How does diversification contribute to competitive advantage?

Diversification contributes to competitive advantage primarily by spreading investments across different markets or products. This approach allows a company to reduce risk because it is not overly reliant on a single source of revenue. If one market or product performs poorly, the losses can be mitigated by gains in another area. Additionally, diversification can enable a company to take advantage of synergies, where sharing resources, knowledge, or capabilities across different business units leads to enhanced efficiency and innovation.

Furthermore, by entering various markets or launching a broader array of products, a company can leverage economies of scale, access new customer bases, and create a stronger overall brand presence. This strategic maneuvering can result in greater opportunities for revenue generation and stability over time, thereby solidifying a competitive edge in the market.

The other options do not effectively illustrate how diversification fosters competitive advantage, as they either focus on negative aspects or on narrowing a company's scope rather than expanding it in a strategic manner.