How can related diversification create a competitive advantage for the organization?
The main reason for diversification is to increase brand reach and profitability. A firm that is well known for selling things online can decide to venture into the movie-making industry. The company goes into unknown territories because it believes that there is an opportunity.
Related diversification is whereby the company invests in a new product or service that is usually comparable to the firm’s current industry. For example, Apple is a technology firm that mostly manufactures smartphones and laptops. Interestingly, the company has decided to venture into the automobile industry. The firm will use its technical prowess to create one of the first driverless cars. This is an example of related diversification.
Related diversification gives firms a competitive advantage by allowing them to use their expertise to penetrate a new market and industry. For example, Apple is known for creating quality innovative products. The firm has one of the best research and development departments in the world. As a result, they can use that knowledge to gain an upper hand in the autonomous automotive industry.
Related diversification also allows companies to use connections from their former industry to gain economies of scale. Since the industries are related, there is a high probability that the company’s former suppliers can provide the raw materials for the new venture at a discounted price.
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