Reference no: EM132241536
John Miller, a research associate at Applegate State University, has discovered a novel process of extracting bio diesel out of genetically modified corn. The bio diesel may be burned in regular diesel engines like normal mineral diesel, and its use does not pollute the atmosphere nor add to the causes of global warming. The process is rather complicated, and currently John’s bio diesel is about 50% more expensive than the regular diesel. John Miller estimates that if the process is adopted commercially the (current) costs may easily go down by at least 40 per cent.
Global Petroleum (GP), one of the world’s largest petroleum companies, has learned about John Miller’s discovery. GP has been very concerned lately with rising oil prices, pollution, and possible exhaustion of the world’s oil reserves. Among other alternatives, GP’s management team is considering diversifying into fuel cell business and John Miller’s bio diesel.
What value-creating and value-neutral reasons might GP have for such diversification?
GP has made a decision to diversify into bio fuel and needs to select the means for such diversification. In particular, it considers (1) in-house development of their own technology, (2) establishing some form of cooperative arrangement with John or Applegate State University, and (3) outright acquisition of the technology.
Discuss the benefits and drawbacks of each choice
Explain your recommendation of the means of diversification.