Diversification


It is frequently used in the field of commerce to name the strategy adopted by certain companies regarding their product offerings. If a company X focused its proposal on two types of products, diversification will mean that it will offer a greater quantity.

The main objective of diversification is risk reduction. It is easier for one product to fail in the market than five that do not work. In addition to minimizing risk, diversification aims to take advantage of a brand’s prestige and image for additional benefits. Another aspect of business diversification is the search for new markets. It is a characteristic trend of business, investment and commercial activity in general.

A person can also have a diversification strategy in their investments. Instead of putting his money in a mutual fund, he decides to invest in various entities. The loss of a part of the investment will not imply the totality of the investment.

In short, we try to say that diversification is to protect against what we do not know, in terms of losses, but at the same time in most cases it limits the possibility of a greater profit: the lower the risk, the lower the profit, because theoretically, if you know a specific industry or sector, it’s easier to leverage that knowledge to make a profit without the need to diversify, I repeat, theoretically.

It is called related diversification which seeks to combine old and new activities in a way that offers better results than would occur separately. This can be achieved thanks to technological compatibility. between the two, or because they share certain aspects of their marketing. It is possible to distinguish two types of related diversification: vertical and horizontal integration.