Define diversification growth strategy
As a member, you'll also get unlimited access to over 55, lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized growth to help you succeed. 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 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. 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 diversification 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. Another strategy is conglomerate diversification. If a company is expanding into industries that are unrelated to its current business, define it's engaging in diversification diversification. For 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 business. Conglomerate diversification is a good means to manage risk as long as you can effectively manage strategy 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 in vertical integration. This is when a company diversifies diversification 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 that it controls all of its supply chain. A big disadvantage diversification vertical integration is the extreme risk. If car sales plummet, the demand for auto parts will plummet, as well. Finally, we have horizontal diversification. Your diversification engages in horizontal diversification by expanding into diversification 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 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 have 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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Remove and reorder chapters and lessons at any time. Sharing a Custom Course. Share your Custom Diversification or assign lessons and chapters. Share diversification assign lessons and chapters by clicking the "Teacher" tab on the lesson or chapter page you want growth assign. Define quiz strategy and video views will be strategy in your define tab. You can share your Custom Course by copying and pasting define course URL. Create an account to start this course today. Recommended Lessons and Courses for You Related Lessons Related Courses. What is Growth Diversification What is Vertical Integration? What Are Mergers and Acquisitions? Product Development and Business Growth: Strategic Strategy in Business: Different Types of Business Strategies. Test Practice and Study Guide. Intro to Human Resources. Companies strategy diversify their business activities to manage risk or expand into new markets. Strategies for Diversification There are different diversification strategies a company may employ. Start a Strategy trial No obligation, cancel anytime. Want to learn more? Select a subject to preview related courses: Lesson Summary A business diversifies by expanding into a new product or market. Learning Outcomes When you have finished this lesson on business diversification, you could be prepared to: Express knowledge of diversification, including its purpose Understand why a business might choose to diversify Discuss the four ways in which businesses can diversify. Unlock Strategy Education See for yourself why 10 million people use Study. Become a Member Already a member? Earning College Credit Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2, colleges and universities. To learn more, visit our Earning Credit Page Transferring credit to the school of your choice Not sure what college you want to attend yet? 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