Diversification of production

Diversification of economic activity is the expansion of the activity of large firms, associations, enterprises and entire industries beyond the core business, which is understood as the production of goods and services that have the maximum share in net sales compared to other types of products. Diversification – in a broad sense – a strategic focus on the creation of diversified production. This form of organization is the most important component of the modern market economy, which has a significant impact on the system of division of labor, competition, production efficiency .

The boundaries of diversification are very fluid. The more areas of activity of enterprises, the higher the level of diversification.

Diversification means both the adjustment of the main activity of the company, and a significant reorientation of its strategy. The first direction is called high-spectral diversification, the second – broad-spectrum diversification, i.e. not related to the main production.

The level of diversification is measured by two indicators: the identification of the number of industries or the range of goods and services covered by the activities of the firm, as well as the ratio of the main and diversified production.

Diversification is stimulated by the desire of firms in a competitive environment to strengthen their position in the market, to respond in a timely manner to changes in market conditions.

The most common forms of diversification that have been widely developed in industry include concentric and conglomerative (the creation of common companies). Concentration diversification is usually carried out either through the creation of technologies and production for the manufacture of products belonging to the profile of other industries, on the basis of in-house research and development, or through the acquisition of technologies and production of other industries necessary to ensure a complete production cycle. Conglomerative diversification – through the acquisition of profitable enterprises and firms in various industries. Despite the fact that these forms complement each other, the real increase in production is associated only with concentric diversification, while the purchase of existing enterprises is only a redistribution of existing capital.

The search for directions of diversification of production for enterprises of the domestic economy is relevant. The need to adapt to new economic conditions objectively forces us to look for the most profitable areas of application of the created production potential, in addition, in the conditions of transition to market relations in our country, diversification contributes to the overflow of capital and overcoming the monopoly structure of production, the formation of a competitive environment necessary for the market.

The reasons that encourage enterprises to release new products and enter new markets with them can be:

the desire to ensure a stable financial position through the production of more profitable products; the desire to penetrate industries with a high rate of return; reducing the risk of not making a profit.

Currently, most foreign concerns (JVM, Sosasola, etc.) are widely diversified enterprises.

The main danger to the diversification strategy is the dispersion of forces, so it can be carried out by large organizations with great potential.