The concept of diversification means. Business diversification is a special way to overcome the crisis

Evgeny Malyar

# business vocabulary

Examples, types and characteristics

To express the concept of economic diversification in simple terms, remember the saying "Don't put all your eggs in one basket."

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• Diversification is a forced measure in the economy
• Definition of the term
• Advantages and disadvantages
• Types of diversification
• What is differentiation
• Production diversification
• Business diversification
• Diversification Strategies
• Diversification of the investment portfolio
• conclusions

The meaning of the word diversification seems clear to many. It is expressed by an English proverb-recommendation that calls "not to put all your eggs (or other fragile items) in one basket", but to distribute them in different ones. It is better to have several suppliers than to rely on a single one. The same applies to types of products, sources of income or markets. What does this concept mean in economics? Where and when did it appear? What are the types of diversification? This will be discussed in today's article.

Diversification is a forced measure in the economy

The advice about eggs and baskets is very old, but the real problem of finding economic alternatives arose in the capitalist countries only in the middle of the last century. It was then that serious economic risks began to arise in the form of energy, oil and other crises, unprecedented before, and associated, first of all, with the collapse of the world colonial system.

The level of international competition also increased significantly: “young dragons” appeared in the face of Asian countries (Japan, South Korea, Malaysia, Indonesia). The offer of a high-tech product, previously almost exclusively produced in the United States and several other industrialized countries, made us think about security measures. The specter of bankruptcy loomed before many firms.

No less problems arose in the field of habitual sources of resources. Territories that previously served as "gas stations", "sugar bowls" or "teapots", which seamlessly supplied cheap raw materials to Western markets, gained state independence. They were still ready to sell "colonial goods", but at different prices.

It was then that the active development of diversification methods began, and this happened, as most often happens, by force. However, economics itself is the science of doing business with limited resources. Otherwise, there would be no need for it.

Definition of the term

Without a clear definition, understanding any category is difficult. The morphology of the word partly reflects its meaning: the term comes from two Latin words diversus and facere, which together mean “to do different things” - this is what the word “diversification” literally means.

Now the official wording. Diversification is a set of measures to expand the range, markets, supply channels, investments and sources of financing, carried out in order to extract the greatest benefits and level risks.

Diversification is also possible on a personal level. For example, girls sometimes “give advances” to two (or more) fans at once, and not always because of their frivolity. What if the relationship with one of them deteriorates? There will be a fallback. What is this if not the diversification of matrimonial intentions?

An ordinary bank depositor can place his labor savings in one bank, but the sad experience of the bankruptcy of some financial institutions suggests that it is better to open accounts in several.

It is possible to express what economic diversification is in simple terms by recalling many examples and even folk sayings: from the already mentioned eggs in a basket to a straw spread at the place of the alleged fall.

It should be remembered that when expanding the range, markets and other financial and commodity flows, not only the goal of minimizing risks is pursued. This is done primarily to increase the profitability of an economic entity based on the complementarity of sources of profit.

Advantages and disadvantages

The diversification method is used to ensure the financial stability of an enterprise or state. It has a number of advantages over focusing on a single counterparty:

• a branched market appears, in which, if one buyer (seller) refuses to cooperate, another can be found;
• the risk of bankruptcy is significantly reduced;
• the potential of the enterprise is revealed more widely;
• increases the survivability of the business in the event of a decrease in demand for any product or product group.

However, the method is not without drawbacks. These include:

• complication of management and planning processes;
• reducing the concentration of capital in the primary, as a rule, the most profitable direction;
• the probability of losses, direct and indirect, in the development of new activities. In the initial period, they are almost inevitable.

Despite these obvious disadvantages, focusing on only one supplier or buyer entails excessive threats. Successful examples of companies diversifying from a single product point to the need for many options.

The Swedish company SAAB specialized in aircraft construction, but after the Second World War, it mastered the production of cars using aviation technology.

The Virgin Group holding includes a huge number of companies of different profiles, such as film production, retail, air transportation, audio products, rail transport, financial activities, etc.

