The relationship between product and geographic diversification: A fine-grained analysis of its different patterns

Abstract

Abstract This study seeks a richer and more complete understanding of the process of firm growth by making a more fine-grained distinction between (1) the different patterns of product and geographic diversification, particularly between entering new product and geographic markets compared to expansion in existing noncore product and foreign markets; and (2) between firms with different diversification experience, specifically between single-country single-industry firms, single-industry geographically-diversified firms, single-country product-diversified firms, and product- and geographically-diversified firms. It shows that short-run constraints compel firms to choose between entering new product markets and new geographic markets, within a given time period, and that prior experience in entering new markets lessens the impact of short-run constraints on firm capacity to simultaneously extend product and geographic scope. Furthermore, it reveals that there is a significant difference between firm capacity to enter simultaneously into new product and geographic markets, compared to firm capacity to expand simultaneously within existing noncore product and foreign markets. Thus, it demonstrates the main argument of this paper concerning the importance of distinguishing between the different patterns of product and geographic diversification.