COUNTRY RESOURCE ENVIRONMENTS, CORPORATE DIVERSIFICATION STRATEGIES, AND FIRM PERFORMANCE.

Abstract

This study reexamines corporate diversification strategies by comparing their performance implications given different country resource environments. We accordingly bring country environmental contexts to the foreground and maintain that different country resource environments embody diverse sets of opportunities and constraints. We argue that two main country resources, economic capital (for transformational activities) and social capital (for transactional activities), set significant constraints for firm strategy. Using a sample from six Western European countries, product diversification was found to be positively related to firm performance in country environments with higher levels of these resources but negatively related to firm performance in country environments with lower levels of these resources. Outbound international diversification benefits firms in country environments with higher levels of resources; however, a negative relationship between outbound international diversification and firm performance in country environments with lower levels of resources was not detected. There is no relationship between inbound international diversification and firm performance in the high or low category of country resource environments. The hypothesis that there is a negative interaction effect between product diversification and firm performance in country environments with higher levels of resources was supported. The hypothesis that a positive interaction effect exists between product diversification and inbound international diversification is also supported. In essence, the findings support the central proposition that country resource environment should be an important component regarding constraints and opportunities for different strategic approaches and in so doing provides a fresh approach in the study of corporate diversification strategies.