Agriculture is characterized by diversification of sown areas. By relying on only one crop, the producer exposes himself to the risk of a crop failure.

By creating an infrastructure for the delivery of hydrocarbons in the form of new pipelines, the Russian Gazprom ensures the diversity of export channels. The risk of overlapping one of them cannot lead to a disruption in supplies.

Types of diversification

From the above examples, we can conclude that there is a variety of forms and types of diversification at all levels. The method is used in the following areas of activity.

National economy. The sovereignty of states with few sources of financial income is under threat. Diversification of the economy refers to the elimination of the imbalance caused by one-sided development. Critical dependence on one (or a few) industries creates the conditions for external pressure (often political), of which there are many examples in the modern world.

Production. A drop in demand for any type of product produced by an enterprise can lead to complete ruin if it is the only one.

activities outside the country. The potential benefits of geographic diversification include, first of all, the opportunity to take advantage of favorable tax laws. Cheap labor resources also encourage many firms to open production abroad. Other advantages may lie in the proximity of the raw material base, energy sources, etc.

Debt insurance. The guarantee of payments is provided by assets in the form of securities. The more types of liquid insurance reserves, the lower the risk of depreciation.

Investments in currency. Both ordinary citizens and entire states, when creating their foreign exchange reserves, take into account possible fluctuations in exchange rates, but it is impossible to predict them with absolute certainty. Large stocks are most often stored in different monetary units and other types of values.

Labor reserves. Both employers and employees themselves are interested in the universalization of personnel qualifications. The former have the possibility of interchangeability, while the latter increase their competitiveness in the labor market.

Investments. Investing in securities of various profitable enterprises increases the financial stability of the holder.

What is differentiation

These concepts are sometimes confused due to the similarity of the meaning of the roots of words - both of them mean a certain separation. Enterprises really use such techniques as diversification and differentiation. The differences are in the nature of the processes. In the course of differentiation, the existing technological capabilities are separated into independent structures.

For example, one factory produced monitors for computers and televisions. Many assembly elements for these products are the same, but in the course of development, the company's management decided to create an additional workshop designed to produce one of the types of products. At the same time, there was no diversification as such: the assortment did not fundamentally change, sales markets and supply channels remained the same.

Differentiation can be carried out according to subject, detail, technological and functional features. The purpose of such isolation is to gain competitive advantages due to a greater concentration of production resources, cost reduction, productivity increase, etc.

One way to differentiate is to create a separate brand. Competitors, acting on the basis of the interchangeability of goods, attempt to replace the products of a particular manufacturer with their goods (having similar qualities). At the same time, the company is interested in obtaining or maintaining its own monopolistic advantages, for which it is forced to constantly update the model range, fight for quality, and take other measures to strengthen its position. Most often, without the separation of individual industries into independent structures, the solution of this problem is difficult.

Production diversification

This is one of the most common types of diversification. Diversification of the company's production means expanding the scope of the enterprise with the inclusion of new directions in it. An example is Japanese zaibatsu or Korean chaebols (diversified corporations), the range of which is extremely wide - from large-tonnage ships to miniature radio equipment.

Such a combination and diversification of production implies the presence of general and auxiliary areas, some of which give a large profit in absolute terms, while others are characterized by high profitability with relatively small turnovers.

Of course, such a strategy has a negative side effect, expressed in the forced diversion of assets for the development of less profitable and even adventurous programs. At the same time, diversification of business activity is competition within the firm itself: a project must prove its viability in order to receive funding. In the course of economic activity of the enterprise, resources are redistributed in favor of the most profitable types of products.

Business diversification

This concept goes beyond the production framework and includes them. Business diversification of companies always begins with maneuvering in search of the most profitable product, and often leads to a radical change in profile. The management of the firm in some cases is convinced of the relative disadvantage of the main strategy.

