The multi-sector business model has firmly established itself as a key strategy for the world’s largest corporations, serving as an essential element of sustainable economic growth.
In an environment of market instability and increasing competition, diversification has become not only a means of risk mitigation for many companies but also a necessary tool for survival and prosperity. The example of American corporations in the 1950s, thoroughly examined in Michael Gort’s study “Patterns and Trends in Diversification” (1962), provides convincing evidence of this approach’s effectiveness. For Kazakhstan, where core industries still depend on a limited number of resources, an understanding of the multi-sector model could form the foundation of a long-term diversification strategy in the industrial sector.
According to Gort’s study, in 1954 only 1% of American companies operated in multiple industries, but their role in the economy was unexpectedly significant. These enterprises provided approximately 38% of all jobs, with their contribution to the manufacturing sector reaching 53%. Successful diversification allowed these companies to take key positions in the market by distributing resources across various activities, thus reducing risks. As a result, the multi-sector structure not only strengthened the positions of large companies but also provided stability during periods of economic fluctuation.
For Kazakhstan, where businesses are often concentrated in one or two core areas, a multi-sector business model could serve as a useful guide. The development of secondary sectors that complement primary production will not only reduce risks in a volatile market environment but also help create new jobs, which is crucial for a limited labor market. The U.S. example shows that successfully balancing core and additional sectors can significantly enhance a company’s overall resilience to crises and external shocks.
One of the key advantages of the multi-sector model is its ability to diversify risks through secondary areas.
Gort’s research indicates that in 1954, 45.3% of all production activities in U.S. multi-sector companies were in areas that contributed less than 2% to total employment. This shows that these companies effectively utilized even small segments, allowing them to balance risks and respond faster to changes in the market environment.
Companies using the multi-sector model can shift resources from one industry to another to offset temporary declines in demand in certain segments. For Kazakhstan, where key industries like oil and metallurgy are subject to global market price fluctuations, this approach could be particularly beneficial. For example, for Kazakhstan’s chemical and metallurgical companies, this could mean adding new products or materials that may be in demand in various market segments.
In his study, Michael Gort notes that the rate of adding new products by major U.S. companies increased significantly after World War II.
From 1929 to 1939, the average annual number of new products was 48.4 units per year. However, by 1950–1954, this figure had more than doubled to 107.8 units. Notably, despite the rise in global competition and economic cycles, U.S. companies continued to actively invest in new sectors, thus reducing their dependence on core industries.
For Kazakhstan, where economic cycles and commodity markets significantly impact key industries, the U.S. experience can serve as a guide. Introducing new sectors and products can reduce risks associated with fluctuations in demand and market uncertainty. For example, Kazakhstani companies in the agro-industrial sector could consider adding related products, such as processed agricultural goods or consumer-ready products, which would help mitigate the effects of seasonal fluctuations.
Diversification not only helps redistribute risks but also stimulates the introduction of innovations and new technologies.
Gort notes that American companies began to actively invest in related industries, such as chemical manufacturing and machine production, which fostered the creation of new products and strengthened their positions in the market. For example, companies initially engaged in rubber manufacturing expanded to produce plastics, aviation equipment, and rocket technology components.
For Kazakhstan, which strives for technological independence and competitiveness, applying such strategies is essential. Developing new areas such as data processing technology, agricultural technology, or electronics manufacturing can provide the necessary foundation for building an innovative economy. Moreover, such diversification will minimize external risks associated with import dependency and create conditions for long-term sustainable growth.
American companies, including major corporations, applied the multi-sector model to achieve flexibility and adaptability in global market demands. Gort’s study notes that diversification enabled companies not only to cope with cyclical fluctuations but also to enter new international markets. In a globally competitive environment, where local markets are becoming less stable, the multi-sector model allows companies to gain competitive advantages.
For Kazakhstan, which is actively developing its export potential, this model could become a strategic direction. For example, mining companies could expand their range of services by processing raw materials or producing final products for international markets. This would not only increase the added value of products but also strengthen Kazakhstan’s position on the global stage.
It is worth noting that many large U.S. companies, despite actively developing major areas, applied a model where a significant portion of operations was focused on relatively small sectors. According to Gort, in 1954, approximately 32.4% of U.S. multi-sector companies’ operations were in sectors that contributed less than 1% of the company’s total employment. The importance of such “buffer” sectors lies in their ability to support long-term development, reduce dependence on one sector, and minimize risks associated with external factors.
Kazakhstani companies should consider establishing similar small sectors that could serve as a reserve in case of unfavorable changes in core markets. Such sectors can be particularly useful in reducing vulnerability to global changes in supply and demand, supporting sustainable development.
The experience of American multi-sector companies in the 1950s confirms that diversification and a multi-sector business structure are reliable tools for risk management and increased competitiveness. These companies play a crucial role in the economy by creating jobs, stimulating innovation, and maintaining stability over decades. For Kazakhstan, which seeks effective tools for sustainable growth, the diversification model may provide the solution needed to reduce dependence on a single industry and ensure long-term development.
In a world of global uncertainty and intensifying international competition, the multi-sector model can give Kazakhstan an edge on the global stage. The combination of various business areas can be a foundation for economic stability and a new economic landscape built on innovation and resilience.
Prepared by: Alen Serik, expert of the Economy kz portal
