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CBI: Small business may suffer from lack of diversification

Jul 09 2008

CBI: Small business may suffer from lack of diversification

Specialisation may cause small businesses to suffer in the event of a recession, the Confederation of British Industry (CBI) is warning.

According to the CBI, small and medium-sized businesses are often faced with the inability to diversify, meaning they can be more significantly affected than larger firms in the event of a downturn.

This is because bigger companies may operate in several different sectors meaning if one part of their business is badly affected, other parts may be doing better, enabling them to survive more easily, the CBI comments.

Lai Wah Co, the body's head of economic analysis, comments that a smaller company is more likely to 'specialise in one type of business and, therefore, if business is down or demand has fallen back there is unlikely to be any offset anywhere else'.

The government advisory service for small firms Business Link agrees, advising small businesses that while diversification can pose some risks, it can also limit the impact of market changes.

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