An example is the history of the American concern Westinghouse Electric, which completely abandoned the production of household appliances and radio electronics in the 1950s in favor of energy and precision instrumentation. Some companies successfully develop the investment direction in parallel with the hotel, printing or other business. In this sense, diversification is the development of activities that are not connected in any way.

Diversification Strategies

There are types of diversification strategy (three), and its types (also three). They should be considered in detail.

Based on these strategies, the following types of diversification are distinguished:

Diversification of the investment portfolio

An investment portfolio is a set of securities owned by one owner. It, in turn, is divided into packages consisting of shares, bonds, currencies or obligations, each of which is put into circulation by one issuer.

It is obvious that the riskiness of investing in securities is the higher, the less in the portfolio of their types. The principle of investment diversification is the same as in any other case, however, the stock market has its own characteristics. It is desirable that the portfolio is divided into packages that have the following features:

• Yield. In itself, variety is of dubious value if the securities do not provide the holder with acceptable interest rates, that is, real returns.
• Industry diversification. Not only individual enterprises, but also entire sectors of the world economy (mining, ferrous or non-ferrous metallurgy, IT, mechanical engineering) are affected by crises and other hard-to-predict circumstances of force majeure.
• Separation by asset class. It can be stocks, bonds, mutual funds or other types of securities, including currencies. For example, with the onset of the 2008 global crisis, holders of many assets suffered, while holders of large sums of dollars, euros and precious metals benefited.
• Different territorial affiliation. Stock and currency rates may depend on the country of origin, the situation in it and other circumstances, including, for example, natural disasters, mass unrest, wars, etc. Diversification of investments in the region means that securities are issued in different countries.
• No cross-correlation. In other words, the security of investments in projects with independent income is much higher than investments in related enterprises or industries. An example is the situation with the decline in activity in the new real estate market. Construction will slow down, which will lead to the stagnation of firms producing bricks, cement and other materials.
• Diversification of deposits. You should not keep all the money in one bank, no matter how favorable the conditions he offers.

Based on the above features, we can conclude that the high diversification of the investment portfolio is the process of the most rational allocation of funds in various types of profitable assets. At the same time, there is a chance that the drop in profit from one package will be offset by an increase in the cost of another.

The same principle is used by financial institutions when planning the issuance of borrowed funds. Diversification of the loan portfolio of a commercial bank in the Russian market provides for its division into the following categories:

• borrower groups. Most often, diversification is implemented by setting limits on the issuance of consumer loans in percentage or absolute terms.
• Accepted collateral. In the event of a fall in the market price for a particular type of collateral (real estate, cars, etc.), the bank may find itself in a difficult position when selling it.
• Interest rates. The flexibility of the accrual system serves as a tool for minimizing risks.
• Repayment terms. The financial institution diversifies loans in such a way as to maintain the uniformity of incoming cash flows. Otherwise, there may be problems with capital turnover.

Any business, even the most successful, cannot function unchanged for an arbitrarily long time. However, there is an important technique that increases the stability of the business model and significantly reduces the risk of critical losses under the influence of changed circumstances. It's about diversification.

The external environment is changeable, and any model is constantly tested for strength, forcing us to constantly keep abreast of new trends and adjust the business in accordance with economic trends and changes in the business climate.

What is diversification and why is it necessary

Generally speaking, this concept opposite of specialization. Namely, the expansion of the range of products and services, as well as the development of new markets.

Now everyone should ask an elementary question: why is this needed?

The answer will be equally trivial: for the sake of diversification. If you have not heard this word, then it can be explained as follows: don't put all your eggs in one basket.

That is, in the event of temporary difficulties or a systemic decline in the profitability of one segment of activity, alternative flows must exist and function, which will keep the entire system afloat or even compensate for losses in the area experiencing a decline.

Business diversification

First of all, consider the diversification of production in business. We are not talking about expanding the range, because most risk factors will act with the same degree on different models of products of the same type.

The assortment should be as different as the production base allows, taking into account the reasonable level of investment required to master the release of a new product.

