How does a firm’s product mix evolve? Consider the example of ITC Ltd., a large conglomerate with over $8 billion in revenue. This company started in 1910, producing tobacco, and entered the packing and printing business in 1925 as a form of backward integration. It began producing paperboard in 1979. In 1990 it began the exportation of agricultural commodities, which it describes as a leveraging of their agri-sourcing competency (ostensibly based on their existing ability to source wood and tobacco). They started producing notebooks in 2002, and later expanded to books, pens, pencils, and other stationary over the course of 2007-2009. They entered the food business with ready-to-eat meals in 2001, which their company website describes as “successfully blending multiple internal competencies.” 1 They then progressed into confectionary and wheat flour (2002), biscuits (2003), and instant noodles (2010).

The nature of what a country’s firms produce is not merely a subject of idle curiosity. There is theoretical literature that suggests that a country’s products can matter for welfare. For instance, there can be learning, or spillovers across products (Matsuyama [1992], Harrison and Rodriguez-Clare [2010]). On the empirical side, Bernard, Jensen, and Schott (2006) find that the capital intensity of an industry’s products can affect employment growth and the probability of plant death in the presence of international trade. Furthermore, Hidalgo et al.(2007) find the pairwise export correlations predict the development of future comparative advantage, which implies that countries whose exports are correlated with many products are more likely to develop comparative advantage in a broader range of products. These authors all suggest that both the type and diversity of the products produced by a country can have welfare effects for that country. Thus, a better understanding of the sequence in which products are added by firms can in turn give us a better understanding of the development path of a country, in terms of both product scope and welfare.