Within‐industry diversification and firm performance—an S‐shaped hypothesis

This study shows that the interplay between “adjustment costs”, “coordination costs” and within‐industry diversification benefits, results in an S‐shaped relationship between within‐industry diversification and firm performance. At low levels of within‐industry diversification, coordination costs are negligible but “adjustment costs” are higher than the synergy benefits of a limited product scope, hence leading to negative performance outcomes. At moderate levels of within‐industry diversification synergies between related product categories substantially increase and outweigh the rise in adjustment and coordination costs, resulting in positive performance outcomes. Yet, extensive within‐industry diversification gives rise to considerable coordination costs, which, coupled with adjustment costs, outweigh synergy effects and hamper performance. The study further shows that a greater change rate of within‐industry diversification results in negative performance outcomes. Copyright © 2014 John Wiley & Sons, Ltd.     

Foreign‐based competition and corporate diversification strategy

Since the mid‐1980s U.S. domestic firms have faced significant increases in foreign‐based (i.e., import) competition as reductions in barriers to international commerce have resulted in markets and industries becoming increasingly global. Despite the growing and widespread importance of foreign‐based competition, the influence that such competition may exert on corporate diversification strategy is a question largely overlooked in the strategic management literature. This paper examines the impact of foreign‐based competition in a firm's core business on both the level and nature of a firm's diversification strategy at the corporate level in a panel dataset of U.S. firms over the period 1985–94. Our findings provide the first evidence that increased foreign‐based competition is indeed a statistically significant factor explaining both the reduced business‐level diversity and the increased strategic focus of U.S. firms that has been widely perceived over the past two decades. Copyright © 2005 John Wiley & Sons, Ltd.     

Power dependence,diversification strategy,and performance in keiretsu member firms

Conceptualizing the keiretsu as a power‐dependence system, we propose that benefits accruing from keiretsu affiliation differ across member firms, depending on their power in (or dependence on) the keiretsu. By integrating power with governance and internal market perspectives on group affiliation, we develop and find general support for the hypotheses that powerful keiretsu member firms are able to place more emphasis on growth in pursuing product and international diversification, whereas less powerful keiretsu member firms are subject to strong monitoring and emphasize profitability. These findings provide support to the study's proposition that power‐dependence relationships in a keiretsu influence member firms' appropriation of group affiliation benefits in pursuing diversification strategies. Copyright © 2004 John Wiley & Sons, Ltd.     

The effects of managerial ownership on international and business diversification: Balancing incentives and risks

Research has examined the effects of managerial share ownership on business diversification, typically from the incentive alignment perspective. Yet, share ownership also shifts risk to managers (the efficient managerial contracting perspective). Furthermore, the effects of managerial ownership on international diversification are unexplored. We examine how managerial ownership influences both international and business diversification in light of the trade‐off between incentive alignment and risk bearing. Based on the differing risk profiles of the two types of diversification, we argue that incentive contracts with higher levels of managerial ownership will be inefficient, i.e., counter to shareholder interests—reducing international diversification and increasing business diversification. Our findings support our arguments for international diversification. We find no significant effect for business diversification after accounting for endogeneity and serial correlation. Copyright © 2013 John Wiley & Sons, Ltd.     

The continuing validity of the strategy‐structure nexus: new findings, 1993–2003

This study analyzes whether a diversification strategy facilitates subsequent divisionalization (and hence that ‘structure follows strategy’), and/or whether the multidivisional structure leads to a diversification strategy (and hence that ‘strategy follows structure’). In theoretical terms, this study is original in that it institutes a debate between the Chandler thesis and other perspectives that challenge the generalizability of the strategy‐structure nexus. Interestingly, this new study with contemporaneous data for the period 1993–2003 sheds light on this contested issue and postulates that despite the criticism of Chandler's contribution, it still works. Our results show that strategic diversification affects structural divisionalization, and in turn, structural divisionalization affects strategic diversification. Copyright © 2009 John Wiley & Sons, Ltd.     

The relationship between product and international diversification: the effects of short‐run constraints and endogeneity

We examine the relationship between growth along the product and international dimension in the short run. We argue that while the presence of fungible intangible resources and economies of scope may create opportunities for a firm to expand along both dimensions, the effect of short‐ run constraints may lead to a trade‐off and a negative association between the two dimensions. In addition, we suggest that rather than being independent, decisions concerning the extent of growth along the two dimensions are likely to be made simultaneously and endogenously by firms after taking into consideration the availability of various resources. We test these propositions by observing a sample of 1,299 firms over the period of 1993–1997. Our results show strong evidence of endogeneity and a negative association between growth along the two dimensions. These findings provide important support for theories of firm growth that have long held that firms are limited in the number of opportunities they can exploit in the short run by various constraints. Copyright © 2008 John Wiley & Sons, Ltd.     

