Answers:
Diversification, as a strategy, may generate growth in a number of ways.
Product development and market development are two different methods to
diversify, and, we had discussed these two methods earlier. Diversification can
also take place through both new products and new markets. And, a
diversification strategy, whether through product development, market
development or both or any other way, may, mean a new business venture of the
company, a joint venture, etc.
It is useful to distinguish between
‘related diversification’ and ‘unrelated diversification’.
Related diversification means that the new business has
commonalities with the core business or core competence of the company; and,
these commonalities provide the basis or strength for generating synergies or economies
of scale or higher returns by exploiting existing resources and skills in
R&D, production process, distribution process, etc. Unrelated
diversification, on the other hand, is less related to the present business
and skills and resources (except financial) and, may mean venturing into an
entirely new area. The company may have to acquire new skills and expertise for
this. The main reason or motivation for unrelated diversification may be high
growth potential in terms of revenue, market share or profitability. There can
be a number of other reasons also.