The contingent effect of product relatedness on B2B firms pricing strategy. Evidence from India

This paper empirically examines the contingent effect of product-related diversification on B2B firms' pricing strategy. Drawing our arguments from the recent advances in corporate strategy (i.e., resource-based view of the firm and product diversification strategy) and industrial marketing literatures, we argue that product-related diversifiers are more capable in adopting a high rather than a low pricing strategy. We also contend that this relationship will be positively moderated by a number of firm-specific factors, namely a firm's ability to establish high barriers to entry in its focal industry, as well as its strategic decision to invest in promotion strategy. We test our hypotheses against primary data collected from India. The data consists of a cross section from 127 domestic firms and subsidiaries of foreign MNEs operating in the chemicals / pharmaceuticals and the electronics industry. The results provide support for all the aforementioned hypotheses.     

International diversification,subsidiary performance,and the mobility of knowledge resources

We examine the link between international diversification, organizational knowledge resources, and subsidiary performance. The success of international corporate diversification depends on a firm's capability to transfer knowledge to its subsidiaries, and how its local subsidiaries effectively utilize that knowledge. As knowledge resources are imperfectly mobile, a firm may find it difficult to transfer knowledge to its subsidiaries. In our analysis of 4964 Japanese subsidiaries over a 14‐year period, we find that knowledge that is valuable, but not rare, positively affects subsidiary performance in the short term, but not the long term. In contrast, knowledge that is both valuable and rare affects subsidiary performance in the long term, but not the short term. Copyright © 2007 John Wiley & Sons, Ltd.     

Foreign entry and survival: Effects of strategic choices on performance in international markets

This paper investigates effective strategies that can reduce the risk of failure in international expansion by examining the entry and survival of foreign subsidiaries in the U.S. computer and pharmaceutical industries over the 1974-89 period. Using a hazard rate model, we examine the effects of (1) diversification strategies, (2) entry strategies, and (3) organizational learning and experience on the survival probabilities of foreign subsidiaries. The results show a higher exit rate for foreign acquisitions and joint ventures than for subsidiaries established through greenfield investments. The results also indicate a higher exit rate for subsidiaries that diversify than for those that stay in the parent firm's main product areas. Finally, the results show that firms benefit from learning and experience in foreign operations, which improves the chances of success for subsequent foreign investments. These findings shed light on the dynamic process of international expansion and the evolution of the multinational corporation.     

Do analysts add value when they most can? Evidence from corporate spin‐offs

This article investigates how securities analysts help investors understand the value of diversification. By studying the research that analysts produce about companies that have announced corporate spin‐offs, we gain unique insights into how analysts portray diversified firms to the investment community. We find that while analysts' research about these companies is associated with improved forecast accuracy, the value of their research about the spun‐off subsidiaries is more limited. For both diversified firms and their spun‐off subsidiaries, analysts' research is more valuable when information asymmetry between the management of these entities and investors is higher. These findings contribute to the corporate strategy literature by shedding light on the roots of the diversification discount and by showing how analysts' research enables investors to overcome asymmetric information. Copyright © 2013 John Wiley & Sons, Ltd.     

MNC foreign investment and industrial disasters: The moderating role of technological,safety management,and philanthropic capabilities

Research Summary: We investigate how industrial disasters can discourage FDI and how MNCs' technological, safety management, and philanthropic capabilities can moderate these effects. Using two unique panel data sets of entry and expansion of U.S. wholly‐owned manufacturing subsidiaries overseas, we found that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the disaster industry, but not for all firms in the host country experiencing the disaster. We also found that MNCs' technological, safety management, and philanthropic capabilities can, in some cases, positively moderate the negative relationships between industrial disasters and the foreign entry and expansion of wholly‐owned subsidiaries. Additionally, three‐way interactions with government stability suggest that technological and safety management capabilities substitute government stability in managing industrial disasters, while philanthropic capability complements government stability. Managerial Summary: How can MNCs' technological, safety management, and philanthropic capabilities overcome the effects of industrial disasters such as chemical spills and explosions in host countries? Our results show that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the industry in which the industrial disaster occurs, but not for other firms operating in the country experiencing the disaster. However, an MNC's technological capability can, in general, lower the negative consequences of industrial disasters in both the entry and expansion of its wholly‐owned subsidiaries. Regarding the institutional quality of a host country, the results imply that MNCs should develop philanthropic capability when the government stability of the host country is strong, and develop technological and safety management capabilities when the government stability is weak.     

Multinationals' diversification and the risk-return trade-off

This paper advances a theoretical rationale to explain Bowman's paradox (1980) that firms with high returns can have low risk. Here we draw on the rich body of international management research and argue that global market diversification, which provides firms with three distinct options and opportunities over domestic firms, can explain the high return-low risk profile. We also argue that no strong theoretical rationale exists in support of either related or unrelated product diversification generating such a favorable risk-return profile. By integrating both the product and the global market dimension of diversification into our analyses and by controlling for the industry effect, this paper sheds new light on the relationship between corporate diversification and the risk-return tradeoff. The results of this research, which are based on the diversification experiences of 125 multinationals, reveal the strikingly important, though so far overlooked, role that global market diversification plays in the joint management of corporate risk and return. Global market diversification here reflects both the multiplicity of international market areas in which a firm operates and the distribution pattern of a firm's industries across these multiple areas.     

