TOPIC EIGHT
STRATEGY AND DIVERSIFICATION
Meaning of Diversification
A diversification strategy is the strategy that an organization adopts for the development of its business. This strategy involves widening the scope of the organization across different products and market sectors. … Diversification strategy is a form of growth strategy which helps the organizational business to grow. Diversification is an act of an existing entity branching out into a new business opportunity. This corporate strategy enables the entity to enter into a new market segment which it does not already operate in. The decision to diversify can prove to be a challenging decision for the entity as it can lead to extraordinary rewards with risks.
Types of diversification strategy
1. Concentric diversification
Concentric diversification involves adding similar products or services to the existing business. For example, when a computer company that primarily produces desktop computers starts manufacturing laptops, it is pursuing a
concentric diversification strategy.
2. Horizontal diversification
Horizontal diversification involves providing new and unrelated products or services to existing consumers. For example, a notebook manufacturer that enters the pen market is pursuing a horizontal diversification strategy.
3. Conglomerate diversification
Conglomerate diversification involves adding new products or services that are significantly unrelated and with no technological or commercial similarities. For example, if a computer company decides to produce notebooks, the company is pursuing a conglomerate diversification strategy.
