diversification strategy

1. DIVERSIFICATION
STRATEGY
By: k.chaitanya

2. • Diversification strategy 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. • Strategies for Diversification
• There are different diversification strategies a company may
employ. We'll take a look at some of the primary strategies.
• Our first strategy is concentric diversification. A company may
decide to diversify its activities by expanding into markets or
products that are related to its current 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 the 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.
•

4. • Another strategy is conglomerate diversification if a
company is expanding into industries that are unrelated to
its current business then it's engaging in conglomerate
diversification.
• For example a car company may decide to enter the
computer business, the toothpaste business, the real estate
business and the furniture business. Conglomerate
diversification is a good means to manage risk as long as
you can effectively manage each business.
• The disadvantage are management may not have the skills
or experience to manage the new enterprises while you can
hire new management there will still be administrator
problems with running different types of businesses such as
competition between the different businesses.
•

5. 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 middleman.
For example our auto company may decide to purchase a tire company and
various auto parts companies. So, That 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.

6. • Finally, we have horizontal diversification your company
engages in horizontal diversification by expanding into a
new business at the same 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 grocery
store even though the new business is it related to the
original business it's still at the retail stage e-business
diversify 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
•

7. Thank you