Question

Explain in depth "unrelated diversification".

Answer 1

Unrelated diversification is that diversification that involves entering a completely new industry. It should be noted that in an unrelated diversification the new industry that the company enters into is absolutely not at all related to the company’s existing industry nor bears any similarities to it. Usually an unrelated diversification is mostly accomplished through a merger or an acquisition though this may not always be the case. Thus in an unrelated diversification a company adds new or unrelated product lines and by adding these product lines the company penetrates new markets altogether.

Take the example of UK’s Virgin Group. The company started as a record mail order company and then focused on unrelated diversification by entering into different industries like media, airlines, etc.

A good example of unrelated diversification in USA is General Electric (GE). The company is present in the following unrelated industries – power and water, oil and gas, energy management, aviation, healthcare, and appliances and lighting.