A Presentation on Diversification

1. Diversification

2. WHAT IS DIVERSIFICATION?
• The process of a company enlarging or varying its range of products
or field of operation.
• Diversification occurs when a business develops a new product or
expands into a new market. Often, businesses diversify to manage
risk by minimizing 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.

3. ADVANTAGES OF DIVERSIFICATION
• The Importance Of Diversification.
Diversification is a technique that reduces risk by
allocating investments among various financial
instruments, industries and other categories. It aims
to maximize return by investing in different areas
that would each react differently to the same event.
• Financial
A company can gain financial advantages from
diversifying its strategies. For example, if it enters
into joint ventures or acquires other companies it
can increase its profits, cash flow and borrowing
power.

4. CONTD…
• Market Share
A positive result of diversifying your strategy can be an increase in
market share. By introducing new products, exploring new regions
or targeting new groups of customers, you can expand your
customer base.
• Growth
Whether you measure growth in terms of the number of employees,
profits or sales, a diversified strategy can help you get there. For
example, you could move into industries you are not currently
involved in, form subsidiaries that act much like independent
businesses and introduce global marketing as part of your
diversified strategy.
One reason to diversify is to protect yourself from the risk of
failure. If product "A" fails, new products "B" and "C" may do well

5. DISADVANTAGES
• Overextension
If diversification isn't approached with caution, the
result can be overextension of a company's resources. To
run properly, every division of a corporation, no matter
how large, needs enough resources to maintain its
infrastructure and operations or it will begin to decline.
• Lack of Expertise
In an age of corporate takeovers, it's not uncommon to
see a company expand into a field that's totally unrelated
to its original operations. If a car company takes over a
food distribution company, for example, it should retain
proper expertise from the original company or it may
find itself in trouble

6. CONTD…
• Cost
Businesses that diversify into realms that require added
infrastructure, employee training and travel between
widely separated areas run the risk of increasing their
costs to the point where the value of the venture is
compromised. Even the most profitable diversification
involves increased costs and overhead.
• Reduced Innovation
A large percentage of business innovation happens in
smaller companies that are tightly focused on a few
technological or business goals. If these companies
diversify too widely, this can lessen their focus, increase
their bureaucratic inertia and reduce their ability to
respond quickly and creatively to market changes.

7. TYPES OF DIVERSIFICATION
Related diversification Unrelated diversification
• It is when a business adds or
expands its existing product
lines or markets. For example,
a phone company that adds or
expands its wireless products
and services by purchasing
another wireless company is
engaging in related
diversification.
• It is when a business adds
new, or unrelated, product
lines or markets. For example,
the same phone company
might decide to go into the
television business or into the
radio business. This is
unrelated diversification: there
is no direct fit with the existing
business.

8. COMPANIES WHO HAVE DIVERSIFIED
Related Unrelated
• Johnson and Johnson
• Campbell soup company
• Coca cola
• Samsung
• Reliance

9. THANK YOU