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International and product diversification: their interrelationship and impact on firm performance

Author

Listed:
  • Bowen, H.P.
  • Wiersema, M.

    (Vlerick Leuven Gent Management School)

Abstract
Corporate strategic decisions regarding the international and product market scope of a firm’s activities are the essence of corporate strategy, and how these choices in turn affect performance is the subject of a large body of research in the fields of international business and strategic management. When making these strategic decisions, managers are likely to take into account that these decisions are interrelated since they will require allocating a firm’s fixed bundle of resources. Yet, the international business and strategy literatures have mostly treated these two scope decisions as independent strategies, and have also largely ignored the interrelated nature of these strategic scope decisions vis-à-vis their expected impact on performance. As a result, little is known about the nature of the relationship between these strategic choices - whether they are substitute or complementary strategies - or how they jointly impact firm performance. To address this important gap in our understanding of corporate strategy, this paper examines the joint and simultaneous nature of the relationships among these strategic scope decisions and firm performance in a unified framework. Our analysis serves to integrate prior international business and strategy research, and our model and empirical methods address a number of shortcomings of prior empirical studies. Our results indicate that the relationship between a firm’s international and product market strategies and its performance is nonlinear, with performance first rising but then falling as the firm’s international or product diversification rises, implying that the performance impact of these strategies is path dependent. Our results also provide the first evidence that, within the firm, international and product diversification are substitute strategies for performance.

Suggested Citation

  • Bowen, H.P. & Wiersema, M., 2007. "International and product diversification: their interrelationship and impact on firm performance," Vlerick Leuven Gent Management School Working Paper Series 2007-6, Vlerick Leuven Gent Management School.
    • Handle: RePEc:vlg:vlgwps:2007-6
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    References listed on IDEAS

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    2. Bowen, Harry P. & Baker, H. Kent & Powell, Gary E., 2015. "Globalization and diversification strategy: A managerial perspective," Scandinavian Journal of Management, Elsevier, vol. 31(1), pages 25-39.
    3. Zúñiga-Vicente, José Ángel & Benito-Osorio, Diana & Guerras-Martín, Luis Ángel & Colino, Alberto, 2019. "The effects of international diversification on the link between product diversification and performance in a boom and bust cycle: Evidence from Spanish firms (1994–2014)," Journal of International Management, Elsevier, vol. 25(4).
    4. Elisabeth Nocker & Harry P. Bowen & Christian Stadler, 2012. "Value Chain Relatedness: Strategic Complementarities and Firm Performance," Discussion Paper Series 2012-03, McColl School of Business, Queens University of Charlotte.
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    6. Michael C. J. Mayer & Christian Stadler & Julia Hautz, 2015. "The relationship between product and international diversification: The role of experience," Strategic Management Journal, Wiley Blackwell, vol. 36(10), pages 1458-1468, October.
    7. Hafner, Cornelius & Pidun, Ulrich, 2022. "Getting family firm diversification right: A configurational perspective on product and international diversification strategies," Journal of Family Business Strategy, Elsevier, vol. 13(1).
    8. Jouida, Sameh & Bouzgarrou, Houssam & Hellara, Slaheddine, 2017. "The effects of activity and geographic diversification on performance: Evidence from French financial institutions," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 920-939.
    9. Cornelius Hafner, 2021. "Diversification in family firms: a systematic review of product and international diversification strategies," Review of Managerial Science, Springer, vol. 15(3), pages 529-572, April.
    10. Dikova, Desislava & Jaklič, Andreja & Burger, Anže & Kunčič, Aljaž, 2016. "What is beneficial for first-time SME-exporters from a transition economy: A diversified or a focused export-strategy?," Journal of World Business, Elsevier, vol. 51(2), pages 185-199.

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    Corporate Strategy; International Diversification; Product Diversification;
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