Balancing growth across geographic diversification and product diversification: A contingency approach

► We argue that firms simultaneously seek to balance their growth across the geographic diversification and product diversification domains. ► In this seeking for balance, a common strategy is that an under-diversified direction is expanded at the expense of an over-diversified one. ► Firms that hav...

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Bibliographic Details
Published in:International business review 2012-12, Vol.21 (6), p.1052-1064
Main Authors: Hashai, Niron, Delios, Andrew
Format: Article
Language:English
Subjects:
Balancing growth
Diversification
Economic growth
Geographic distribution
Geographic diversification
Hypothesis
Japan
Multinational enterprises
Product diversification
Products
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Summary:► We argue that firms simultaneously seek to balance their growth across the geographic diversification and product diversification domains. ► In this seeking for balance, a common strategy is that an under-diversified direction is expanded at the expense of an over-diversified one. ► 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. ► Firms that have under-diversified in both directions will expand both diversification paths. ► Firms that have over-diversified in both directions will contract in both diversification routes. 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 1990–2000 period.
ISSN:0969-5931
1873-6149
DOI:10.1016/j.ibusrev.2011.11.009