An example of diversification of production is the Czech concern "Ceska Zbrojovka", which, in addition to the specialized production of weapons, has mastered the production of parts for the automotive and aviation industries using its own equipment and using its own engineering technologies. That's an example horizontal diversification.

A diversification strategy is useful not only for large businesses. For example, you can choose different instruments and reduce the risks when investing.

But remember that any family budget investment should be based on financial goals. Diversification is just one way to minimize risk.

A similar expansion may be subject to the range of services. For example, a real estate office at the same time begins to provide services in the field of insurance, not related to real estate, since this allows its material, technical and personnel base.

Another important aspect is the diversification of sales markets. This may require bringing production and services in line with new standards or developing an appropriate legal framework, obtaining new certificates and licenses.

In any case, the goal remains the same: to reduce the losses from complications in one segment of the business by creating and supporting its alternative segments.

Most investors are familiar with the two main classes of securities, stocks and bonds.

However, in addition to these two types, each of us can invest in a wider range of property classes, for example, in real estate, raw materials, gold and even in certain alternative strategies such as currencies, etc.

As a result, each investor can orient his investment portfolio to safe(bonds) and risky financial instruments(shares, raw materials, gold).

In a conversation about diversification with novice investors, one can answer that most people understand this issue wrongly. For example, it is widely believed that if funds are invested in different shares of companies in the same country, then this is already diversification. Or that if you invest in bonds of two neighboring countries, then this will also be diversification. However, more often than not, this is not the case.

Well, the most incorrect example is an investment in investment funds of two management companies or banks that promote the same direction of investment. Yes, such a division can be called diversification between managers, but this is not the process we are discussing in its true sense.

When it comes to truly diversifying an investment portfolio, there are three essential things to consider: risk, correlation, and return.

The diversification process is a risk management method in which a portfolio includes many different classes of property that differ negative or close to zero correlation. It is best if the chosen asset class should achieve a positive return in the long term, but at the same time, in the short term, the financial flow generated by them should not be correlated.

It is for this reason that it is proposed to include in the investment portfolio not only the standard classes of property - stocks and bonds - but also its less common varieties, such as real estate, raw materials and precious metals. Thus, the main element of diversification is insignificant correlation of financial instruments.

Risk diversification

However, when talking about a diversified investment portfolio, one cannot expect its results to be too impressive.

The main goal of diversifying an investment portfolio is to overall risk reduction not at the expense of profitability. At the same time, the return on investment is only a secondary concern.

The point of risk diversification is to ensure that the danger that threatens one part of the business or one of the assets does not affect other parts. The less our segments overlap in different risk areas, the greater the security.

Compilation of an investment portfolio from assets with uncorrelated results reduces risk, because while the return on one asset is falling, on the other, it is likely to rise.

Consider the option with securities. It can be argued that by investing in stocks, we contribute to the growth of the economy, but if the economy goes into recession, the prices of most stocks undergo an adjustment. At such moments bonds can help on which constant interest is charged.

But what if inflation suddenly starts to rise, currencies devalue, the price of oil jumps sharply, or a military conflict occurs in a certain part of the world? In such cases, owning stocks and bonds alone is not the best alternative.

Let's say that when inflation rises, the real profitability of bonds is most often negative, stocks do not provide optimal insurance against a sharp increase in prices, but if we allocate a certain part of the investment portfolio to real estate, commodities or gold, then we can expect more favorable results.

Another example is the rise in fuel prices. Very often, this negatively affects the profitability of companies, as transportation and other costs increase, as a result of which the share prices of these enterprises also fall. But if there are energy carriers in the investment portfolio, then their rise in price generates a counterbalance negative change in prices for shares of transport companies.

Finally, in those situations when there are thoughts about the collapse of the financial system, the depreciation of the currency or similar cataclysms in the markets, most investors direct their funds to gold in order to diversify.

If you already have a successful business, then it might be time to move online. For example, you can - the audience on the Internet and offline is different. Some call it market expansion and some call it diversification, but it's worth a try anyway.

