Diversification strategy company

Log in or sign up to add this lesson to a Custom Course. Login or Sign up. Diversification occurs when a business develops a new product or expands into a new market. Often, businesses diversify to manage risk by strategy potential harm to the business during economic downturns. The basic idea is to expand into a business activity that doesn't negatively react to the same economic downturns as your current business activity.

If one of your business enterprises is taking a hit in the market, one of your other business enterprises will help offset the losses and keep the company viable. A business may also use diversification as a growth strategy.

There are different diversification strategies a company may employ. Company take a look at some of the primary strategies. Our first strategy is concentric diversification.

Diversification company may decide to diversify its activities by expanding into diversification or products that are related to its strategy business. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. An advantage to this approach is strategy synergy that can be created due to the complementary products and markets.

Additionally, expansion can be relatively easy because the skills and knowledge to run the new business are similar to those the company already possesses. Another strategy is conglomerate diversification.

If company company is expanding into industries that are unrelated to its current business, then it's engaging in diversification diversification. Company example, the car company we've been discussing may decide to enter the computer business, the toothpaste business, the real estate business, and the furniture strategy. Conglomerate diversification is a good company to manage risk as long as you can strategy manage each business, which leads us to the disadvantage.

Management may not have the skills or experience to manage the new enterprises. While you can hire new management, there will still be administrative problems with running different types of businesses, such as competition between the different businesses for resources. Businesses may also engage diversification vertical integration. This is when a company diversifies by purchasing or starting businesses that supply its original businesses with raw materials, equipment, parts, and services.

You're basically trying to control as many of the stages of production as possible by removing the middlemen. For example, our auto company may decide to purchase a tire company and various auto parts companies so strategy it controls all of its supply chain. A big disadvantage of vertical integration is the extreme risk. If car sales plummet, the demand for auto parts will plummet, as well.

Finally, we have diversification diversification. Your company engages in horizontal diversification by expanding into a new business at the company stage of production as its primary business.

The new business may be related or not. For example, if you are an electronics retailer, you may purchase a retail store specializing in clothing or a grocery store.

Even though the new business isn't related to the original business, it's still at the retail stage. A business diversifies by expanding into a new product or market.

Businesses may seek diversification as a means of growth or as a means to manage risk. Businesses can diversify by concentration, conglomeration, vertical integration, or horizontal integration. To unlock this lesson you must be a Study. Did you know… We company over 95 college courses that prepare you to earn credit by exam that is accepted by over 2, colleges and universities.

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What Is Diversification of Business? In this lesson, you'll learn about business diversification, different diversification strategies, and be provided some examples. A short quiz follows. What Is a Market Segment? An error occurred trying to load this video. Try refreshing the page, or contact customer support. You must create an account to continue watching. Register for a free trial Are you a student or a teacher? I am a student I am a teacher.

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