What term describes expanding by combining with firms in unrelated industries to spread risk?

What term describes expanding by combining with firms in unrelated industries to spread risk?

• A. Mergers
• B. External Growth
• C. Diversification
• D. Vertical Integration (Backwards)

Answer: (C)

Diversification means expanding by combining with firms in unrelated industries to spread risk. By entering different markets, a business isn’t dependent on the same customer base or economic conditions, so a downturn in one sector can be offset by stability or growth in another. This differs from simply merging with another company, which is about forming a larger entity and may still operate in the same or a related field rather than explicitly reducing risk through unrelated diversification. External growth is a broader idea of growing via external means like mergers or acquisitions, but the key aspect highlighted here is entering unrelated industries to spread risk. Vertical integration backwards focuses on controlling parts of the supply chain, such as owning a supplier, which is about controlling inputs rather than spreading across different industries.

Diversification means expanding by combining with firms in unrelated industries to spread risk. By entering different markets, a business isn’t dependent on the same customer base or economic conditions, so a downturn in one sector can be offset by stability or growth in another.

This differs from simply merging with another company, which is about forming a larger entity and may still operate in the same or a related field rather than explicitly reducing risk through unrelated diversification. External growth is a broader idea of growing via external means like mergers or acquisitions, but the key aspect highlighted here is entering unrelated industries to spread risk. Vertical integration backwards focuses on controlling parts of the supply chain, such as owning a supplier, which is about controlling inputs rather than spreading across different industries.