We recommend using KPI to evaluate the performance of a business and the work of personnel, you can read about these indicators.

If you are interested in financial analytics, then from the article at the address you will learn what EBITDA is and what this indicator is used for.

Conclusion

Business diversification allows relatively painlessly endure temporary difficulties- interruptions in sales, a short-term decline in demand or prices for products - and in the event of a long-term crisis, alternative branches of the enterprise's activities can come to the fore and become the basis for re-profiling the company according to a new strategy.

At the same time, diversification, especially in the case of production, as a rule, requires additional investments - in new equipment, technologies, and personnel. The right decision should be based on comparing such costs with the price of risk.

Well diversified investment portfolio will not help to avoid short-term losses, but one thing is clear: with a portfolio of a wide range, i.e., broken down by different asset classes, you can expect approximately the same or somewhat greater profitability, at the same time reducing the overall level of risk. This should be the starting point of every new investor.

When creating a business, everyone strives for success. In every possible way they try to strengthen their positions, and then develop their business. But life sometimes makes its own adjustments. Some people get it right, and some people don't. To do everything you need to succeed, you need, in particular, to correctly build a strategy for your business. This is a very difficult process, and there are quite a lot of difficulties in it. One of the key issues is the question of the possibility of diversifying. What is it for? What exactly is diversification?

Business activity is full of accidents. Moreover, they are intrinsic to it. Even the most carefully thought out business can go through a difficult period. The risks that he may experience may be of a different nature. It is very important to strive in every possible way to reduce them. One of the most important ways to bring them down is what diversification is all about. There are several different types of it. Let's talk about them in more detail. Let us first consider what diversification of capital is. At the stage when decisions are made about investing money in a particular type of business, you can choose different options for action. By investing all the funds in one firm, you can thereby give it maximum support, but at the same time become completely dependent on those random circumstances that may negatively affect this business entity. On the other hand, by investing money in two or more businesses, the strength of such dependence will be significantly reduced. It is unlikely that two different lines of activity will face the same circumstances.

Trying to understand what diversification is, let's pay attention to one more of its types. In business, after all, there are various areas where it makes sense to apply it. This is what product diversification is all about. By releasing additional types of products, the firm will be less dependent on market demand for its individual items.

It also makes sense to talk about what enterprise diversification is. Several different industries can be built, engaged in a separate activity. Here it should be noted that they can be to a greater or lesser extent interconnected. The more they differ, the greater the degree of diversification will be.

One more type of diversification remained unmentioned - risk management. They can be of a different nature in business. As an example, we can list the risks associated with sales, natural conditions, changes in legislation, and others. From this point of view, business can be diversified in such a way that different types of risks correspond to its various divisions.

The strategy of a business is very important, it determines all its main points. To maximize your chances of success, you need to carefully work out the entire scheme of your activities. A detailed study of issues related to diversification will significantly reduce most of the possible risks.

A strategy aimed at different aspects of the development of activities is called diversification. If we consider the translation from Latin, then from two words - diversus (different) plus facere (to do) - we get diversificatio (diversity). And the diversification of the economy means the development of several, absolutely unrelated types of activity at the same time. For example, when a company immediately develops both production and sales.

Penetration and merging

Sometimes this word denotes a large increase in the number of items or types of services, products, as well as the diversification of the economy - this is when the distribution of funds occurs in assets that are different in all respects (to reduce risks) and when the company penetrates into other industries. Sometimes the diversification of production occurs due to the expansion of own capacities, or the method of buying firms that are already operating in the markets of interest to the company is used. The goals are pursued as follows: to open new horizons for the prosperity and growth of business, reduce dependence on a single market, brand, product, balance in seasonal price fluctuations.

Diversification of the economy can be related or unrelated. The first is an increase in diversity in a new direction, which has even the slightest relation to the first, existing direction. The advantages already achieved are used here, which is a big plus for business development: profit growth and risk minimization. Unrelated diversification is the transfer of a company to a new area, completely different, different from the existing one in everything. Absolutely new technologies and special marketing activities should be applied here. As a result, the company becomes diversified, whose constituent parts may not have functional links at all.

