What does the term 'diversification' mean in a business context?

In a business context, 'diversification' refers to the strategy of acquiring or developing different products or services. This approach allows companies to spread their risk by not relying on a single product line or market, thereby enhancing their overall stability and potential for growth. For instance, a company that primarily produces electronics might diversify by entering into the home appliance market, thereby tapping into a new customer base and mitigating the impact of market fluctuations in the electronics sector.

This strategy can be in the form of related diversification, where the new products are similar to the current offerings, or unrelated diversification, where the new products are substantially different. By diversifying, businesses can improve their competitiveness, increase their market share, and create new revenue streams, which is essential for long-term sustainability and success.