Should a family firm pursue a highly related diversification strategy or a somewhat less related diversification strategy?
A family firm is generally a small concern. For this reason, it is probably better for it to pursue a highly related strategy.
A highly related diversification strategy is one in which the firm does not stray far from its core competency. In such a strategy, the firm diversifies by making, for example, something that can be used with its main product. This is a better choice for a small firm because it may not have the personnel needed to handle a diversification into an area that it knows nothing about. It is better off staying in an area of the market in which it has a great deal of experience and knowledge.