* Contraction is the opposite of growth.

It may be effected through divestiture or liquid* - tion * Conglomerate diversification, or diversification into unrelated areas, is a very popular but highly controversial investment strategy. Although a good device for reducing risk exposure and widening growth possibilities, conglomerate diversification more often than not tends to dampen average profitability. *In western economies, corporate strategists have argued from the 1980s that the days of conglomerates are over and have preached the virtues of core competence and focus. Many conglomerates created in the 1960s and 1970s have been dismantled and restructured. Tarun Khanna and Krishna Palepu, however, believe that while focus makes eminent sense in the west, conglomerates may have certain advantages in emerging markets which an characterised by many institutional shortcomings. In a multi-business firm, allocation of resources across various businesses is a key strategii decision. Portfolio planning tools have been developed to guide the process of strategy planning and resource allocation. Three such tools are the BCG matrix, the Genera Electric's stoplight matrix, and the Mckinsey matrix. Diversified firms don't compete at the corporate level. Rather, a business unit of one fin competes with a business unit of another. Among the various models that can be used a frameworks for developing a business level strategy, the Porter 7s generic model is perhaf the most popular. According to Michael Porter, there are three generic strategies that ca be adopted at the business unit level: cost leadership, differentiation, and focus. Capital expenditures, particularly the major ones, are supposed to subserve the

strategy) the firm. Hence, the relationship between strategic planning and capital budgeting mu