Diversification

ASSIGNMENT SUBMISSION SHEET

NAME: SHIVRAJ NARESHKUMAR PATEL

NRIC: Fin: G1099448P

MODULE TITLE: ECONOMICS OF INDUSTRY

COURSE WORK TITLE (Assignment No. and/or essay/dissertation title): DIVERSIFICATION

LECTURER: Dr. Myint Moechit

DEADLINE DATE: 5th July 2013

WORD COUNT: 1414

I certify that this assignment is my own work. It does not reproduce anyone else’s work without proper acknowledgement.

Signed By: __________________________________________________________

DIVERSIFICATION

What is Diversification?

Diversification in simple words is defined as the range of goods or services increased by a firm to reach the maximum efficiency of production. In economic words it is a process in which a growing range of output is produced (United Nations). For example, Mc Donald’s a renowned fast food chain, brought in a new product in the market with the name of “Mc Café”, where they offer different caffes.

Different ways of diversification:

1. Create new lines of business within the firm: For example, apple being a very popular brand produces cell phones, laptops, ipods, etc. But recently they launched a new product Ipad , which is very successful. This is called diversifying the product range internally.

2. Forming joint Ventures: firms can diversify by forming joint ventures. For e.g., In India, Coca Cola had difficulties entering the market because of the high market share of its rival product ‘thums up’ a parle product. Hence Coca Cola formed a joint venture with Parle. This shows diversifying by forming joint ventures.

Why do firms diversify?

To achieve economies of scale i.e.(the increase in efficiency of production as the number of the goods produced increases) a company will achieve economies of scale by lowering its average cost through increased production. (Investopedia). Firms will achieve diversification by simply by increasing the efficiency in the level of production. For example bulk buying, let’s say there are 2 firms x and y...