The performance implications of intra‐ and inter‐regional geographic diversification

Engaging the debate regarding the appropriate level of geographic diversification for multinational enterprises (MNEs), we examine a critical, yet unresolved, question: How is performance impacted by the MNE's level of intra‐ and inter‐regional diversification versus the total level of geographic diversification? Using data from 123 U.S.‐based MNEs over a seven‐year period and leveraging both sales‐based and subsidiary‐based measures for diversification, we find that performance increases at an increasingly higher rate as firms concentrate more heavily on intra‐regional diversification. Regarding inter‐regional diversification and total geographic diversification, we find inverted‐U relationships to exist between firm performance and the level of geographic diversification. Different from recent research on multinationality, our robustness checks indicate no evidence of a sigmoidal relationship between the degree of regional diversification and performance. Copyright © 2010 John Wiley & Sons, Ltd.     

How do interdependencies among human‐capital deployment,development, and diversification strategies affect firms' financial performance?

Using key insights from the resource‐based view of the firm, we develop and test a theory of how firms can successfully deploy and develop their strategic human assets while managing the trade‐offs in their service and geographical diversification strategies. In a sample of large law firms we find that, even though firms profit from expert human‐capital leveraging strategy and service and geographical diversification strategies individually, pursuing these strategies simultaneously at high levels produces negative interaction effects on firm profitability. In addition, the internally developed, firm‐specific associate human capital strategically fits better with high levels of expert human‐capital leveraging. While lateral hiring helps firms build new knowledge bases and take advantage of growth opportunities, pursuing high levels of both expert human‐capital leveraging and lateral hiring of associates results in lower profitability. To fully capture the economic benefits from strategies of diversification, human‐capital leveraging and lateral hiring, firms should understand and manage the complex interdependencies among multiple levels of strategy. Copyright © 2005 John Wiley & Sons, Ltd.     

Core business regulation and dual diversification patterns in the telecommunications industry

A firm is confronted with the separate decisions of product and international diversification. It is suggested that these postures are linked to external contingencies in firms who face core business regulation. A technique is developed to explain dual diversification patterns using evidence obtained from the new industry comprised of the Regional Bell Operating Companies (RBOCs).     

Why strategic factor markets matter: “New” multinationals' geographic diversification and firm profitability

This study examines firm profitability differences among “new” multinational enterprises (NMNEs) pursuing geographic diversification into two distinct types of geographic locations based on the development of strategic factor markets. Building on strategic factor markets theory, we propose that firm‐specific advantages of NMNEs contribute differentially to firm profitability because they evolve differently given strategic factor market differences in host compared to home countries. Using a sample of Korean manufacturing MNEs during the 1993–2003 period, we find that geographic diversification into resource‐poorer host countries has a positive relationship with firm profitability, whereas geographic diversification into resource‐richer host countries has a U‐shaped relationship with firm profitability. Our study demonstrates why strategic factor markets—an important and often overlooked contextual factor—matter in exploring rationales for geographic diversification. Copyright © 2014 John Wiley & Sons, Ltd.     

Demand‐side strategy,relational advantage,and partner‐driven corporate scope: The case for client‐led diversification

Research Summary: We advance research on corporate diversification by joining insights from the demand‐side and relational views in strategy to offer a novel theory of client‐led diversification. We propose that client‐led diversification results from a combination of the customer‐driven opportunities emphasized in the demand‐side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client‐specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client‐led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients. Managerial Summary: Explanations of why firms diversify into new lines of business have largely concerned the redeployment of underutilized resources, with little regard to opportunities or influences stemming from firms’ existing customers. In our article, we show how the changing scope of business needs from a knowledge‐based supplier firm's set of existing clients is a central driver of supplier‐firm diversification, and this is especially the case when the level of relational assets shared between a supplier and its clients is higher. In a competitive landscape where suppliers compete intensively for the business of clients, our results show how managers can increase the likelihood of capturing additional business from its existing exchange relationships rather than bearing the risks of seeking new exchange relationships.     

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.     

