Legal Definitions - diversification

Definition: Diversification is when a company expands its range of products or services by either acquiring other companies or expanding its existing operations. It can also refer to the act of investing in a variety of companies to reduce the risk of losses in one particular sector of the market.

Example 1: A soft drink company decides to diversify into the potato chip market by acquiring a potato chip company. This move allows the soft drink company to expand its product line and increase its profits.

Example 2: An investor decides to diversify their portfolio by investing in a variety of companies across different sectors, such as technology, healthcare, and finance. This strategy helps to reduce the risk of losses if one sector of the market experiences a downturn.

Both examples illustrate the concept of diversification. In the first example, the soft drink company is expanding its operations by entering a new market, which can help to increase its revenue and reduce its reliance on a single product. In the second example, the investor is spreading their investments across different sectors to reduce the risk of losses in any one sector.