Analysis of Advantages and Disadvantages in Diversification Strategy

Diversification Strategy, or called Multi-operatio ns Strategy, means the strategy taken by enterprises engaging two or more kinds of material or labor products for different economic uses in the same time. It is H.Igor Ansoff who was a great economics master famous with his Product-mark et Strategy theory announced in the 1950’s. Coming out of practice of some others, we may draw a conclusion that it looks li ke each of enterprise expansions reduces operating-risk. But in fact, the enter prise probably gains more troubles and enlarges overall-risk if it takes a dive rsified expansion neither concerned with its former vocations nor familiar w ith the new trade it carries on at all. Basic principles of diversification strategy Diversification Strategy leads an enterprise into new trades that it has nev er encountered before. But in the new domain, it will be much stranger in pr oduction, marketing, technology, information and management, and the risk comes to a higher degree. A stable, sturdy and superior major-business is the fundame ntal prerequisite for an enterprise’s existence and development, and also the ba sic premise of taking Diversification Strategy. But major-business with great superiority to others should not be considere d as an assurance of profits in new diversified expansion. It is also one of the most important things to analyze circumstances of the trade we newly encountere d and make a decision among different developing choices. To Diversification Str ategy, the decision means a lot. Fundamental forms of diversification strategy It is with great meaning to choose a proper form of diversification strategy and make choice among entering different developing fields. An enterprise should ch oose developing directions according to its management and strategy objectiv es fit for its resident environments. According to the different diversification levels, we may divide all enterprises taking diversification strategy into four groups: 1) Simple Business Corporation; 2) Major Business Corporation; 3) R elated- diversified Corporation; 4) Non-related diversified Corporation. After gaining knowledge about the basic conditions and forms, analysis about the advantages and disadvantages is quite important to handle the scale of diversif ication strategy. Ⅰ Advantages in Diversification: 1) Fewer risks in operating an enterprise; 2) Trying new profitable fields and keeping a continuous development; 3) Making a good use of original intangible assets and sharing resources altoget her; 4) Easier to achieve the purpose of expand and finally monopolize the market. Ⅱ Disadvantages in Diversification: The operating-risk may be reduced through taking diversification strategy and m ake diversified investment, but the enterprise will encounter new risks with ent ering new trades. Those risks include: 1) Financial risk; 2) Risks in organization and administration; 3) Risk of assets’ decentralization; 4) Risk of unsymmetrical information. Diversification strategy is a two-edge blade. The result that whether it benefi ts or does harm to the enterprise always depends on whether the enterprise takes proper developing directions according to its environments or not.

Diversification Strategy, or called Multi-operatio ns Strategy, means the strategy taken by enterprises engaging two or more kinds of material or labor products for different economic uses in the same time. It is H.Igor Ansoff who was a great economics master famous with his Product-mark et Strategy theory announced in the 1950 s. Coming out of practice of some others, we may draw a conclusion that it looks li ke each of enterprise expansions reduces operating-risk. But in fact, the enter prise probab...