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Sunday, December 30, 2012

DIVERSIFICATION


WHAT IS DIVERSIFICATION ? TYPES OF DIVERSIFICATION AND WHY DIVERSIFICATION ? 

DIVERSIFICATION :
 
Diversification involves moving into new lines of business. When an industry consolidates and becomes mature, most of the firms in that industry would have reached the limits of growth using vertical and horizontal growth strategies. If they want to continue growing any further the only option available to them is diversification by expanding their operations into a different industry. Diversification strategies also apply to the more general case of spreading market risks: adding products to the existing lines of business can be viewed as analogous to an investor who invests in multiple stocks to “spread the risks”. Diversification into other lines of business can especially make sense when the firm faces uncertain conditions in its core product-market domain. 

While intensification limits the growth of the firm to the existing businesses of the firm, diversification takes it beyond the confines of the current product-market domain to uncharted and unfamiliar products- market territory. In other words, this strategy steers the organization away from both its present products and its present market simultaneously. Of the various routes to expansion, diversification is definitely the most complex and risky route. Diversification approach to expansion is complex since it seeks to enter new product lines, processes, services or markets which involve different skills, processes and knowledge from those required for the current business. It is risky since it involves deviating from familiar territory: familiar products and familiar markets. 

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