What is diversification in business?

Diversification in business refers to the strategy where a company expands its operations either by entering new markets or by developing and offering new products. This approach allows a business to spread its risk and explore new revenue streams, which can be beneficial in terms of long-term sustainability and growth. By diversifying, a company can potentially safeguard itself against market fluctuations that may affect its primary product or service line.

This strategy enables businesses to leverage their existing capabilities while exploring opportunities that may not be directly related to their current offerings. For example, a technology company that traditionally sells software might venture into hardware production or a broader tech-related service. This not only enhances the potential for higher profits but also helps in building a more resilient business model.

The other options describe strategies that are more focused or limited in scope. Concentrating on a single product line confines a business's growth potential, while reducing labor costs is primarily a cost-cutting measure rather than a growth strategy. Increasing marketing efforts, while important for promoting products, does not inherently involve the development of new markets or products, and thus lacks the essential characteristic of diversification.