One keeps on hearing this mantra of how Pakistan desperately needs diversification in its exports and why it matters. For example, how the current basket is unhealthily skewed towards the textile industry and why its weightage in the overall export basket has to be reduced; easier said than done. Justifications range from diversity being: a harbinger of greater market access; a business asset that improves performance to it simply being the right thing to do. Indeed, the clarion call for improved diversity has been adopted at the very highest levels. What is more, even leading economic consultancies and global financial institutions draw marked attention to it and how diversification can in fact downgrade national economic risk and at the same time open up the pot of opportunities for a country. Given the diversity rhetoric that is all around us, there has been surprisingly little consideration on the impact of what it can actually do to the structure of an economy if conducted without grappling with the possible fallouts, meaning undertaking diversity just for the sake of it. A recent study from Yale investigates some justifications that economic managers use to explain their commitment to export diversity, and how these justifications in turn affect the economic performance itself.

Basically, we see that national decision makers or the experts recommending it use two broad cases to justify their commitment to export diversity—the ‘fairness case’ (e.g., “We value diversity because it is the right thing to do”), and the ‘business case’, which argues that such diversity is valuable because it benefits an economy’s performance and ultimately its bottom line. One is here also familiar with the typical business-case language, which communicates that with more and more sectors operating efficiently at the same time, the resultant environment tends to increasingly engage and promote people of different skills, perspectives, experiences, and working styles and that it is precisely these “unique contributions” that drive the success of diverse economies, giving them the luxury that if one sector slows down there is always another one to compensate for it. Now what the researchers at Yale did was to create an algorithmic model that used Artificial Intelligence to analyse what the Fortune 500 companies say about diversity (using publicly available text drawn directly from their websites). Their argument is that when the case is expanded the outcome in an economy in essence is a result of similar elements that drive a large corporation that operates on a global scale—much like a national economy. Interestingly, first, it found that the business case rhetoric is far more prevalent than the fairness case for diversity. Indeed, less than five percent of companies offered a fairness-case justification, while 78 percent offered a business-case justification. Second, more pertinently, they deciphered that the financial results, in reality, start declining when product diversification exceeds a certain point. Meaning, that corporations and countries need to find the correct equilibrium between specialisation and product diversity if they want to succeed sustainably.

To further find out how an obsession to seek diversity affects potential performance, they conducted another set of 5 online experiments with companies that felt that their offerings in the market are either inadequate or underrepresented. Within these experiments, it was ensured that the representatives of the company consisted of at least a one-third group of employees who felt that they were champions in the workplace of underrepresented ideas: not enough innovation, too much focus on single product specialisation, loss of market share and/or revenue due to an insufficient product line, efforts being limited to narrow focus areas, etc. Each group was randomly assigned to read either a business-case or fairness-case diversity statement and answer questions about their anticipated sense of belonging, and how much they would want to lead the company if given the chance to do so. While in the outcome the business case language may seem positive at first glance, however, through a complex tabulating process using a variety of permutations and combinations, importantly the emerging theory that came out was that every company has a distinct culture, its employees a particular area of expertise based on their mindset and habits, a unique set of inputs and resources at their disposal and a core set of values that drive a specific operation. An effort to significantly tamper with this natural equation often tends to be counterproductive and invariably ends up eroding even the advantage the company possessed in the first place. They argue the same tends to be quite true even in the case of countries.

Concluding, it is always good to realise that no justification is necessarily the best justification. In some of their studies, they consciously included companies where a company simply stated its commitment to overall business diversity without really ascertaining its core strengths or just wanting to achieve it with no real justification or a proper success analysis on which to base such a desire. Interestingly, they found that the basic business case (one that is without conducting a deep study on its advantages and fall-outs) of product diversity performed less well even than a simple “no case” condition of just doing nothing or pure inaction. The inference being that for large corporations or for that matter national economies, unplanned or poorly thought through endeavours of seeking sector diversity—especially in exports where one is competing regionally or globally instead of merely at a domestic stage—more often than not backfire if the goal of such rhetoric is diversity only for the sake of diversity.

Lastly, when it comes to developing or poor economies, they already have scarce resources and sometimes it is better to spend those in the areas and fields where they already have some competitive advantage and success rather than squandering them on new fields that may never bear fruit. If we also try and properly understand these results in the context of Pakistan, one can conclude that perhaps it may be prudent for us to put any notions on export diversity on hold for now till such time when we have truly optimised the available potential in the industries and areas where we already have a reasonably sound foothold. For example, again giving the example of textiles, our market share of the total global trade is still only around 2 percent, putting us a long way away from thinking about diluting our rather limited resources or prematurely starting to experiment with other new sectors!