What is corporate diversification and the difference between related and unrelated diversification?

• A. Diversification expands into new products/markets; related diversification shares some linkages to existing business; unrelated diversification lacks such linkages.
• B. Related diversification involves full integration into a completely different industry.
• C. Unrelated diversification shares strong linkages with existing businesses.
• D. Diversification is geographic expansion.

Answer: (A)

Corporate diversification means expanding into new products or new markets beyond what a company currently does. It can be related or unrelated. Related diversification involves entering areas that still share some linkages with the existing business—think common technology, brand, distribution channels, or customer bases—so the company can leverage existing strengths and gain potential synergies. Unrelated diversification, on the other hand, involves new businesses with little or no connection to current operations; the motivation is typically risk spreading or better capital allocation rather than leveraging shared capabilities.

The option captures this by noting diversification into new products/markets and distinguishing related diversification as having linkages to the existing business while unrelated lacks such linkages. The other statements mischaracterize the concepts: related diversification is not about full integration into a completely different industry; unrelated diversification does not entail strong linkages; and diversification is broader than just geographic expansion.