Diversification strategy consist of all projects of regrouping assets at the disposal of the enterprise to activities fundamentally different from in the past. It requires managers to engage in products, trades, technologies and markets that are new to the company.
Requirement for diversification
Diversification strategy almost always requires new financial investment. This activity may be the result of changes that have taken place already on the market, or which is to be expected in the future. Such a strategy is particularly reasonable if the existing system does not create additional growth opportunities. Among the main objectives of this strategy, you can highlight the pursuit of cost savings, spreading the risk, increased financial security, better use of resources, improved economic performance or survival on the market.
Types of diversification strategy
With regard to the depth of the diversification strategies can be divided into two groups:
Centered diversification is the expansion of the new markets that are closer to the environment of the company. It can refer to the differentiation of products, markets and technologies. There are following types of diversification:
- Vertical diversification strategy,
- Horizontal diversification strategy,
- Lateral diversification strategy,
- Rumelt, R. P. (1982). Diversification strategy and profitability. Strategic management journal, 3(4), 359-369.