International Diversification Strategies Research Articles

The moderating effects of national cultural practices on the relationship between international diversification strategies and corporate environmental responsibility disclosures

This study examines the relationships between an important market strategy (international diversification) and corporate environmental responsibility disclosure (CERD), a nonmarket strategy. We rely on institutional theory and the stakeholder perspective and hypothesize a positive relationship between international diversification and CERD. We also hypothesize a direct effect of performance-based cultural practices (PBC) and socially supportive cultural practices (SSC), derived from the GLOBE culture database on CERD and its moderating effect on the international diversification – CERD link. The sample includes 335 large Multinational enterprises (MNEs) from 31 countries then distributed among three corporate social responsibility (CSR) regimes: European, Anglo-Saxon, and Asian and emerging markets. The results show support for the hypothesized relationships between international diversification strategies and CERD and that the direction of the relationship varies by region of the world. We find significant support for the moderating role of national cultural practices on the international diversification-environmental disclosure links.

Association between corporate diversification strategies and inventory performance: a firm-level investigation

PurposeThis research aims to empirically investigate the impacts of product and international diversification strategies on firm-level inventory performance.Design/methodology/approachThis study empirically examines the associations between product and international diversification strategies and inventory performance based on a sample of 64,124 observations across 7,367 US publicly traded firms between 1989 and 2019 from the COMPUSTAT Segment, Fundamental Annual and Fundamental Quarterly data files. We employ both linear and nonlinear regression models to perform our empirical analysis.FindingsThis research provides strong evidence that there exists a U-shaped relationship between unrelated product diversification and inventory level and a partially inverted U-shaped relationship between international diversification and inventory level. We also find a positive impact of related product diversification on inventory level, but there is no significant curvilinear relationship between related product diversification and inventory level.Practical implicationsOur research findings offer important insights into top management’s strategic planning for diversification strategies and operations manager’s inventory control policies to achieve the strategic fit between corporate diversification and inventory management.Originality/valueProduct and international diversification strategies not only play an essential role in the firm’s competitive advantage, but also have a significant influence on operations manager’s inventory decision. This research is among the first to systematically investigate how top management’s related product, unrelated product and international diversification strategies may have complex nonlinear impacts on inventory performance.

The Effect of Diversification Strategy on Corporate Tax Aggressiveness With Board Effectiveness as the Moderating Variable

This research examines the effect of diversification strategy on corporate tax aggressiveness activities with board effectiveness as the moderating variable. This study brings a context of the ASEAN Economic Community (AEC), which is argued inducing diversification strategies taken by companies in ASEAN countries. A sample from a developing country, that is, Indonesia, is collected due to this country’s specific characteristics related to tax regimes. Therefore, 246 observations from non-financial listed companies from 2014 to 2016 are used. The findings show that the firms with an international diversification strategy positively associate with corporate tax aggressiveness. On the other hand, companies conducting industrial diversification strategies were found to have ineffective tax management. The study also found an ineffective board of commissioners in the condition of corporate tax aggressiveness and ineffective tax management. This study brings some practical implications that the government needs to evaluate its tax policy while business practitioners must choose a business strategy congruent with tax management.

СТРАТЕГІЇ ДИВЕРСИФІКАЦІЇ МІЖНАРОДНОЇ ДІЯЛЬНОСТІ ПІДПРИЄМСТВ УКРАЇНСЬКОЇ МЕТАЛУРГІЙНОЇ ГАЛУЗІ

The article is focused on researching and developing strategies for the diversification of international activities for enterprises in the Ukrainian metallurgical industry. It is emphasized that the metallurgical industry is of strategic importance to the economy of Ukraine, as it is a net exporter, generates numerous job opportunities, contributes significantly to the country's GDP, and attracts foreign capital investments. Various international diversification strategies are proposed, including diversification of sales geography, diversification of production, and diversification of the product portfolio. A comparative analysis is conducted to determine the advantages and disadvantages of each strategy, to identify the most relevant approach for specific enterprises. The comparative analysis revealed that diversification of international activity is the most effective strategy for minimizing risks and maintaining the profitability of companies. Three diversification strategies for the international activities of Ukrainian metallurgical enterprises are proposed, which include diversification of sales geography, diversification of production, and diversification of the product portfolio. Recommendations and measures for implementing each of the proposed international diversification strategies are presented. It is determined that, given the current war conditions, the priorities for metallurgical enterprises in developing strategies for international activities are the optimization of supply chains, including the creation of joint ventures with neighboring countries, providing conditions for the creation of high-value-added products, improving production capacities, and taking into account the factor of decarbonization to reduce the impact of the Carbon border adjustment payment.

