The business diversification consists of strategies that enable companies to achieve and maintain their Business development accessing new markets. Also, it can be considered as a reaction to a new business paradigm, which motivates them to open up to new possibilities.
The importance of diversification lies in the access to new commercial sectors and the market expansion. This occurs through the offer of products or services different from the traditional line of the company.
Below, we present more information about it.
What is the business diversification?
It is one of the strategies most used by companies when expanding their business. In this sense, diversifying is synonymous with growth, investment, expansion and openness. Likewise, companies implement diversification to access new markets. A typical case is foreign investment, for example, create a company in the United States (Forero, 2021).
What does the business diversification?
Diversifying means focusing on those areas or Economic sectors that are outside the traditional scope of the company. Therefore, they represent a business opportunity (APD, 2019).
What kind of business diversification exist?
The diversification of a company depends on the reformulation of the business model. In this sense, it is classified into the following types:
It is the most common. They use their own resources and technology companies to access new markets and customers. In addition, it involves creating a new infrastructure, so it usually has a higher cost than the others. However, it provides complete independence, which allows more room for maneuver in decision-making (EAE, 2022).
Total or partial acquisition of a company
It is very common in large companies, since they have the financial capacity to acquire smaller ones. These may belong to the same sector or to a complementary area (APD, 2019).
Two or more activities are related that will be more profitable under the productive scheme of a single company. These activities do not belong exactly to the same sector, but there is a commercial relationship between them (EAE, 2022).
It consists of expanding the activities of the company with other activities that are not related to the original ones. This means that they will work on products or services with which the company is not familiar, but with which it has market potential (APD, 2019).
How can it be implemented? business diversification?
- Forero, 2021):
- Horizontal diversification strategy. The company launches a product or service linked to its main activity.
- Vertical diversification strategy. Companies begin to offer products or services that were previously purchased from third parties.
- Conglomerate diversification strategy. It seeks to exploit profitable opportunities in different business sectors.
- Concentric diversification strategy. New products or services are integrated into an existing production line.
It should be noted that diversification strategies are not the same as types of diversification. Actually, the first ones are the method to implement the second ones. Diversifying implies entering commercial sectors that had not been accessed before. When this happens, companies gain presence and consolidate in the new market. It is for this reason that many companies opt for the business diversification as a development strategy, investing in new businesses or making corporate acquisitions.
- APD. (2019). Main types of business diversification. The Global Community of Managers.
- EAE. (2022). Business diversification: definition, types and examples. EAE Business School.
- Forero, T. (2021). Learn about the value of diversification strategies for companies and which ones you can implement in yours. rockcontent.