Product Diversification and International Expansion of Business Groups: Evidence from India

Abstract

Purpose: Does product diversification constrain or boost international expansion of business groups from emerging markets? What is the role of international orientation and group resources in moderating this relationship? Given the dominance of business groups as an organizational form in emerging markets and their recent international expansion, these research questions are pertinent and timely.

Methods: We use general linear square fixed-effects models to test our arguments using longitudinal data on foreign direct investment of 482 business groups, incorporating 4,038 firms from India over a period of 8 years from 2001 to 2008.

Results: We find that a high product diversification has an adverse effect on the international expansion of emerging market business groups, and that international orientation and group resources positively moderate this relationship.

Conclusions: Our findings suggest the inherent trade-off that exists between strategies of product diversification and international expansion for emerging market business groups. Those business groups that can effectively employ their learning from prior international exposure and their technical competences are better placed to simultaneously pursue a strategy of product diversification and international expansion.

Keywords: Product diversification, International expansion, Business groups, India