7.1. What is Diversification?

Diversification is a business development strategy allowing a company to enter additional lines of business that are different from the current products, services and markets.

In the current conditions of dynamic markets and strong competition, a successful instrument of risk management is to avoid focusing on a single product, service and/or their distribution to a single limited market. When implemented wisely it contributes to keeping the company stable even in hard times since the economic downturn usually occurs simultaneously in all sectors and all markets.

Diversification of business activities brings competitive advantages allowing companies to reduce business risks. That is why it is a great tool for business development. However, its successful implementation requires profound knowledge and thorough preliminary assessment of the company and its environment. And, although sometimes diversification is difficult for the small companies, it can prove to be inevitable when their original markets become unviable.