Related diversification: A process that takes place when a business expands its activities into

product lines that are similar to those it currently offers. For example, a manufacturer of
computers might begin making calculators as a form of related diversification of its existing
business.
Related diversification is strategy development beyond current products and markets, but
within the capabilities or value network of the organization.

Four types of related diversification with examples:

1. Vertical integration: Vertical integration is backward or forward integration into adjacent
activities in the value network. Vertical integration is a competitive strategy by which a company
takes complete control over one or more stages in the production or distribution of a product.
Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors,
or retail locations to control its value or supply chain.
Example: Netflix is a prime example of vertical integration whereby the company started as a
DVD rental company supplying film and TV content.

2. Backward integration: Backward integration is development into activities concerned with the
inputs into the company’s current business. Backward integration refers to the process in which
a company purchases or internally produces segments of its supply chain. Backward
integration is a well-known competitive strategy. Through the control of more of its supply
chain, an organization can bring down the costs as well as guarantee access to key materials.
Example: For example, a company might buy their supplier of inventory or raw materials.

3. Forward integration: Forward integration is development into activities which are concerned
with a company’s outputs. Forward integration is a type of vertical integration that extends to
the next levels of the supply chain, aiming to lower production costs and increase the efficiency
of the firm. In other words, it’s a business strategy where a firm replaces third party distribution
or supply channels with its own in an effect to consolidate operations, reduce costs, and
become a step closer to the end consumer.
Example: For example, An FMCG company like Britannia build up its own distribution network
including regional warehouses so that it can directly sell to the retailers without having to go via
wholesalers.

4. Horizontal integration: Horizontal integration is a competitive strategy that can create

economies of scale, increase market power over distributors and suppliers, increase product
differentiation and help businesses expand their market or enter new markets.
Example: An example of a horizontal integration was Walt Disney Company's $7.4 billion
acquisition of Pixar Animation Studios in 2006. Disney began as an animation studio that
targeted families and children. However, the entertainment giant was facing market saturation
with its current operations along with creative stagnation.