Diversification is a measure of diversity in the aggregate

Diversification is a strategy aimed at reducing risks by adding assets, services, products, banks to the assets of the organization. This concept is also used in narrower values.

In economic activity, diversification is the expansion of the activity of large organizations or industries beyond the core business. In a broader sense, this is a strategy aimed at diversified production. This form of organization is very important in the current market conditions and has a significant impact on the division of labor and competition.

Diversification of production is the changes carried out by the firm in order to increase efficiency, obtain economic benefits and prevent bankruptcy. In industry, its most common forms are conglomerate and concentric.

The first is usually achieved through the acquisition of highly profitable organizations and firms in different industries. A concentric - due to the fact that the company develops new technologies for manufacturing products, which relates to the profile in other industries. This is based on in-house development and application of technologies acquired in other areas. Although these two directions complement each other, the number of products produced increases only with concentric diversification, while the conglomerate is responsible for the redistribution of existing capital.

There are also horizontal and vertical types of production diversification. The latter concerns the stages of assembly and processing of a single product. Horizontal diversification is an expansion of the range of products in order to attract more buyers. The best option for an enterprise is the combination of these two types.

Diversification is a moving category. The more activity has directions, the higher is its level. It is an adjustment of the main objectives of the firm, and perhaps, a change in the organization's strategy. The first is diversification of a narrow spectrum, and the second is a broad one, which is not related to the main production.

Stimulation of this category is due to the desire of economic entities to strengthen their position in the market in competitive conditions, as well as to respond in time to changes in market conditions.

Currently, the search for new directions for diversification of production is actual. It is necessary to adapt to new conditions in the economy, which encourages firms to find the most profitable spheres of application of the potential created in the enterprise.

The reasons forcing business entities to produce new products and conquer new market segments are:

1) ensuring a stable financial condition together with the release of more profitable products;

2) penetration into industries in which a high rate of profit is observed;

3) reducing the risks that affect the profit.

But it should be remembered that diversification is not a means of reducing risks. On the contrary, it can increase them if the entrepreneur, for example, invests in those areas where his knowledge is not backed up.