Diversification in the business firms is a strategy which allows the companies to earn more income through the profits attained from the sale of different products. Diversification helps the companies to protect their earnings since they influence the market of the products they sell. The operating-related, management and the market-related diversification helps in controlling the demand of the products which are produced by various firms. For example, companies which sell both computer and printers proceed to acquire income from the sale of these products even if the demands for either printers or computers decrease. Companies which utilize the management diversification can determine the balances and individuals who are required to act as the firms’ inputs. This concept allows the worker to focus on the mission of the company thus enabling it to achieve its set goals and objectives (Sun & Govind, 2017). Firms which tend to use the operating-related diversification tend to have raw materials which promote the success of the product. For example, when the prices of steel are usually high, the companies which focus on production of iron tend to diversify in steel thus acquiring more profits from its sale.
On the other hand, diversification helps the firms not to encounter great losses in case the prices and demand for their products go down. Through diversification the business firms to lead others and achieve maximum profits which are used in developing the other sectors of the firm. For example, the HP firms which focus on the computer market has diversified and started selling the HP printers which make them have a large market making their clients focus on the next step to take (Sun & Govind, 2017). Clients demand for the products which are in line with each other helps the firms in making appropriate income from ever market. Therefore, the benefits which are portrayed by diversification in the business firms outdo its disadvantages thus being beneficial to every individual.
Sun, W., & Govind, R. (2017). Product market diversification and market emphasis: Impacts on firm idiosyncratic risk in market turbulence. European Journal of Marketing, 51(7/8), 1308-1331. Retrieved from https://www.emeraldinsight.com/doi/abs/10.1108/EJM-09-2016-0510