In this paper I argue that large defense firms can successfully diversify into civilian markets if innovators gain complementary knowledge and power to promote new civilian innovations. For such firms, diversification is neither easy nor impossible, but requires that new product teams overcome barriers based on bureaucracy, changing managerial regimes, and state policies that discourage diversification. Political barriers to diversification, based on managerial choices and government policies, exist both within and outside the firm. Although specialization hurdles based on knowledge can be overcome, political barriers are more challenging, and limit the rate of civilian spin-offs in large military hub firms.
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