How Do Industry Evolution and Conditions Trigger Manufacturing Firms to Diversify into Services?

Manufacturing firms have increasingly diversified into services. This strategy is seen as a response to the evolution of the firm's manufacturing industry and challenging industry conditions. We study the conditions which trigger manufacturing firms to diversify into services, making a distinction between services that are related to the firm's product business and unrelated services. Longitudinal analysis of 410 public firms from 1990 until 2011 shows that diversification in product-related services is triggered by competition and R&D intensity in the manufacturing industry, and most likely occurs in the emerging stage of the industry lifecycle by R&D intensive firms. Diversification in unrelated services is triggered by turbulence in the manufacturing industry and most likely occurs in the mature stage of the industry life cycle by firms with large market shares.