Loews Corporation, a conglomerate with 15 billion USD in revenues, competes across several industries including oil and gas, tobacco, watches, insurance, and hotels. Its related diversification strategy is to buy low and sell high as in the example where they bought six oil tankers for 5 million USD and then sold them eight years later for 50 million USD.

Question

Quizplus · Accepted Answer

With unrelated diversification, few benefits are derived from horizontal relationships (the leveraging of core competencies or the sharing of activities across business units within a corporation). Instead, potential benefits can be gained from vertical (or hierarchical) relationships in which synergies are created from the interaction of the corporate office with the individual business units. There are two main sources of such synergies. First, the corporate office can contribute to parenting and restructuring of (often acquired) businesses. Second, the corporate office can add value by viewing the entire corporation as a family or portfolio of businesses and allocating resources to optimize corporate goals of profitability, cash flow, and growth.

Loews Corporation, a Conglomerate with 15 Billion USD in Revenues