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Limitation of Diversification

Diversification suffers form the following limitation:

1. It requires high level of managerial skill and technical expertise to diversify. Firms with managerial and technical inefficiency cannot diversify even if they wish to do so.

2. Top managers may not be able to co- ordinate the diverse business operations if they lack managerial efficiency to manage diversified business operations

3. Huge amount of funds are required for diversification. Firms that are not financially sound will not be able to diversify their operation.

4. By selling new products in new markets, managers are exposed to higher degree of risk. Failure to perform well in new areas will result in huge financial losses.

These limitations can be overcome through scientific forecasting techniques. Through proper demand forecasts, new products will do well in new markets. Training and development programmers increase managerial efficiency to diversify in new areas.

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