Resources

Diversification of production is carried out either using only internal resources, or by attracting third parties. In the first case, new production sites are opened, additional sales directions are being established through the use of third-party manufacturers and their products. This is internal diversification. With the external - the goals of diversification change. Divisions are created outside the existing enterprise through cross-selling, merging or acquiring other firms.

Diversification is such a broad concept that we can talk about different types of activities. In addition to industrial diversification of products and investments, they differ in conglomerate and concentric, as well as horizontal. All types of diversification should be considered in more detail. In any case, all of them are equally characterized by the transition from a one-sided production structure to a multi-profile one.

Diversification Methods

When different prices are set for the same product or for the entire product group, this means that prices are diversifying. And if the capital is dispersed among different investment objects, economic risks are significantly reduced, which means that the capital is diversified.

If marketing or technology (or both at the same time) is massively developed in production in order to introduce services or goods, create new industries that are closely related to goods or services already owned by the production, then such a process is called concentric. And vice versa, if the introduced goods and services, created business and production are in no way connected with the manufactured products, then it is horizontal.

Russia

Diversification of the Russian economy at the moment is the main condition for the country's survival. A lot of things are happening in the world right now that are alarming signs, for example, China suddenly in 2011 significantly reduced the export of rare earth metals. Considering that this country provided ninety percent of all supplies of this product, necessary for telecommunications, computer and defense equipment.

In this way, many branches of world industry that ensure the security of countries can be brought to their knees. The same thing happened in Libya when the United States of America violated the treaty and did not put there huge amounts of printed paper money (Libya never made them itself). Naturally, the gold that was paid for this went to support the civil war against Muammar Gaddafi. The same is true in many cases with our country (recall the long-suffering "Mistrals" and the construction of pipelines). But the worst thing is not even that.

Opinions

Economists close to the authorities do not get tired of repeating that the country can buy literally everything for petrodollars and the development of domestic production is an absolutely superfluous business, because it is unprofitable. They consider the high tax on oil production a mistake, because it contradicts the calculations of economic science. The United States is cited as an example, where most of all research and development is carried out in the oil and gas sector, which even replaces the military industry in this regard. Norway also has a large stabilization fund in case the market falls. Allegedly, one cannot do without such a diversification of the structure of the national economy, which will not spend money stupidly, developing the military-industrial complex.

Regarding the return on investment, the authors of such ideas are, of course, right. Medicine and education are obviously underfunded, and this is the future of our country. But you need to understand that Russia is not located in a vacuum where there is not a single nice and friendly country nearby that would surround us with military bases and install not only radar stations along the entire perimeter of the borders, but also rocket launchers. Unfortunately, this is not the case, we have an environment. And, admittedly, not sweet enough not to consider the situation from the point of view of public policy. These proposals are aimed at undermining the country's security - food, economic, and military. Of course, the diversification of economic sectors in Russia is in full swing, and this is a rather painful process.

Recall

For two decades since the beginning of the 90s, it was precisely the proposed "natural selection" that took place in the Russian economy: they stopped caring about the Russian manufacturer, the state not only did not support it, but did not protect it (with the possible exception of Avtovaz) . As a result, food security was lost, and now, with great difficulty, they are trying to restore it.

Food imports reached eighty-five percent. Now there is an import substitution program, which, of course, is still far from being profitable. Stalin, addressing the congress, said that we did not have an aircraft industry, but now we have it, there was no automobile industry, but now we have it, there was no tractor industry, but now we have it, there was no power industry, but now we have it. What can the government of the 90s say to the people? "Hooray, we had an aircraft industry, but now it's gone ..." And further on all points. In fact, now we are eating up the remnants of the Soviet infrastructure.

