What does diversification refer to in the context of business strategy?

Diversification in business strategy refers to a firm's approach of expanding its operations by investing in new products, services, or geographic areas that are different from its existing lines of business. This strategy allows companies to spread their risk across various markets or product offerings, reducing dependence on a single source of revenue. By entering new markets or creating new products, a company can potentially reach new customer segments and enhance its overall growth and profitability.

This strategy serves multiple purposes. For instance, it can help a company leverage its existing capabilities or resources in new areas, mitigate risks associated with market fluctuations in a particular industry, and seize opportunities for growth when the core business may be saturating. Effective diversification can lead to increased market share and improved competitive positioning.

In contrast, the other options represent different concepts. Mergers involve combining two companies into one entity, which is not the same as diversification. Defensive strategies typically focus on protecting a company's current market position rather than expanding into new areas. Acquiring resources from other firms might refer to strategic alliances or partnerships, but it does not encompass the broader concept of diversification, which emphasizes new product or market investments.