Economics of Industry

In: Business and Management

Submitted By smridhi
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Pages 7
Economics of industry

According to Daniel O. Klier, diversification is defined as a process when the firm enters into a new product category than the industry that it is currently working in. Thus, diversification leads to the firm entering into new markets by offering new product range. Currently, many companies have been initiating to enter into diversification since it helps to reduce their dependency on a single product range and its limited market. Over a period of time, many companies have been diversifying to reduce their risks. For instance, Wipro which is an IT firm few years back diversified into fast moving consumer goods industry, Giorgio Armani which is a fashion luxury goods brand diversified into hotel industry, Hindustan unilever limited diversified into water purifiers etc.
A firm can diversify into three categories:
Concentric diversification: in this type of diversification the companies would like to generate those product categories which require the same technology inputs. Thus, the company will be using the same research and development and technological knowhow and enter into a new product category. For instance, for instance, Maggie has introduced soups and ketchups where the technological efforts in the food processing market remain the same but the product is new.
Conglomerate diversification: in this type of diversification, the company is entering into a new industry with a new product range which is not similar to its products in any form. for example: Wipro which is a IT firm few years back diversified into fast moving consumer goods industry.
Horizontal diversification: in this type of diversification, the company would enter into a industry which may not be similar to its existing product range in technological sense but the customers would be the same for the company. For example Reynolds was initially selling pens and later…...

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