Diversification versus specialization: Generic and localized knowledge

Abstract

One of the basic elements in a firm’s strategy is the choice whether to specialize in one industry or to diversify activities in a variety of industries. This choice has been analyzed and interpreted in a variety of contexts. An unitary framework is consequently missing. In this chapter we will first review the main approaches elaborated in the literature to assess the choice between diversification and specialization. We shall show that technological specifities such as interrelatedness and complementarity constitute the basic underlying explanatory factor. Secondly, we shall show how a unitary framework can be elaborated recognizing the endogenous character of technological specifities and building on the character of technological knowledge, whether localized or generic. Thirdly, we will show how the characters of technological change and firms strategy interact so as to determine a path-dependent process.