Final answer:
Related diversification offers the advantage of reduced risk by balancing performances across different business units. It may also lead to improved brand recognition, lower production costs, and increased market share due to product differentiation and shared resources.
Step-by-step explanation:
The major advantage of related diversification is the reduced risk. When a company diversifies into related businesses, it can mitigate risks because the performances of the sister companies can balance each other out. For instance, if one unit experiences a downturn, another may be experiencing an upswing, buffering against potential losses and providing stability to the overall business. Additionally, related diversification may contribute to improved brand recognition because the company can capitalize on existing brand reputation to boost new products or services that are similar to its current offerings.
Other benefits of related diversification can include lower production costs due to shared resources and expertise, and can lead to an increased market share if the diversified products or services complement each other and attract more sales. Product differentiation, often seen with related diversification, enhances consumer choice and may bolster the overall competitive position of the company.