Exit

Firstly, it is impossible, it is simply absolutely impossible to entrust the Russian economy to merchants. According to allegory - to expel from the temple. Otherwise, the state will face death, since they act purely for the sake of economic benefit, and - momentary, and for this purpose they will not disdain anything, even the weakening of their native state. However, it is also useless to talk about family ties with them. Gaidar's office profit - mom. In the current situation, diversification of the economy is simply necessary in order not to end up in the place of Libya, Syria, Iraq, and so on - there are many examples.

It is necessary to protect the domestic market with barriers - both tariff and non-tariff - in order to start industrialization-2. The diversification goals of such a plan are quite understandable: enterprises within Russia must reach at least eighty percent of the production of industrial, food products and also capital goods. It is necessary to reduce the dependence of commodity markets on external conditions in order to increase the economic growth of the country. Restrictions are also needed on all capital transactions with the currency (Brazil did it and turned out to be right, China did it, is doing it and will certainly do it). The exchange rate of the national currency is strengthening, external dependence on the markets of speculative capital is decreasing.

Modernization and innovation

The most urgent task for Russia today is the diversification of production, this is a necessity for all countries that depend on the export of subsoil. It is useful to consider the successfully diversified economies of countries such as Chile, Malaysia, and Indonesia. The main thing is that statements about the desire to revive the country's independence should not remain unfounded. The rich countries of the first wave of industrialization, which have moved into the post-industrial period, cannot serve as an example for us, and they never will. The starting data is different. But really successful developing countries, like the ones listed above, can serve as an example. There are few of them, and they still have a lot of economic problems, but that's why they are interesting.

The economy, which is based on the export of minerals, is very different from the exporting economies of other commodities. They have rather weak ties with other sectors of production, highly concentrated natural rent, which they receive most of all in tax revenues, and very, very few jobs. This is especially true for oil and gas resources. And it is not at all so obvious that the only acceptable option for the development of a country mired in dependence on the export of petroleum products is diversification. There are alternatives: increased investment of export earnings abroad, and also the very regulation of production volumes to control the global market that has begun now.

Points for and against"

In favor of diversification, first of all, there is a relationship confirmed by purely empirical studies between the prospect of long-term economic growth and diversification methods. Developing industry, the country activates all intersectoral ties, entrepreneurship is stimulated, prerequisites are created for increasing trade turnover both within the country and with other countries.

Of course, the very concept of "diversification of the economy" can be the answer to any of the questions posed. But the situation has reached the limit of Russia's dependence on the export of resources, problems are torn from this vicious circle, and even now a way out of this situation requires untold political will and huge continuous efforts. So, examples.

Malaysia

This country has always been quite successful in extracting tin, rubber and timber, where it has acquired a fairly well-developed infrastructure by the time of economic diversification. Another of the advantages that are quite diverse: a very convenient geographical position for export, a good climate and a huge number of ports. When the budgetary policy was balanced, it became possible to direct large amounts of investment in reforestation and land development, as well as to support infrastructure: energy supply, communications, and transport. By the mid-70s, the government had ceased to focus on the export of industry, which was based on the cheapness of labor.

Labor in Indonesia cost very little, there was no legal minimum wage even in export areas, and trade unions were inactive, as restrictions were imposed on their activities by the authorities. Macroeconomics also supported wage cuts. The devaluation made it possible to further reduce the cost of production costs. A number of programs launched to support the export sectors of the economy have significantly increased the competitiveness of all goods. The programs included lending, tax breaks, government subsidies for research, and product promotion. Thus, Malaysia has significantly strengthened itself in the world market, which means that the diversification of the regional economy has been successful.

Indonesia

This country was helped by the diversification of the economy, aimed at the most active stimulation of agriculture, with an incredibly fast development and the oil industry, a significant part of the income from which was directed to specific purposes. This includes the development and introduction of high-yielding varieties of rice into circulation, the production of fertilizers and their sale on the domestic market with high benefits, and the development of infrastructure in all agricultural areas of the country.

