Dynamic relationship between technological knowledge and products: diversification strategy for firm growth

This study has two separate analyses that examine (i) how a firm's patterns of technological and product diversification are determined through the coevolution of technological knowledge and products, and (ii) the combined role of technological and product diversification in shaping sales growth. We build a dataset of listed manufacturing firms in Korea over the period 1988-2014 by merging financial, patent, and product information. In the first analysis, we find that specialised knowledge in the firm plays an important role not only in improving products in existing market segments but also in developing products in new segments. The second analysis observes that firms with diversified product portfolios based on specialised knowledge show higher sales growth compared to other firms. Our findings suggest that firms need to accumulate specialised knowledge and apply it to products in diverse market segments.