Balancing Growth Across the Geographic and Product Diversification Domains – A Constingency Approach
International Business Review, 21, pp. 1052-1064
14 Pages Posted: 24 Aug 2013
Date Written: December 10, 2012
Abstract
We theorize that firms simultaneously seek to balance their growth across both the geographic and product diversification domains. To achieve this balance, businesses commonly adopt a strategy of expanding an under-diversified direction at the expense of an over-diversified one. Accordingly, we depict geographic diversification and product diversification as being an endogenous relationship, from which we hypothesize that firms that have under-diversified in a given direction and over-diversified in the other will expand the former at the expense of the latter. Meanwhile, firms that have under-diversified in both directions will expand both diversification paths, while firms that have over-diversified in both directions will contract in both diversification routes. We investigate these predicted relationships and show them empirically using a sample of leading Japanese multinationals in the 1990 to 2000 period.
Keywords: Product diversification, Geographic diversification, Japanese MNCs
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