. D. George, Industrial Organization, Allen and Unwin, London (1971), p. 46Google Scholar
  47. 47.
    S. E. Boyle and P. W. Jaynes, Ref. 44, p. 5.Google Scholar
  48. 48.
    Hoare and Co. Investment Research, Domestic Electrical Appliances, London (1969), p. 35Google Scholar
  49. 49.
    N. A. H. Stacey et al., Domestic Electrical Appliances — A Look into the Future, 15th British Electrical Power Convention Proceedings, London (1963), p. 221Google Scholar
  50. 50.
    Monopolies and Restrictive Practices Commission, Report on the Supply of Certain Industrial and Medical Gases, H.M.S.O. (1959), HCP 13, paras. 52–3Google Scholar
  51. 51.
    O. E. Williamson, Corporate Control and Business Behaviour, Prentice Hall, New Jersey (1970), p. 143Google Scholar
  52. 52.
    T. Lester, Tilling’s Three-Way Testing, Management Today (August 1971), 43Google Scholar
  53. 53.
    Financial Times (14th June, 1975)Google Scholar
  54. 54.
    J. Hassid, Recent Evidence on Conglomerate Diversification in U.K. Manufacturing Industry, Manchester School, Vol. XLIII, (1975), 388–9Google Scholar
  55. 55.
    C. J. Sutton, Management Behaviour and a Theory of Diversification, Scottish Journal of Political Economy, Vol. XX (1973), 29–30 and 34–36Google Scholar
  56. 56.
    K. D. George, The Changing Structure of Competitive Industry, Economic Journal, Vol. LXXXII (1972), 355–7Google Scholar

Copyright information

© W. Stewart Howe 1978

Authors and Affiliations

  • W. Stewart Howe

There are no affiliations available

Personalised recommendations