Unit 7 - Diversification for SMEs

Learning Objective

This unit focuses on the diversification strategies as a tool for expanding companies - operation by adding markets, products, services, or stages of production to the existing business activities. Its purpose is to present the various types of diversification, their advantages and disadvantages and how SMEs should approach it. It will also indicate how a company portfolio should be planned and managed.

Estimated Time

It should take you around 45 minutes to complete this unit.


The successful management and development of small businesses is a very serious matter involving a great number of responsibilities. Large companies are managed by teams of professionals in different fields, each one in charge of a specific area and presuming that they have been well selected, despite the wide range of activities, a timely response can be expected when required.

However, owner or manager of a small firm is solely responsible for all aspects of a business. They always have to have a backup plan because, if they are not ready to respond to unforeseen circumstances, their company will face the risk of bankruptcy. That is why the companies always look for diversification opportunities to give them a backup plan allowing their survival in critical situations.

Diversification is also a good business development tool for companies. It brings new opportunities through new product lines and services, as well as entering new markets. By means of its successful realization, businesses can establish a reputation on similar markets with their traditional products or services; or they can offer similar or related goods or services; or they can enter completely new markets.