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

• 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
• ISSN: 0969-5931; 1873-6149
• DOI: 10.1016/j.ibusrev.2011.11.009

► 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.