Are Tradeoffs Inherent in Diversification Moves? A Simultaneous Model for Type of Diversification and Mode of Expansion Decisions
AbstractDrawing on the premise that the diversification decisions are driven by antecedent factors such as a firm's existing resources (Teece 1982) and industry structural conditions, this paper develops formal hypotheses for reciprocity between the type of diversification and mode of expansion decisions. We consider the specificity of antecedent resources that affect these two decisions and conceptually demonstrate that there is a contradictory tension in trying to optimize the decisions jointly implying that one or both diversification decisions have to be sub-optimized (i.e., there has to be a trade-off). We make a conceptual argument that this sub-optimization is likely to be in the form of subordination of the mode decision subject to constraints imposed by resources that are highly specific to the mode decision. Following this, we empirically investigate this contradictory tension by using a simultaneous equation model (SEM) on a large sample of firms between 1981 and 1989. The results suggest that one antecedent factor---internal funds---act as the key mediating influence in the joint optimization and leads to a subordination of the mode decision in the joint optimization process. However, the existence of time compression economies and market power benefits are the exceptions to this subordination and trade off process.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 45 (1999)
Issue (Month): 1 (January)
diversification; relatedness; mode of entry; resource based view;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Quer, Diego & Claver, Enrique & Andreu, Rosario, 2007. "Foreign market entry mode in the hotel industry: The impact of country- and firm-specific factors," International Business Review, Elsevier, vol. 16(3), pages 362-376, June.
- Rodriguez-Duarte, Antonio & Sandulli, Francesco D. & Minguela-Rata, Beatriz & Lopez-Sanchez, Jose Ignacio, 2007. "The endogenous relationship between innovation and diversification, and the impact of technological resources on the form of diversification," Research Policy, Elsevier, vol. 36(5), pages 652-664, June.
- Mudambi, R. & Mudambi, S. M., 2002. "Diversification and market entry choices in the context of foreign direct investment," International Business Review, Elsevier, vol. 11(1), pages 35-55, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.