How to Decide in Which Sector to Diversify?

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Stefka Nenkova, Student (University), Netherlands
When a firm decides to diversify there could be several possible factors to take into account when making the choice for the business or industry in which to diversify.
  • According to Neffke and Henning, the factor that matters most is skill relatedness. They argue that a firm will choose to diversify in areas requiring skills that are already held by its labour force. What they mean by relatedness is the collection of skills that a firmís human capital already acquired and formed to achieve a competitive advantage. They hypothesize that the stronger the skill relatedness between the firmís core activity and the activities in another industry, the higher the possibility of that firm diversifying in that industry (it should be mentioned that they consider diversification through internal development and not through acquisition or divestitures).
  • One other view is based on the market power perspective, which is focused on the dominance of large conglomerates in one (...) Read more? Sign up for free

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