What is meant by related diversification?

Related diversification refers to a strategic approach where a company expands its operations into areas that are connected or linked to its existing business activities. This can involve entering a new market, adding new product lines, or acquiring businesses that serve similar customer bases or utilize similar technologies. The rationale behind this strategy is to leverage existing operational capabilities, brand strength, and distribution networks while also reducing risk through a broader portfolio that shares commonalities.

By embracing related diversification, a company can achieve synergies that enhance its competitive advantage, such as optimizing production processes, enhancing brand recognition, or accessing new customer segments that align with its current offerings. This strategy is often seen as a way to foster growth while capitalizing on the firm's existing strengths and market knowledge, leading to improved efficiency and greater overall value creation.

In contrast, other options describe strategies that do not align with the concept of related diversification. Expanding into unrelated businesses involves entering entirely different markets, which can increase risk and complexity. Acquiring new technologies may be a necessary step in strategic growth but does not inherently indicate a move toward related diversification unless those technologies directly support existing business operations. Reducing investment in core businesses suggests a contraction or refocusing of resources rather than an expansion into related areas.