Skip to main content

Qualities of diversification that you should consider



Image courtesy of Stuart Miles at FreeDigitalPhotos.net


Hello readers, today I will be writing about diversification. This could be seen as a situation whereby a business enters a new market by developing a new product (goods or services). Diversification in business is also done to minimize risks just like when you diversify your investment portfolio. However, it is also done to create more profit as well as a competitive advantage for a business.

Some researchers say that diversification could destroy as well as create value. As such caution must be taken to ensure that the business is entering a market that they fully understand. The business must also ensure that they possess the tools to compete in the market. That way value will be created rather than destroyed. Businesses in a declining industry tend to diversify their products, with the goal of mitigating the risk associated with a declining industry. 

Porter's essential tests can also be used to know if diversification will add value or not. This includes three tests which are

- The attractiveness test: The new market being entered must possess some qualities your business will find attractive. It could be the market size or the market growth or the profit being made in the market.

- The cost of entry test: The barrier to entry must be low, the cost to enter the market must not consume all your financial resources.

- The better off test: A competitive advantage must be gained when a business decides to diversify its products. If no competitive advantage will be gained then the business should not diversify.

Among other factors will be the condition of the market such as the legislations governing the market, is it practicable by your business if not do not enter the market and other factors. The financial capability of the business will also matter. When all of these factors have been considered and they all seem positive then a business should go ahead and diversify. That is all, keep checking my blog regularly. Cheers!


Comments

Popular posts from this blog

Work-life balance: all should attain it

Hello readers, today I will be writing about work-life balance. According to businessdictionary.com, work-life balance "is a comfortable state of equilibrium achieved between an employee's primary priorities of their employment position and their private lifestyle." All work and no play makes Jack a dull boy, thus, you should find a balance between work and play. Here are some tips to help you achieve it.
1. Do not check your email (work) after working hours, this will help improve the quality of time you spend with your family and friends. Thus, you should not be distracted by work when spending time with your family and friends. 
2. When you decide to improve the situation of your work life balance, take it one step at a time. For example if you do not get to spend time in the evenings with your family during the week days due to coming back late from work, you should decide to spend one day a week and gradually increase it to two and then three till you get to spend the…

Eid Mubarak

The world of competence

Hello readers, it has been a while. Hope you did not miss me much, the good news is I am back now. Today, I will be writing about competence.
Competence is the ability that enables a company or an individual to deploy its resources effectively. It is neccessary for a company to have a competence target in all its business activities so as to deliver value to its customers. This will help create a competitive advantage for the company.
Competencies must provide value to customers. It must be unique or able to develop greatly or be better than that of competitors. New products and services must be able to be developed as a result of the competence. It must be difficult for other competitors to obtain or imitate.
Continually producing high quality products can make a company become a market leader (which is a core competence) as it provides a company with a competitive advantage. With high quality, higher prices can be demanded by the company from customers and the company will also be able…