Diversification strategy,capital structure,and the Asian financial crisis (1997–1998): evidence from Singapore firms

We use agency theory to predict the influence of related and unrelated product diversification on a firm's level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm's product diversification strategy and its debt financing level. Copyright © 2009 John Wiley & Sons, Ltd.     

Corporate diversification: the impact of foreign competition,industry globalization,and product diversification

The globalization of markets and industries has fundamentally changed the competitive conditions facing firms. Yet, how globalization has influenced the international diversification strategies of firms is an issue largely overlooked in both the strategic management and international business literatures. This paper develops a theoretical framework to understand how industry globalization, foreign competition, and firm product diversification may influence a firm's choice of its degree and scope of international diversification. Utilizing a panel dataset of U.S. manufacturing firms for the period 1987–99, we provide the first empirical evidence that industry globalization and foreign-based competition are statistically significant factors explaining the degree and scope of international diversification by U.S. firms. Copyright © 2007 John Wiley & Sons, Ltd.     

Red,blue, and purple firms: Organizational political ideology and corporate social responsibility

Research summary : Why do firms vary so much in their stances toward corporate social responsibility (CSR )? Prior research has emphasized the role of external pressures, as well as CEO preferences, while little attention has been paid to the possibility that CSR may also stem from prevailing beliefs among the body politic of the firm. We introduce the concept of organizational political ideology to explain how political beliefs of organizational members shape corporate advances in CSR . Using a novel measure based on the political contributions by employees of Fortune 500 firms, we find that ideology predicts advances in CSR . This effect appears stronger when CSR is rare in the firm's industry, when firms are high in human capital intensity, and when the CEO has had long organizational tenure . Managerial summary : Why do firms vary in their stances toward corporate social responsibility (CSR )? Prior research suggests that companies engage in CSR when under pressure to do so, or when their CEOs have liberal values. We introduce the concept of organizational political ideology, and argue that CSR may also result from the values of the larger employee population. Introducing a novel measure of organizational political ideology, based on employees' donations to the two major political parties in the United States, we find that liberal‐leaning companies engage in more CSR than conservative‐leaning companies, and even more so when other firms in the industry have weaker CSR records, when the company relies heavily on human resources and when the company's CEO has a long organizational tenure . Copyright © 2016 John Wiley & Sons, Ltd.     

Within‐business diversification in technology‐intensive industries

This study extends diversification research to a new level of analysis, examining how within‐business diversification, which occurs when firms extend existing product lines or expand into new ones, affects organizational survival. While prior research suggests that corporate‐level diversification accounts for relatively little variation in performance, within‐business diversification matters a great deal, by influencing which start‐ups survive and which firms better cope with rapid environmental change. Specifically, we find that the relationship between within‐business diversity and survival is contingent on the amount of environmental change wrought by a firm's competitors as they simultaneously diversify their own product portfolios and innovate technologically. Analysis of the population of U.S. personal computer manufacturers from the industry's founding in 1975 through 1994 supports our premise: Regardless of its effects across businesses, diversification matters a great deal within them. Copyright © 2004 John Wiley & Sons, Ltd.     

Firm and industry as determinants of executive perceptions of the environment

This study examines variation in top executives' environmental perceptions within firms and within industries. More specifically, we investigate how industry and organizational membership affect top executives' perceptions of five environmental attributes. Results indicate that significant homogeneity of perceptions exists within firms and also within industries. Approximately 40 percent of the variance in individual top-level executives' perceptions of aspects of their respective organization's environment is explained by their organizational and industry membership. Implications of the findings for strategic management and organization theory and for future research are presented. © 1998 John Wiley & Sons, Ltd.     

Equity‐based incentives and collaboration in the modern multibusiness firm

Research summary : This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary : Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.     

Responding to public and private politics: corporate disclosure of climate change strategies

The challenges associated with climate change will require governments, citizens, and firms to work collaboratively to reduce greenhouse gas emissions, a task that requires information on companies' carbon risks, opportunities, strategies, and emission levels. This paper explores the conditions under which firms participate in this endeavor. Building on theories of how social activists inspire changes in organizational norms, beliefs, and practices, we hypothesize that shareholder actions and regulatory threats are likely to prime firms to adopt practices consistent with the aims of a broader social movement. We find empirical evidence of direct and spillover effects. In the domain of private politics, shareholder resolutions filed against a firm and others in its industry increase a firm's propensity to engage in practices consistent with the aims of the related social movement. Similarly, in the realm of public politics, threats of state regulations targeted at a firm's industry as well as regulations targeted at other industries increase the likelihood that the firm will engage in such practices. These findings extend existing theory by showing that both activist groups and government actors can spur changes in organizational practices, and that challenges mounted against a single firm or a single industry can inspire both firm and field‐level changes. Copyright © 2009 John Wiley & Sons, Ltd.     

