Which type of diversification is driven by seeking synergies across related businesses?

• A. Related diversification (synergies across businesses)
• B. Unrelated diversification (spread risk)
• C. Vertical diversification (backward/forward integration)
• D. Geographic diversification

Answer: (A)

Diversification driven by seeking synergies across related businesses means expanding into areas that share resources, capabilities, or markets so the combined operations can do more together than separately. The key idea is using common strengths—like same technology, shared distribution channels, or overlapping customer bases—to create economies of scope, reduce costs, or generate cross-selling opportunities. This is what makes related diversification the best fit when the aim is to unlock synergies across the different but connected parts of the business.

In contrast, unrelated diversification adds businesses with little to no overlap to spread risk and allocate capital more broadly. Vertical diversification involves moving up or down the value chain by integrating with suppliers or customers, not primarily to gain synergy across different businesses. Geographic diversification focuses on entering new regions or countries to spread location-based risk rather than achieving cross-business synergy.