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Agency and Institutions: National Divergences in Diversification Behavior

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  • Bruce Kogut

    (The Wharton School, University of Pennsylvania, 2041 Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104-6370)

  • Gordon Walker

    (Cox School of Business, Southern Methodist University, P.O. Box 750333, Dallas, Texas 75275)

  • Jaideep Anand

    (University of Michigan Business School, 701 Tappan Street, Ann Arbor, Michigan 48109)

Abstract

A fundamental theme in comparative crosscountry research is the convergence of organizational forms in diverse national settings. In this paper we examine a special instance of this theme: the pattern of diversification across industries. A common argument is that technical and market forces compel firms to adopt “coherent” strategies of diversification. This thesis implies that there should be a convergence in the patterns of interindustry diversification in all market-based economies. An institutional approach offers an alternative view. From this perspective, when diversification across industries is seen as subject to nation-specific governance and resource constraints, countries should vary widely in their interindustry diversification patterns.To test these alternative views, we analyze the diversification patterns of large corporations from five countries: France, Germany, Japan, the United Kingdom, and the United States. Our results do not support the hypothesis of a common pattern of diversification across countries, and thus reject the technological thesis. By comparing two case studies in which entrepreneurs attempted to diversify by acquisition in France and the United States, we examine how institutions and agents interact to permit different diversification patterns to arise in diverse national environments.The statistical results and case studies imply that, given the fixity of certain institutions, even if countries are subject to globalization, convergence in diversification patterns is not necessary. The results cast doubt upon the merits of stylizing the debate as a choice between technical and institutional theories of organizational choice. Rather, the study points to the importance of two theoretical statements. The first is to inquire under what conditions there is likely to be consensus on a given “means-end” rationality for a specific managerial decision (e.g., diversification). The second is to understand the structural opportunities available to entrepreneurs for diversifying through acquisitions. Iterating between these cognitive and structural considerations shifts the focus from the false debate between technological and institutional arguments to the study of entrepreneurship situated in historically given national environments.

Suggested Citation

  • Bruce Kogut & Gordon Walker & Jaideep Anand, 2002. "Agency and Institutions: National Divergences in Diversification Behavior," Organization Science, INFORMS, vol. 13(2), pages 162-178, April.
    • Handle: RePEc:inm:ororsc:v:13:y:2002:i:2:p:162-178
    DOI: 10.1287/orsc.13.2.162.533
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    8. Moschieri, Caterina & Campa, José Manuel, 2014. "New trends in mergers and acquisitions: Idiosyncrasies of the European market," Journal of Business Research, Elsevier, vol. 67(7), pages 1478-1485.
    9. Saptarshi Purkayastha, 2013. "Diversification Strategy and Firm Performance: Evidence from Indian Manufacturing Firms," Global Business Review, International Management Institute, vol. 14(1), pages 1-23, February.
    10. Hendrikse, G.W.J. & Smit, R., 2007. "On the Evolution of Product Portfolio Coherence of Cooperatives versus Corporations: An Agent-Based Analysis of the Single Origin Constraint," ERIM Report Series Research in Management ERS-2007-055-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    11. Carolin Haeussler, 2011. "The Determinants of Commercialization Strategy: Idiosyncrasies in British and German Biotechnology," Entrepreneurship Theory and Practice, , vol. 35(4), pages 653-681, July.
    12. Laszlo Tihanyi & Robert E. Hoskisson & Richard A. Johnson & William P. Wan, 2009. "Technological Competence and International Diversification," Management International Review, Springer, vol. 49(4), pages 409-431, September.
    13. Ramaswamy, Kannan & Purkayastha, Saptarshi & Petitt, Barbara S., 2017. "How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups?," Journal of Business Research, Elsevier, vol. 72(C), pages 1-13.
    14. Marco-Lajara, Bartolomé & Zaragoza-Sáez, Patrocinio del Carmen & Claver-Cortés, Enrique & Úbeda-García, Mercedes & García-Lillo, Francisco, 2017. "Tourist districts and internationalization of hotel firms," Tourism Management, Elsevier, vol. 61(C), pages 451-464.
    15. Ahmad Bashawir Abdul Ghani & Muhammad Subhan, 2011. "Bio-Technology International Strategic Alliances: The Managerial Perspectives of Malaysian Firms," American Journal of Economics and Business Administration, Science Publications, vol. 3(1), pages 1-11, January.
    16. Jiatao Li & Deborah R. Yue, 2008. "Market Size, Legal Institutions, and International Diversification Strategies: Implications for the Performance of Multinational Firms," Management International Review, Springer, vol. 48(6), pages 667-688, December.
    17. Aharoni, Yair & Tihanyi, Laszlo & Connelly, Brian L., 2011. "Managerial decision-making in international business: A forty-five-year retrospective," Journal of World Business, Elsevier, vol. 46(2), pages 135-142, April.
    18. Sunny Li Sun & Mike W. Peng & Weiqiang Tan, 2017. "Institutional relatedness behind product diversification and international diversification," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 339-366, June.
    19. David M. Waguespack & Eric T. Dunford & Jóhanna K. Birnir, 2018. "Cultural Imprinting, Institutions, and the Organization of New Firms," Strategy Science, INFORMS, vol. 3(2), pages 426-438, June.
    20. Lindner, Thomas & Muellner, Jakob & Puck, Jonas, 2016. "Cost of Capital in an International Context: Institutional Distance, Quality, and Dynamics," Journal of International Management, Elsevier, vol. 22(3), pages 234-248.
    21. Niittymies, Aleksi, 2020. "Heuristic decision-making in firm internationalization: The influence of context-specific experience," International Business Review, Elsevier, vol. 29(6).
    22. Hüttenbrink, Alexander & Oehmichen, Jana & Rapp, Marc Steffen & Wolff, Michael, 2014. "Pay-for-performance – Does one size fit all? A multi-country study of Europe and the United States," International Business Review, Elsevier, vol. 23(6), pages 1179-1192.
    23. Niittymies, Aleksi & Pajunen, Kalle, 2020. "Cognitive foundations of firm internationalization: A systematic review and agenda for future research," International Business Review, Elsevier, vol. 29(4).

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