Vertical Diversification

Vertical Diversification

In risk management, the act or strategy of adding very different investments to one's portfolio to hedge against the investments already in it. Ideally, this reduces the risk inherent in any one investment, and increases the possibility of making a profit, or at least avoiding a loss. Vertical diversification involves investing in very different securities; for example, one may choose to invest in securities traded in different countries, or in both winter clothing and swimsuit companies. Vertical diversification may be as broad or as narrow as the investor chooses. In general, broader diversification equates to less risk and lower return. See also: Markowitz Portfolio Theory, Horizontal diversification.
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Overall, the company's competitive differentiation lies in the depth of its EIM solution, global footprint, vertical diversification, and the manner in which it is addressing the need for usability and integration with the rest of the supply chain.
Some of the driving forces behind these are the restructuring of oil majors, the globalization of National Oil Companies or NOCs, the transfer of ownership to private equity funds, new market participants, vertical diversification and retraction from niche markets.
Successful strategies have relied on a policy mix of promoting vertical diversification in 'comparative advantage' sectors such as oil and gas and petrochemicals and endeavours into horizontal diversification beyond these sectors with an emphasis on technological upgrade and competition in international markets," the report said.
Successful strategies have relied on a policy mix of promoting vertical diversification in "comparative advantage" sectors such as oil and gas and petrochemicals and endeavours into horizontal diversification beyond these sectors with an emphasis on technological upgrade and competition in international markets," it said.
Aegis' vertical diversification and dedication to customer experience were two major highlights that contributed to its ranking as a Leader in the MarketScape.
On the other hand vertical diversification implies technological improvement in exports from primary to secondary or tertiary sector.
Economic theory generally links vertical diversification with intra-industry diversification while horizontal diversification is usually associated with inter-industry diversification.
The strong positive regression coefficients of horizontal and vertical diversification strategies further suggests that both horizontally and vertically related linkages perform better than an unrelated diversification strategy (a reference dummy category).
An example of vertical diversification (or integration) in the business area is any petroleum company which does its own exploration, drilling, transportation, refining and retail sales.
While horizontal diversification lessens the risk of investing entirely in one security, vertical diversification goes beyond that and protects against market and/or economical changes.
Vertical diversification into the value chain of crude oil is the first phase, nevertheless, the need will always be for horizontal diversification away from oil dynamics that are inherently volatile.
If a company seeks vertical diversification to reach an expanded market, it may acquire the technology from abroad through a licensing agreement, by acquiring a foreign firm, or through some other association with a foreign firm.