Economies of Risk-spreading: The larger the size of the business, the greater is the scope for spreading of risks through diversification. Diversification is possible on two lines as follows:
- Diversification of Output: If there are many products, the loss in the sale of one product may be covered by the profits from others. By diversification, the firm avoids what may be called putting all eggs in the same basket. For example, Vickers Ltd., make aircrafts, ships, armaments, food-processing plant, rubber, plastics, paints, instruments arid a wide range of other products. Many of the larger firms have taken to diversification. ITC diversified to include marine products and hotel business in its operations.
- Diversification of Markets: The larger producer is generally in a position to sell his goods in many different and even far-off places. By depending upon one market, he runs the risk of heavy loss if sales in that market decline for one reason or the other.
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