Question

 Vimal Company Ltd., were earlier producing pencils, now they have decided to further venture into the field of notebooks and paper. What do you think is the company attempting to do? Identify and explain the concept

Answer 1

 The concept is of diversification. It is a process of adding new products or markets to the existing, by an enterprise. Here, the enterprise thus is able to produce more types of products e.g. not only washing soap, but toilet soaps, shampoos, detergents, washing powders etc. are produced by such enterprises. For example, Samsung not only produces TV but washing machines, copying machines, printers, etc.
Usefulness of diversification for an enterprise:

1. Risk is reduced: If one type of product is not sold then other products can be sold. This reduces the chances of incurring overall loss to the enterprise.producers are producing the product.
2. Continuous revenue: By diversification an enterprise continuously receives payments. This makes the inflow a continuous process. The financial obligations of the company can thus be easily met.
3. Financial obligations can be met easily: Due to a variety of products being sold the cash flow becomes regular. This helps in fulfilling the financial obligations like installments premium, payment for power, payment for raw material, etc.
4. Helps in branding: When one product is able to gain faith of consumers, then this faith can be utilized for increasing the sale of other products. Thus, a brand name comes into existence.