When a business enterprise increases the variety and catalogue of the products offered by it, the process involved is called diversification of business enterprise. Expansion of a business enterprise is the increase in the consumer base served by an enterprise over a period of time.

What is expansion and diversification?

Definition: The Expansion through Diversification is followed when an organization aims at changing the business definition, i.e. either developing a new product or expanding into a new market, either individually or jointly.

What are the three types of diversification?

• Concentric diversification. Concentric diversification involves adding similar products or services to the existing business. ...
• Horizontal diversification. ...
• Conglomerate diversification.

What are the different types of diversification?

• Horizontal diversification.
• Vertical diversification.
• Concentric diversification.
• Conglomerate diversification.
• Defensive diversification.
• Offensive diversification.

What is meant by diversification?

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. ... The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.

How Diversification Works

Is diversification good or bad?

Diversification can lead into poor performance, more risk and higher investment fees! ... To avoid losing our financial nest egg in a disastrous event from a single investment (i.e., bankruptcy), we spread our money around into different stocks, bonds, commodities and real estate holdings.

What are the advantages of diversification?

Three key advantages of diversification include: Minimising risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment.

What is the example of related diversification?

Related diversification occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries (Figure 8.1). Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification.

What companies use diversification strategy?

• Apple | From Computers to MP3 Players and Phones. ...
• Disney | From Cartoons to Cruises, Theme Parks, and Media. ...
• Volkswagen | Selling Cars to Everyone. ...
• Estée Lauder | Cosmetics, Personal Care, and Perfumes. ...
• Pepsi and Coca-Cola | Beverages to Snacks and Energy Drinks.

What is an expansion strategy?

Definition: The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. The expansion strategy is adopted by those firms who have managers with a high degree of achievement and recognition. ...

What are the major expansion strategies?

• Market penetration. The aim of this strategy is to increase sales of existing products or services on existing markets, and thus to increase your market share. ...
• Market development. ...
• Product development. ...
• Diversification.

Which strategy is a type of expansion strategy?

Internationalization Expansion Strategy: International strategy is a type of expansion strategy that requires firms to market their products or services beyond the domestic or national market.

What is the best example of diversification?

Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification. Some firms that engage in related diversification aim to develop and exploit a core competency to become more successful.

What diversification strategy does Disney use?

The Walt Disney Company has diversified following a similar strategy, expanding from its core animation business into theme parks, live entertainment, cruise lines, resorts, planned residential communities, TV broadcasting, and retailing by buying or developing the strategic assets it needed along the way.

Why does diversification most often fail to add value?

“One of the main reasons that diversification fails is because businesses do not have the right strategy in place,” Shipilov said. “They must think carefully about what distinct resources or capabilities they can move between different markets to give them a competitive advantage.

Does Starbucks use diversification?

Acquiring the Tea Market and Moving it Forward

Last year, Starbucks made a major move toward diversification by finalizing its acquisition of the Atlanta-based retail chain Teavana for $620 million.

What is product diversification with example?

Product Diversification Techniques

The manner in which a product is presented can be altered to make it available to a different audience. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. Renaming.

What is retrenchment strategy example?

A great example is how P&G the world's largest consumer products maker focused to improve revenue and profit. Using the Retrenchment strategy P&G dropped almost 100 of its product categories and focused on the key product to maximize long-term value and create exciting opportunities within the businesses.

What is the golden rule of investing?

One of the golden rules of investing is to have a well and properly diversified portfolio. To do that, you want to have different kinds of investments that will typically perform differently over time, which can help strengthen your overall portfolio and reduce overall risk.

What are the pros and cons of diversification?

• Why diversification is important.
• Diversification pros and cons.
• · Reducing losses. Putting all of your eggs in one basket can have disastrous results – especially if a recession hits.
• · New adventures. ...
• · Long-term growth. ...
• · They can limit gains. ...
• · It's complicated. ...
• ·

Is diversification needed?

Diversification may help an investor manage risk and reduce the volatility of an asset's price movements. ... You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is also important to diversify among different asset classes.

What are the disadvantages of diversification?

• Reduces Quality. There are only so many quality companies and even less that are priced at levels that provide a margin of safety. ...
• Too Complicated. ...
• Indexing. ...
• Market Risk. ...
• Below Average Returns. ...
• Bad Investment Vehicles. ...
• Lack of Focus or Attention to Your Portfolio.

Why investment diversification is bad?

However, too much diversification, or "diworsification," can be a bad thing. Just like a lumbering corporate conglomerate, owning too many investments can confuse you, increase your investment cost, add layers of required due diligence and lead to below-average risk-adjusted returns.

Why does diversification not work?

They've all concluded that the best way to do this is by diversifying holdings into different asset classes, like stocks, bonds, gold, hedge funds and other strategies meant to smooth out returns. ... As a result, asset allocation diversification does not help investment performance, it hurts it.

What is diversification in strategic management?

Diversification is a corporate strategy to enter into a new products or product lines, new services or new markets, involving substantially different skills, technology and knowledge. Diversification is one of the four main growth strategies defined by Igor Ansoff in the Ansoff Matrix: Products. Present. New.