diversification

(noun)

A corporate strategy in which a company acquires or establishes a business other than that of its current product

Related Terms

Examples of diversification in the following topics:

  • Reasons for entering international markets

  • Mergers and Acquisitions (M&As)

    • Economies of scope (aka, synergies) make product diversification efficient if they are based on a similar common use.

  • Departmentalization Pros

    • Alfred Chandler (in: March and Simon, 1958) identified a correlation between the application of purpose departmentalization and the use of a diversification strategy: "The dominant centralized structure had one basic weakness.

  • Growth through buying out other companies

    • Such a strategy can also offer the opportunity to go into related diversification, i.e. a start-up firm can acquire other products or services which are related to its original ones.

  • Organizing Tasks

    • Organization structure determines the input resources needed for expansion of a business activity similarly organization is essential for product diversification such as establishing a new product line.

  • Benefits of Organization

    • Effective organization allows a firm to achieve continuity, effective management, and growth and diversification, and optimize the use of resources and provide proper treatment to employees.

  • Promotion Strategies

  • Financial Leverage

    • If a company borrows money to modernize, or add to its product line, or expand internationally, the additional diversification might more than offset the additional risk from leverage.

  • Management mistakes and the incompatibility of growth strategies and organizational structure

    • Different strategies may be necessary if the company pursues diversification strategies by expanding into new markets, or bringing out new products by expanding the value chain, or into new networks.

  • Summary and references

    • It includes the traditional international finance topics of foreign exchange, currency and derivatives markets, currency risk (transaction, operating and translation) management, country risk, taxation, capital structure, cost of capital, and international portfolio diversification.