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Simple English definitions for legal terms
diversification
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A quick definition of diversification:
Diversification is when a company starts making or selling different products or services. They might do this by buying other companies or expanding what they already do. This can help the company make more money and be less risky. It's like having different types of toys to play with instead of just one.
A more thorough explanation:
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.