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LEARNING OBJECTIVES
- Explain the concept of diversification.
- Be able to apply the three tests for diversification.
- Distinguish related and unrelated diversification.
Firms using diversification strategies enter entirely new industries. While vertical integration involves a firm moving into a new part of a value chain that it is already is within, diversification requires moving into new value chains. Many firms accomplish this through a merger or an acquisition, while others expand into new industries without the involvement of another firm.
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