Question

Companies diversify. Why? What are the benefits? How does this affect corporate strategy?

Answer 1

Companies Diversify in order to mitigate the risk of concentration. The Diversification can be in forms of geographical markets, New products or product lines, or new line of business. This is done in order to lessen the risks of overconcentration and overdependence on one market, one product line or one business. It is also done when the markets get saturated or when new markets open up. The revenue flow also gets diversified where the company is able to cover the revenue deficit from one market. Therefore, the predictability of revenue increases for the group. It affects corporate strategy in the sense that there is a need for a local strategy as well as group strategy. Different markets or businesses will require different approaches and there will be a need for specialized resources and manpower. Therefore, Diversifying will require more decentralization approach as compared to a single centralized approach.