The long‐term benefits of organizational resilience through sustainable business practices

Research summary : Prior work on the benefits of business sustainability often applies short‐term causal logic and data analysis. In this article, we argue that the social and the environmental practices (SEPs) associated with business sustainability not only contribute to short‐term outcomes, but also to organizational resilience, which we define as the firm's ability to sense and correct maladaptive tendencies and cope positively with unexpected situations. Because organizational resilience is a latent, path‐dependent construct, we assess it through the long‐term outcomes, including improved financial volatility, sales growth, and survival rates. We tested these hypotheses with data from 121 U.S.‐based matched‐pairs (242 individual firms) over a 15‐year period. We also tested, but did not find support for, the relationship between SEPs and short‐term financial performance. Managerial summary : Most managers look for short‐term financial benefits to justify socially responsible or sustainable practices. In this article, we argue that such practices also help firms become more resilient, which helps them avoid crises and bounce back from shocks. However, it is difficult to measure the avoidance of shocks, so we analyzed long‐term outcomes. We show that firms that adopt responsible social and environmental practices, relative to a carefully matched control group, have lower financial volatility, higher sales growth, and higher chances of survival over a 15‐year period; yet, we were unable to find any differences in short‐term profits. We hope this research provides good reasons for firms to practice sustainability beyond the pursuit of short‐term profits. Copyright © 2015 John Wiley & Sons, Ltd.     

Learning and product entry: How diversification patterns differ over firm age and knowledge domains in U.S. generic drug industry

This study uses learning theory to show how knowledge domains affect product extension decisions and how these product decisions change as firms age. Faced with the choice of new product‐markets, a firm might decide to introduce a similar product, by leveraging existing firm knowledge, or to experiment with a less familiar product, which requires new knowledge. Using data on new drug introductions in the US generic pharmaceutical industry, the analyses showed clear support for heterogeneous product‐market entry patterns across knowledge domains as the firm ages. Across time, the form of learning shifts from exploration to exploitation. Copyright © 2013 John Wiley & Sons, Ltd.     

Science,business, and innovation: understanding networks in technology‐based incubators

This study investigates the formation of networks in a major Canadian technology‐based incubator. Technology‐based incubators have spread around the world as a tool to accelerate the growth and survival of high‐tech companies. One of the central features of incubators is the provision of networking opportunities for tenants to establish collaborative relationships with other organizations. Using a qualitative methodology, this study seeks to better conceptualize the interplay between the networking strategies of high‐tech firms and the environment of incubators. This study reveals that far from an undifferentiated phenomenon, different kinds of networks are created in a high‐tech incubator environment. Factors that enable and constrain such networks are identified. This study points to the variegated nature of networks, suggesting that greater attention is needed to the conceptualization of inter‐organizational interactions in technology‐based incubators.     

First mover advantages in international business and firm‐specific political resources

While the currently prevailing conceptual framework of first mover advantages (FMAs) specifies various market mechanisms through which first movers can gain pioneering benefits, it is incomplete by failing to consider the role of political resources in creating FMAs. In this context, this article aims to add the political mechanism to the current classification of FMA mechanisms. The article further serves as a window to an understanding of the long‐term process of acquiring, sustaining, and exploiting firm‐specific political resources in international business, which has been neglected in prior studies on business–government relations. Detailed analysis of three case studies suggests that the causal relationship between political resources and FMAs is a complex one; while non‐market strategies can be used successfully by first movers, they can also be used by late movers to neutralize FMAs. The article proposes a model for understanding the link between FMAs and political resources. Copyright © 2006 John Wiley & Sons, Ltd.     

CUSTOMER POWER,STRATEGIC INVESTMENT,AND THE FAILURE OF LEADING FIRMS

Why might firms be regarded as astutely managed at one point, yet subsequently lose their positions of industry leadership when faced with technological change? We present a model, grounded in a study of the world disk drive industry, that charts the process through which the demands of a firm's customers shape the allocation of resources in technological innovation—a model that links theories of resource dependence and resource allocation. We show that established firms led the industry in developing technologies of every sort—even radical ones—whenever the technologies addressed existing customers' needs. The same firms failed to develop simpler technologies that initially were only useful in emerging markets, because impetus coalesces behind, and resources are allocated to, programs targeting powerful customers. Projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources. Because the rate of technical progress can exceed the performance demanded in a market, technologies which initially can only be used in emerging markets later can invade mainstream ones, carrying entrant firms to victory over established companies.     

A taxonomy of business-level strategies in global industries

This study presents a taxonomy of business-level strategies in global industries. Empirical data suggest there are four broad strategies: domestic product niche, exporting high quality offerings, international product innovation, and quasi-global combination. A discussion of the characteristics and performance differentials of each strategy type is provided as well.