Choice of international diversification strategies: evidence from Indian industries

The study investigates and compares varied Indian industry groups with respect to their preferences for international diversification strategies. Jacquemin and Berry entropy (1979) approach is employed for calculating inter-region and intra-region diversification of companies in these industry groups. 'Drugs and pharmaceuticals' followed by 'information technology and communication' are revealed as the most internationally diversified industries while 'textile and wearing apparel' followed by 'construction' appeared as the least internationalised groups of industries. The results strongly assert that international diversification is industry-specific. Both the pace as well as preference of international moves varies across different industries. Statistically significant differences across industrial groups are endorsed by Games-Howell post hoc analysis.

Measuring and assessing international diversification strategies of Indian companies

PurposeThe paper aims to measure the nature and extent of international diversification followed by Indian companies over the period 2009–10 to 2017–18. The study also aims to assess the pattern of transition of companies to various strategies of international diversification.Design/methodology/approachJacquemin and Berry’s (1979) entropy approach has been applied to measure the extent and assess the nature of international diversification. Further, the study deploys two-dimensional categorical framework advocated by Vachani (1991) and categorizes the firms into four international diversification strategies.FindingsLarger proportion of companies in internationally low diversification (ILD) strategy reveals low extent of international diversification of Indian companies. The pattern of diversification depicts that the trend of moving forward is speeding up sequentially toward higher strategies of growth. Both the extent and pattern depict that the nature of diversification is shifting from relatedness to un-relatedness with transitions from intra-regions to inter-regions. The study confirms the applicability of eclectic theory and psychic distance Uppsala model in determining the preference of international diversification strategies and process of internationalization respectively in Indian firms.Originality/valueThe paper is first of its kind on account of several reasons. First, such a comprehensive evaluation of preferences for international diversification strategies has never been taken up with reference to emerging economies, especially India. Second, the paper is not static and does not limit itself only to the identification of favored strategies of Indian companies but also gauges the transitional behavior of Indian companies across different strategies at different points of time. In fact it is the first study to statistically research the applicability of psychic distance model in firms in emerging economy. Third, the results not only measure the quantum of international diversification but also assess the extent of relatedness and un-relatedness followed by Indian companies.

Do CEO Overconfidence and International Diversification Strategy affect the Capital Structure of Shariah Compliant Companies?

Do CEO Overconfidence and International Diversification Strategy affect the Capital Structure of Shariah Compliant Companies?

Capital Structure and the Strategies of Innovation and Internationalization

Taking a transaction costs economics perspective of the financing behavior of firms, we propose that the firm’s innovation strategy relative to its peers is associated non-linearly with its demand for leverage. Specifically, demand for leverage is negatively related for firms with low emphasis on innovation relative to peers but positively related for firms with high emphasis. We further propose that the firm’s international diversification strategy moderates this relationship, resulting in the two strategies being substitutes or complements, depending upon the level of innovation strategy. These arguments are tested with data from U.S. public firms during 1980 to 2018.

A Closer Look at the Relationship Between Internationalization and CSR Disclosure Quality

Drawing on institutional theory, we investigate the effect of international diversification strategies of multinational corporations (MNCs) on CSR disclosure quality, the extent to which CSR reports reflect MNCs’ CSR activities. We propose that as international diversification increases institutional complexity, they respond differently to this complexity by lowering disclosure quality of environmental CSR yet improving disclosure quality of employee CSR. In addition, since decoupling CSR reporting from actual practices is risky, we examine how the cultural value of uncertainty avoidance in MNCs’ home country changes MNCs’ decoupling response to increasing complexity due to international diversification. Based on a sample of 335 global MNEs from 31 countries, we found general support for our hypotheses.

R&D performance and international diversification: Evidence from an emerging market

This study investigates the impact of international diversification on the lag effect of R&D performance for implementing an international diversification strategy. The study uses the sales base amount and the number of countries, respectively, to explain the depth and breadth of international diversification. The results suggest that the higher the level of international diversification, the more profound the positive impact of the international diversification on the R&D activities‐derived operating performance. The study also confirms that companies with broader international diversification have a higher positive R&D lag effect. The empirical results are robust to the problem of endogeneity.

