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Business Diversification

GCSE, AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 5 Feb 2023

Business diversification refers to the strategy of expanding a company's operations into new products, markets, or industries that are different from its current business. The goal is to spread out risk, increase revenue streams, and provide stability for the company.

Examples of business diversification in the UK include:

  1. Tesco - Originally a grocery retailer, Tesco has diversified into areas such as clothing, electronics, financial services, and telecoms.
  2. RBS (Royal Bank of Scotland) - A financial institution, RBS has diversified into areas such as insurance, wealth management, and corporate banking.
  3. BAE Systems - Initially a defense contractor, BAE Systems has diversified into areas such as cybersecurity and commercial aerospace.
  4. BP - Originally an oil and gas company, BP has diversified into areas such as renewable energy and electric vehicle charging.
  5. Unilever - A consumer goods company, Unilever has diversified into areas such as personal care, food, and home care products.
  6. GlaxoSmithKline - Initially a pharmaceutical company, GSK has diversified into areas such as consumer health products and vaccines.
  7. Rolls-Royce - Initially an aircraft engine manufacturer, Rolls-Royce has diversified into areas such as marine propulsion systems and energy.
  8. Sainsbury's - Originally a grocery retailer, Sainsbury's has diversified into areas such as clothing, financial services, and general merchandise.
  9. British American Tobacco - Initially a tobacco company, BAT has diversified into areas such as e-cigarettes and next-generation products.

What are the some of the main benefits of business diversification?

Business diversification can bring several benefits to a company, including:

  1. Reduced Risk - By spreading operations across multiple products, markets, and industries, a company can reduce its exposure to any one specific market, reducing the overall risk of the business. This is an economy of scale.
  2. Increased Revenue - Diversifying into new areas can create new revenue streams, helping to stabilize and grow the business.
  3. Improved Financial Performance - Diversification can lead to improved financial performance, such as increased profits, return on investment, and cash flow.
  4. Improved Market Position - Diversification can help a company improve its market position by making it less reliant on any one market or product. This can provide a competitive advantage and make the company more resilient in the face of economic or market changes.
  5. New Opportunities for Growth - Diversification can lead to new opportunities for growth and expansion, helping a company to continue to grow and evolve over time.

These are some of the main benefits that a company can achieve through business diversification. However, it's important to note that diversification can also bring challenges, such as increased complexity, operational difficulties, and potential cultural conflicts within the organization.

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