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors. Copyright © 2013 John Wiley & Sons, Ltd.     

The industry context of strategy,structure and performance: The U.K. brewing industry

This paper is concerned with identifying influences on the competitive performance of companies involved in the U.K. brewing industry. It seeks to identify key strategic characteristics, relate these to company performance and move towards an explanation of the influences that emerge as influencing competitive standing. It argues that diversification strategies must be studied as an aspect of industry structure, and shows that more focused, limited diversification and regional brewing strategies may be preferable in the context of the U.K. brewing industry. The research findings conflict with those of many previous studies which research the diversification strategies of primarily large firms (both in the U.S. and the U.K.) drawn from across-industry samples (e.g. the Fortune 500 firms) and which identify superior performance for related diversification strategies. The study therefore provides support for the hypothesis that there is an optimum level of diversification within an industry which balances economies of scope and diseconomies of organizational scale. In the context of the U.K. brewing industry the traditional single or dominant business brewers seem to have found the strategy which matches firms effectively with the important characteristics of industry structure.     

Centers of excellence in multinational corporations

This paper seeks to understand the conditions under which ‘centers of excellence’ emerge in foreign subsidiaries of multinational firms. We define a center of excellence as an organizational unit that embodies a set of capabilities that has been explicitly recognized by the firm as an important source of value creation, with the intention that these capabilities be leveraged by and/or disseminated to other parts of the firm. Drawing on overlapping research in international business and strategic management, we argue that the formation of centers of excellence is shaped by conditions in the subsidiary's local environment as well as by various aspects of the subsidiary's relationship with other parts of the multinational firm. Based on a survey of 99 foreign units in Canada, our results highlight the fundamental role played by parent firm investment as well as the role of internal and external organizations in the development of subsidiary capabilities. Performance implications of the center of excellence phenomenon are also explored. Copyright © 2002 John Wiley & Sons, Ltd.     

Alliance Concentration in Multinational Companies: Examining Alliance Portfolios,Firm Structure,and Firm Performance

Research summary: This article explores the distribution of alliances across firms' internal structure. Focusing on multinational companies, we examine the impact of alliance portfolio concentration—i.e., the extent to which alliances are concentrated within a limited number of geographic units—on focal firms' performance. Relying on Knowledge‐Based View (KBV) insights, we hypothesize that an increase in alliance portfolio concentration positively influences firm performance and that alliance portfolio size negatively moderates this relationship. Our empirical results enrich the emerging capability perspective on alliance portfolios, point to the relevance of conceptualizing focal firms in alliance portfolio research as polylithic entities instead of monolithic ones, and provide new insights into how firms create value by potentially recombining externally accessed knowledge. Managerial summary: In the setting of multinational companies, we examine whether alliance activities are concentrated in a limited number of subsidiaries or are highly dispersed across multiple subsidiaries. We find that, over time, firms exhibit different patterns in terms of alliance portfolio concentration. In addition, the results show that, for MNCs with a relatively small alliance portfolio, an increase in alliance portfolio concentration is positively related to their financial performance. However, when MNCs' alliance portfolios are relatively large, the relationship between alliance portfolio concentration and firm performance becomes negative. Jointly, these findings suggest that the distribution of alliances across firms' internal structure is an important factor in shaping potential knowledge recombination benefits from alliance portfolios. Copyright © 2017 John Wiley & Sons, Ltd.     

Intra‐industry diversification and firm performance

We study how intra‐industry product diversity affects firm performance by analyzing the implications of expanding a firm's product line within its core business. We conjecture that increases in product diversity initially undermine performance because of negative transfer effects but then improve it due to economies of scope. We further theorize that this U‐shaped effect of product diversity becomes more pronounced as the firm increases the intensity of its technology investment, yet is likely to be attenuated by the firm's accumulated experience with intra‐industry diversification. Data on 156 U.S.‐based software firms operating from 1990 to 2001 furnish support for these conjectures. Our study advances emerging research on intra‐industry diversification by underscoring some of its contingent performance effects. Copyright © 2013 John Wiley & Sons, Ltd.     

Alliance portfolio diversity and firm performance

In this paper, we offer a comprehensive alliance portfolio diversity construct that includes partner, functional, and governance diversity. Grounding our work primarily with the resource‐ and dynamic capabilities‐based views, we argue that increased diversity in partners' industry, organizational, and national background will incur added complexity and coordination costs but will provide broadened resource and learning benefits. Increased functional diversity results in a more balanced portfolio of exploration and exploitation activities that expands the firm's knowledge base while increased governance diversity inhibits learning and routine building. Hypotheses were tested with alliance portfolio and performance data for 138 multinational firms in the global automobile industry during the twenty‐year period from 1985 to 2005. We found alliance portfolios with greater organizational and functional diversity and lower governance diversity were related to higher firm performance while industry diversity had a U‐shaped relationship with firm performance. We suggest firms manage their alliances with a portfolio perspective, seeking to maximize resource and learning benefits by collaborating with a variety of organizations in various value chain activities while minimizing managerial costs through a focused set of governance structures. Copyright © 2010 John Wiley & Sons, Ltd.