The Impacts of Resources and Diversification on Abnormal Return in Exporters: A Focus on Moderating Effects of Joint Investment

Purpose This paper was written to provide an understanding of the effects of internal resources and diversification strategies on abnormal return in exporters. In addition, the moderating effects of joint investment on the relationship between each of the diversification strategies and abnormal return were investigated. Design/Methodology/Approach Based critically on the resource-based theory of firm, this paper reviewed a theoretical framework for abnormal return, internal resources, diversification strategies, and joint investment. This paper also developed an empirically testable model explaining and predicting the relationships among abnormal return, internal resources, diversification strategies, and joint investment. Findings In an exporter, a marketing resource leads positively to product diversification and has an impact on abnormal return. Moreover, in an exporter, an innovation resource has an impact on product and international diversification strategies and thereby abnormal return. With respect to joint investment, this paper found that there is a significant relationship between joint venture membership and abnormal return. Furthermore, joint investment positively moderates the relationship between product and international diversification and abnormal return. Research Implications This paper emphasized the importance of internal resources and diversification strategies on abnormal return in exporters and highlighted the role of joint investment for exporters to create additional value.

A systematic review of the relationship between international diversification and innovation: A firm-level perspective

We conduct a systematic review of the relationship between international diversification (ID) and firm-level innovation (I), considering articles published between 1989 and 2020. The relationship between international diversification and innovation strategies is dynamic and complex, and recent evidence challenges the traditional notion that upgrading firm-specific advantages through technological innovation can be sufficient to guarantee international firm growth and performance. We develop a unified framework that integrates findings from extant ID-I research while also proposing new avenues for further research on topics such as: how firms deal with potentially conflicting ID-I goals, how underlying firm motives shape the interactions between these goals, and how new technologies and institutional dynamism increasingly influence the ID-I relationship. We also discuss how and why the new contexts in which decisions are made, together with the prevalence of relatively newer types of firms (e.g., those associated with global value chains, latest wave of emerging market multinationals, digitalized service MNEs), require a more modern conceptualization of the ID-I relationship.

Getting family firm diversification right: A configurational perspective on product and international diversification strategies

This study aims to identify the key success factors of the two dominant types of family firm diversification strategies: product and international diversification. Drawing on the extant family business literature, we study how factors at the firm level—performance vulnerability, generational stage, and management professionalization—combine to determine the choice and, more importantly, the success of the family firm’s diversification strategy. Our empirical study is conducted on a new proprietary dataset collected for 102 unrelated product and international diversification decisions of large, closely held German family firms. While both theory and practice often regard product and international diversification strategies as two means to the same end (such as growth, risk diversification, firm survival, and family employment opportunities), we find that they are anything but perfect substitutes. In fact, the results of the fuzzy-set qualitative comparative analysis highlight that the conditions leading to successful product diversification differ significantly from those for successful international diversification, particularly with regard to the family’s involvement in the management of the firm. Based on our results, we derive practical recommendations for family business owners considering product and/or international diversification strategies.

International diversification, legitimacy, and corporate social performance of extractive industry multinationals

AbstractResearch SummaryThis article examines how different international diversification strategies impact the legitimacy challenges multinationals face and the way they manage their corporate and social responsibilities. Analyzing these questions in a sample of companies in extractive industries, we find that those who pursue resource‐seeking investments that involve locating extraction operations overseas respond with the largest improvement in their corporate‐level social performance (CSP). Those pursuing efficiency‐seeking by establishing processing subsidiaries abroad increase their CSP less, with the smallest increase for those pursuing market‐seeking through marketing and sales operations overseas. For each type of activity established overseas, the increase in CSP becomes greater the more developed the company's home country and the larger its international footprint, but is not dependent on the host country's level of development. These findings suggest that, in today's globalized world, the legitimacy challenges that result from subsidiaries' activities increasingly need to be managed at a global, corporate level.Managerial SummaryThis article investigates the relationships between different international diversification strategies, the different legitimacy challenges they create, and corporate‐level social performance (CSP) responses. For multinationals operating in the extractive industries, we find important legitimacy spillovers from different types of subsidiary activities on the corporation, but these also vary, leading it to respond with differential increases in global CSP. These increases are greatest for resource‐seeking diversification, involving the location of extractive activities abroad, moderate for efficiency‐seeking diversification, involving the location of processing activities and least for market‐seeking diversification, involving the location of marketing and sales activities. For each type of subsidiary activity, we also find that the increases in CSP are larger the more developed the company's home country and the larger its international footprint, but are not dependent on the host country's level of development. We show how these results extend existing theory and draw implications for management practice.

