Benefits of Diversification

Diversification offers the following benefits:

1. It enhances workers’ skills and abilities. Doing the same work over and over again becomes dull and monotonous. Diversification motivates them to perform challenging and new tasks and increases individual and organizational productivity.

2. It reduces business risks. Loss in one line of business can be compensated by profit in the other.

3. It increases profitability of the firm. A firm those centuries into different product lines earns more profits.

4. It allows firms to grow in size, turnover, and capital, number of workers, salts revenue and profits. It, thus, facilitates growth.

5. It increases competition and reduces the ill effects of monopoly as firms produce goods produced by other firms also.

6. It optimizes use of resources and technology. Use of existing technology in new areas redoes the cost of products and increases productivity of firms. Use of same resources over diversified products provides synergistic diversification.

7. It stabilizes earnings of the firm when existing products reach declining stage of their life cycle.

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