Agriculture quickly adapted to feed the population cheaply and diversified, the number of industrial workers kept growing, and by the 80s, Indonesia was able to begin work on the development of industrial production. With all this, the level of government spending was tightly controlled (and even now!), so the government accumulated very significant financial reserves. And in order to keep the trade balance at a positive pole, the Indonesian government repeatedly did not disdain the devaluation of the national currency, without violating the relatively free trade regime.

Chile

Chile does not export in large quantities, like Malaysia and Indonesia, its manufactured goods, but the economy has diversified significantly through the export of value-added raw materials (already not small). This was possible because the Chilean resource base is highly developed. In addition, the economic strategy developed by the Chilean government was aimed at leveling fluctuations within the global environment: by accumulating significant reserves in those years when the cost of exported raw materials was high, Chile was actively spending what it accumulated when world market prices fell.

The business climate in the country has improved significantly: the conditions for entrepreneurs are very good, in the ratings of Chile traditionally occupies the top places in this area. Also, there is a very well-developed partnership between the state and the entrepreneur, many private-state enterprises operate successfully, especially in the export section of the economy. Small producers enjoy both informational and financial support, thus the state helps them to enter the world market. The practice of production clusters is developing, where both small and medium-sized businesses are involved.

Diversification of the investment portfolio: diversification, translated from Latin, means “to do different things”, that is, not to get hung up on something, but to distribute. In the field of investment, this term is used to denote the reduction of risks by the distribution of invested funds among various projects.

Let's take a simple example. You have a sum of $100 and invest it in project A. Your friend divides the same amount in half and invests equally in project A and B, which have identical returns. In the event of the bankruptcy of project A (and this is quite real), you lose all the invested funds, and your friend only half. This example clearly demonstrates the correctness of the well-known proverb: "Don't put all your eggs in one basket!".

More than one generation of professional investors has proven in practice the need to diversify the investment portfolio. And in today's fast-paced world, it is worth paying even more attention to this direction. Therefore, we can conclude that the main goal of diversification is to reduce the risks associated with possible losses of financial resources.

What is Diversification for?

In the event of temporary difficulties or a decrease in the relevance of one project, there should be multivariant flows that will play into our hands and leave
keep us afloat, or even make up for a loss in a struggling company. And know that Diversification is one of the risk mitigation strategies.

Proper diversificationinvestment portfolio

It should be noted that for maximum security of investments, they must be invested in the maximum possible number of investment instruments. These include:

• Bank deposits. This tool is the least profitable, however, the most secure.
• Real estate. A very good investment of capital, however, far from cheap, therefore not accessible to everyone.
• Stock. This tool is characterized by both sharp drops and ups. With some knowledge and skills, they can provide high returns.
• precious metals. They are a fairly popular investment method, especially during periods of crisis in the economy.
• Currency. Another super popular investment tool. This is confirmed by the good earnings of many investors on currency dealing.
• Internet investment cover a huge list of possible tools. They are united by a small amount of start-up capital, as well as the possibility of virtual investment.
• Art objects. Quite expensive, as well as a risky method of investing.

At first glance, everything is quite simple. However, with such a variety of investment instruments, it is fashionable to get confused easily. In addition, the investor may simply not have time to keep track of all the changes in each of the instruments. Therefore, working with an investment portfolio should include several important elements:

• Regular monitoring of the situation and changes in existing projects;
• Constant analysis of the profitability of the entire portfolio, as well as regulation of investments;
• Keeping an investment journal with notes on all fluctuations. An e-journal might be the best option.
• Do not stop looking for less risky and more profitable projects.

Thus, observing all the above conditions, and being guided by these rules, it is quite easy to overcome all unforeseen circumstances. In the end, turning the situation to your advantage is quite simple. And the profit received from investment will be maximum.

I will write at the end. Even excellent diversified investment portfolio b will not help with temporary losses, but one thing is clear: having a portfolio of a voluminous range, i.e. with the placement of assets for various projects, one can expect approximately the same or higher arrived, jointly reducing the overall probability of loss.

Don't invest more than you can afford to lose and don't invest in debt!