COVID-19 and International Diversification: A New Paradigm for Multinationals

COVID-19 has challenged longstanding assumptions about multinationals’ international diversification strategies. Unlike corruption or war, this new type of uncertainty is unavoidable. All countries are affected. And, throughout the pandemic, having a global workforce has created additional challenges related to managing diverse policies, resources, and cultures. Going forward, executives of multinationals will first and foremost consider business continuity when selecting investment locations. Multinationals, especially those in service-based industries, likely will scale down their global operations and focus on countries with infrastructures that support remote work and sustaining healthy populations. Key insights come from an executive who managed his firm’s COVID-19 response.

International diversification, ownership structure and performance in an emerging market: evidence from Chile

This research analyzes the impact of international diversification on the performance of Chilean exporting firms. Considering a sample of 47 companies listed on the Santiago Stock Exchange during the period 2003–2013, we found an international diversification discount. Secondly, when investigating the relationship between international diversification and performance, we found that they are related through an inverted U curve. Finally, we investigated how the ownership structure moderates the relationship between international diversification and performance, finding that the ownership concentration and pyramidal ownership positively impacts the performance of companies initiating international diversification strategies; and that the business groups’ affiliation negatively impacts in the international diversification-performance relationship.

Association between International Diversification Strategy and Future Stock Price Crash Risk

This paper tests whether the corporate global diversification lessens the information asymmetry between the firm and the investors and thus associated with a negative future stock price crash risk in Korean stock market. As the increased integration of global economies, an increasing number of firms have pursued global diversification over time. However, less attention has been given to the economic consequences or benefits in equity market from global diversification. Using a large sample of firms listed in KOSPI over 2000-2017, this paper finds that the degree of corporate globalization is less likely to experience firm-specific future stock price crashes. The results are consistently robust across alternative measures of globalization and crash risk. Moreover, the additional finding shows that the negative association between globalization and future crashes is pronounced when the firms are not followed by analysts. And discounts for global firms significantly decrease in economic downturns, suggesting an incremental hedging benefit of diversification. These findings are robust when the estimates account for the endogeneity of globalization. Overall, the empirical findings suggest that corporate diversification may create an business and information environment that partly mitigates the managerial opportunistic motives to withhold bad news, supporting positive effect of global diversification.

The combined effects of product and geographical diversification on performance: Evidence in manufacturing SMEs

This study explores both the individual impact of geographical diversification and its effect combined with product diversification on small and medium-sized enterprises’ (SMEs) performance. Unlike most prior studies, this study distinguishes between related and unrelated product diversification. The research setting is a sample of manufacturing SMEs (1994–2014). By using dynamic panel data models, the results provide statistical support for the existence of a horizontal S-shaped relationship between geographical diversification and performance. The findings also indicate that while related product diversification positively enhances the performance of those SMEs engaged in geographical diversification (albeit not indefinitely), unrelated product diversification may significantly impair it, especially for SMEs opting for low and high levels of international diversification. Our study reveals that product and international diversification strategies in the case of SMEs are complementary or substitutive strategies depending on the specific type of product diversification strategy and the level of geographical diversification adopted. JEL CLASSIFICATION: F23; L25; M16

The Impact of Diversification Strategies and Operational Capabilities on Financial Performance in Thai Professional Service Firms

Professional service sector plays a crucial role in the world economy, especially in emerging countries. This research explores the impact of diversification strategies and operational capabilities on financial performance in Thai professional firms. Financial data of 96 companies in the service sector listed on the Stock Exchange of Thailand (SET) was collected. Partial Least Squares (PLS) regression was selected as an analysis method. The results find that service diversification strategy, but not international diversification strategy, has a significant effect on a firm’s financial performance. The empirical findings support the importance of diversification strategies. The result also show that operational capabilities have a significant negative impact on a firm’s financial performance.

International diversification and economic development in a regional context: a dynamic capabilities approach

This exploratory study proposes a theoretical framework grounded on the dynamic capabilities approach to facilitate understanding of the role of managerial resources and dynamic capabilities in international diversification (ID) initiatives in a changing business environment in the context of Western Australia (WA). Data were gathered through interviews with representatives of this state's chambers of commerce, government agencies and town halls. While the identified ID strategies will not replace the state's ubiquitous mining industry, these were nevertheless perceived as significant contributors to its future economic performance. The strategies primarily emphasised the potential and value of further developing tourism, international education, innovative and technological resources, and premium agricultural products. The proposed framework provides an interpretative and guiding tool, which highlights the strategic importance of a region's alternative resources as contributors to its diversification, economic development, and competitive advantage. In addition, the study will discuss various implications from the findings and identify future research strands.