Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple householditems, cookware, and hardware. In the early 1950s, JC’s business consisted solely of manufacturedcurtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however,the company has diversified extensively through acquisition into such businesses as paintbrushes,writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to thesemany small acquisitions, whose performance it improved tremendously through aggressiverestructuring and its corporate emphasis on cost-cutting and cost controls. While JC’s sixteendifferent lines of business may appear quite different, they all share the common characteristics ofbeing staple manufactured items and sold primarily through volume retail channels like Wal-Mart,Target, and Kmart. JC operates each line of business autonomously (separate manufacturing, R&D,and selling responsibilities for each line). The common linkages are both internal (accountingsystems, product merchandising skills, and acquisition competency) and external (distributionchannel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billionU.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable foodcontainers, and a broad range of other plastic storage containers designed for home and office use.While Plastico has been highly innovative (over 80% of its growth has come from internal newproduct development), it has had difficulty controlling costs and is losing ground against powerfulcustomers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Martwill help it turn Plastico’s prospects around.How might JC’s related diversification strategy result in economies of scope and market power?Why would the acquisition of Plastico be good for JC?What difficulties might you expect JC to encounter related to its acquisition of Plastico?

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