This paper examines the country-versus-industry debate in international diversification in the context of systematic risk. We employ the popular decomposition approach proposed by Heston and Rouwenhorst and cover 2,045 individual firms from 36 emerging countries across 39 industries. Generally, we find a domination of country factors in the sample period of 1990–2012, particularly after the 1997 Asian Financial Crisis, which implies that country-based diversification is still superior to industry-based diversification in emerging markets. In addition, we document high variability of the common factor coupled with a diminishing trend of country and industry factors, which limits the desired risk reduction from diversification in emerging markets. A convergence between systematic and total risk is found beginning in 2007, which coincides with the timing of the Global Financial Crisis.