International and product diversification: their interrelationship and impact on firm performance
AbstractCorporate strategic decisions regarding the international and product market scope of a firm’s activities are the essence of corporate strategy, and how these choices in turn affect performance is the subject of a large body of research in the fields of international business and strategic management. When making these strategic decisions, managers are likely to take into account that these decisions are interrelated since they will require allocating a firm’s fixed bundle of resources. Yet, the international business and strategy literatures have mostly treated these two scope decisions as independent strategies, and have also largely ignored the interrelated nature of these strategic scope decisions vis-à-vis their expected impact on performance. As a result, little is known about the nature of the relationship between these strategic choices - whether they are substitute or complementary strategies - or how they jointly impact firm performance. To address this important gap in our understanding of corporate strategy, this paper examines the joint and simultaneous nature of the relationships among these strategic scope decisions and firm performance in a unified framework. Our analysis serves to integrate prior international business and strategy research, and our model and empirical methods address a number of shortcomings of prior empirical studies. Our results indicate that the relationship between a firm’s international and product market strategies and its performance is nonlinear, with performance first rising but then falling as the firm’s international or product diversification rises, implying that the performance impact of these strategies is path dependent. Our results also provide the first evidence that, within the firm, international and product diversification are substitute strategies for performance.
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 InfoPaper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2007-6.
Length: 58 pages
Date of creation: 12 Feb 2007
Date of revision:
Corporate Strategy; International Diversification; Product Diversification;
Other versions of this item:
- Harry P. Bowen & Margarethe Wiersema, 2009. "International and Product Diversification: Their Interrelationship and Impact on Firm Performance," Discussion Paper Series 2009-04, McColl School of Business, Queens University of Charlotte.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David J. Denis & Diane K. Denis & Keven Yost, 2002. "Global Diversification, Industrial Diversification, and Firm Value," Journal of Finance, American Finance Association, vol. 57(5), pages 1951-1979, October.
- Cynthia A. Montgomery & Birger Wernerfelt, 1988. "Diversification, Ricardian Rents, and Tobin's q," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 623-632, Winter.
- Lenn Gomes & Kannan Ramaswamy, 1999. "An Empirical Examination of the Form of the Relationship Between Multinationality and Performance," Journal of International Business Studies, Palgrave Macmillan, vol. 30(1), pages 173-187, March.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Alan M Rugman & Alain Verbeke, 2004.
"A perspective on regional and global strategies of multinational enterprises,"
Journal of International Business Studies,
Palgrave Macmillan, vol. 35(1), pages 3-18, January.
- Alan M. Rugman & Alain Verbeke, 2004. "A Perspective on Regional and Global Strategies of Multinational Enterprises," Working Papers 2004-19, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
- Anderson, James E & Neary, J Peter, 1994.
"Measuring the Restrictiveness of Trade Policy,"
World Bank Economic Review,
World Bank Group, vol. 8(2), pages 151-69, May.
- Lall, Sanjaya, 1980. "Monopolistic Advantages and Foreign Involvement by U.S. Manufacturing Industry," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 102-22, March.
- Farok J Contractor & Sumit K Kundu & Chin-Chun Hsu, 2003. "A three-stage theory of international expansion: the link between multinationality and performance in the service sector," Journal of International Business Studies, Palgrave Macmillan, vol. 34(1), pages 5-18, January.
- N Capar & M Kotabe, 2003. "The relationship between international diversification and performance in service firms," Journal of International Business Studies, Palgrave Macmillan, vol. 34(4), pages 345-355, July.
- Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 359-69, June.
- J. Myles Shaver, 1998. "Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect FDI Survival?," Management Science, INFORMS, vol. 44(4), pages 571-585, April.
- Mona V Makhija & Kwangsoo Kim & Sandra D Williamson, 1997. "Measuring Globalization of Industries Using a National Industry Approach: Empirical Evidence Across Five Countries and over Time," Journal of International Business Studies, Palgrave Macmillan, vol. 28(4), pages 679-710, December.
- Comment, Robert & Jarrell, Gregg A., 1995. "Corporate focus and stock returns," Journal of Financial Economics, Elsevier, vol. 37(1), pages 67-87, January.
- Peter J. Buckley & Robert D. Pearce, 1981. "Market servicing by multinational manufacturing firms: Exporting versus foreign production," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 229-246, December.
- Peter J Buckley & Pervez N Ghauri, 2004. "Globalisation, economic geography and the strategy of multinational enterprises," Journal of International Business Studies, Palgrave Macmillan, vol. 35(2), pages 81-98, March.
- Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
- Teece, David J., 1982. "Towards an economic theory of the multiproduct firm," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 39-63, March.
- Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
- John A Doukas & L H P Lang, 2003. "Foreign direct investment, diversification and firm performance," Journal of International Business Studies, Palgrave Macmillan, vol. 34(2), pages 153-172, March.
- Elisabeth Nocker & Harry P. Bowen & Christian Stadler, 2012. "Value Chain Relatedness: Strategic Complementarities and Firm Performance," Discussion Paper Series 2012-03, McColl School of Business, Queens University of Charlotte.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Isabelle Vandenbroere).
If references are entirely missing, you can add them using this form.