Are Tradeoffs Inherent in Diversification Moves? A Simultaneous Model for Type of Diversification and Mode of Expansion Decisions
Drawing 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.
Volume (Year): 45 (1999)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters, in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446 World Scientific Publishing Co. Pte. Ltd..
- Jean-François Hennart & Young-Ryeol Park, 1993. "Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States," Management Science, INFORMS, vol. 39(9), pages 1054-1070, September.
- Brent D Wilson, 1980. "The Propensity of Multinational Companies to Expand Through Acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 59-64, March.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:45:y:1999:i:1:p:25-41. See general information about how to correct material in RePEc.
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.