Diversification: Meaning, Benefits and Examples

Have you ever heard of the word Diversification? yep in business is a common term. Diversification is one form of strategy in business operations.

So what is diversification? According to the book Collins Dictionary, diversification is the practice of varying businesses, products, investments, types of assets, and so on in order to reduce risk. In short, it is a different type of business from an existing business

In business operations, companies that depend on one product will be exposed to a higher risk if the product fails in the market. There is an interesting term that is not to put eggs in the same basket, because later if the eggs are broken they will all be damaged. That is why, companies need to diversify by producing other products or services so that companies avoid risks. So the company has 2 or more sources of livelihood

In addition to reducing the risk due to dependence on one product or service, diversifying the business means more profit opportunities that can be obtained. The meaning of diversification makes the company more stable in its business. It's like growing many root branches

Diversification is trying to take advantage of other products or services. If the company experiences a decrease in revenue from the sale of one of the goods or services, the company can still benefit from other products or services. Can support each other

For many large companies, diversification is usually expanding a business that is still related to the company's core business. This is because there is a big risk if the company decides to expand into a business that is not related to the core business.

For example, a company that produces chicken feed will diversify into other businesses, such as being a producer of broiler chickens because the raw materials are still related to chicken feed ingredients.

Another diversification that can be carried out is still related to the core business, namely brick chicken farming, such as diversifying the business by establishing a restaurant

The same company can also set up a sausage company, because a lot of chicken is the raw material for sausages

The meaning of diversification, the company can even expand by opening a restaurant business that sells various kinds of chicken and sausage raw materials

Investment diversification

The meaning of diversification can also mean a strategy in investing and asset placement. Similar to business diversification, in investing the purpose of diversification is to minimize risk. What is diversification in investment? for safety

According to Investopedia, diversification is a risk management strategy that combines various types of investments in a portfolio.

A diversified portfolio contains a mixture of several different types of assets and investment vehicles in an effort to reduce the risk if there is an investment failure in one portfolio.

Diversification of investment assets is usually done in stock investments. Professional investors will place their funds in several investment portfolios.

When the stock price of one of the portfolios is corrected or suffers a loss, the investor can still reduce the losses from the profits of other stock portfolios. Diversification is the most common strategy in investing in the capital market.

So if one focus of your business has been successful, then immediately start establishing a branch of a different type of business from the core business, which is managed separately

Good luck and good luck to you

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