Related Product Diversification Research Articles

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.

Related Product Diversification and Firm Performance: The Role of Brand Equity

Related Product Diversification and Firm Performance: The Role of Brand Equity

Related and unrelated product diversification and collaboration strategies: Comparison between the pharmaceutical and biopharmaceutical industries

AbstractIn pharmaceutical and biopharmaceutical industries, developing and commercializing products require great investments and intensive clinical trials. With regard to managing the risk and uncertainty of such product development, especially given the low success rates, product diversification and collaboration strategies can be instrumental for firms. Especially, the differences in product development complexity and market condition among industries require more case‐specific implications due to the absence of a universally applicable strategy, even in these two similar industries. To date, little is known or discussed regarding whether product diversification and collaboration strategies work differently by industry and to what extent their impact differs across industries. Accordingly, this study examines the impact of product diversification on firm performance and compares the diversification effects between the pharmaceutical and biopharmaceutical industries. Related product diversification (RPD), which involves diversifying existing product functions, and unrelated product diversification (UPD), which involves diversifying the selling market, are considered here, and their linear and curvilinear effects are examined for each industry. Furthermore, the mediating role of product diversification in the relationship between collaboration and performance is examined to explore diversification through collaboration and the effect of collaboration on firm performance. For empirical analysis, an integrated firm‐level dataset combining a full set of commercialized product information, collaboration, and statistics from Medtrack and Compustat are used. The results indicate that RPD enhances pharmaceutical firms' performance, while RPD and UPD contribute to biopharmaceutical firms' performance. In both cases, mediating effect of product diversification is found; however, collaboration is found to play different roles, thereby showing that collaboration enhances product diversification for pharmaceutical firms, while for biopharmaceutical firms it negatively affects product diversification, but positively affects performance. This study contributes to the literature by providing empirical evidence on how diversification should be treated differently across industries by considering product development complexity and market maturity.

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

Effects of intra- and inter-regional geographic diversification and product diversification on export performance: Evidence from the Chilean fresh fruit export sector

This study examines individually the effects of intra- and inter-regional geographic diversification on the export performance of firms from the Chilean fresh fruit sector. It also explores the direct effect of related product diversification on export performance and its role as a moderator in the relationship between geographic diversification and export performance. By employing panel trade data of 279 purely exporting firms over a six-years period (2010–2015), we found that both intra- and inter-regional diversification have an inverted U-shaped relationship with export performance, where moderate levels of diversification have positive effects on export performance, but higher levels may be counterproductive. Results also showed that related product diversification has a positive effect on firm export performance and a negative moderating effect on the relationship between inter-regional diversification and export performance. In the case of intra-regional diversification, we did not find any moderating effect from product diversification. By focusing on firms from the agricultural sector based in an emerging economy, this study offers practical implications for firm managers, trade organizations and private export associations, that may also be applicable to other export-based activities and emerging economies.

Does the sequencing of related and unrelated export diversification matter? Evidence from Colombian exporters

How does related or unrelated geographic diversification affect future related or unrelated product diversification of exporting firms, and vice-versa? This question addresses an unresolved debate, and it is important for firms in developing countries that seek to expand their product and geographical markets. Our study contributes to a current debate by highlighting the relevance of the temporal sequence and the relatedness of international diversification. Expanding the classic transaction costs and the resource-based explanations, we argue that organizational learning as well as organizational and sales (in-)efficiencies (notably through resource and product cannibalization, negative transfer and coordination costs) affect the interrelationships between product and geographic diversification. Using a panel dataset of over 14,000 firm-year observations from exporters based in Colombia, we find that (1) related geographic diversification tends to increase future product diversification; (2) related product diversification tends to decrease future geographic diversification; and (3) unrelated product diversification tends to increase future geographic diversification.

Product diversification, Capital structure and Dynamic adjustments: Empirical evidence from Tanzania

This study assessed the role of product diversification on capital structure variability and its dynamic nature. It used static, dynamic and hierarchical regression techniques. Both fixed effects and general methods of moments’ estimators were employed. Related product diversification was significantly negatively related to capital structure while unrelated and total product diversification was significantly positively related to it. Hierarchical regression indicated that product diversification had a significant share of contribution to capital structure variability. These findings highlight the significance of co-insurance and monitoring effects implicit to product diversification. Related diversification is risky and thus associated with internal financing. Unrelated product diversification is less risky. It highlights the fact that the type of product diversification has different effects on firm financing. The speed of adjustment of capital structures was low, indicating that firms are slowly adjusting their capital structures towards optimum levels.

How do resources and diversification strategy explain the performance consequences of internationalization?

Purpose– The purpose of this paper is to examine how firm resources and diversification strategy explain the performance consequences of internationalization of emerging market enterprises.Design/methodology/approach– The paper conducts a regression analysis by using a novel panel data set comprising of 685 listed Chinese firms over the period of 2008-2011.Findings– The results show that the relationship between internationalization and performance is inverse U-shaped. Further, marketing resources play a greater role in enhancing the performance effects of internationalization than technological resources do. Related product diversification enhances the performance effects, while unrelated product diversification does the contrary.Research limitations/implications– The study focusses on listed firms in one country, and as a result, the findings cannot be generalized to non-listed firms and firms in other countries.Practical implications– This paper offers guidelines for international managers to improve performance of internationalization by developing a particular type of resources and diversification strategy.Originality/value– This paper extends the literature on the functional form of the internationalization-performance relationship, and further suggests that the analysis of the performance consequences of internationalization should go beyond the nexus between internationalization and performance, and focusses on firm-specific resources and strategies that may facilitate or constrain the performance effects of internationalization.

"Gender Asymmetrical effects And Firm Performance, The Moderating Effect Of diversification Strategy"

We study how gender-related asymmetrical effect may influence performance among firms with different levels of diversification strategy. Adopting a resource-based view of the firm, we argue that, with related-product diversification, gender diversity is more likely to generate idiosyncratic synergy. This synergy, in turn, may neutralize asymmetrical effects so that firm-level performance should be less likely to be affected. With empirical data from a financial service industry, we test our hypotheses empirically. The results show that: Gender diversity has a significant effect on firm performance among male-dominated firms and not among female-dominated ones. Then we further show a significantly positive relationship between gender diversity and firm performance with the presence of the diversification strategy, which can be seen as evidence of idiosyncratic synergy from gender diversity. With this idiosyncratic synergy, the negative relationship between asymmetrical effects and firm performance is not significant. Moreover, the two-way interactions between asymmetrical effects and other independent variables, such as the diversification strategy and gender diversity, are not significant either. Finally, there is a significant three-way interaction among asymmetrical effects, gender diversity and business strategy. This three-way interaction suggests that, with gender diversity, asymmetrical effects may only influence firm performance indirectly.

The circular relationship between geographical and product diversification in Spanish MNEs

Diversification as a strategic response to global opportunities has become increasingly important for firms. Drawing on the Resource Based View of the Firm, this paper investigates these strategies by analysing a circular relationship between product and geographical diversification. The results, obtained from a sample of leading Spanish multinational firms, suggest that adaptation to a wide range of different countries hinders the necessary coordination of activities that related product diversification requires and vice-versa. In contrast, unrelated diversification strategies can provide financial synergies, experience and flexibility, which help the process of internationalisation. Simultaneously, greater geographical diversification allows each subsidiary to behave as an independent unit and to develop more efficient internal control systems and resource allocation.

Performance Implications of Related Product-Market and Business-Model Diversification

This study develops a conceptual framework that captures key dimensions of product-market relatedness (i.e., product and customer relatedness) and business-model relatedness (i.e., value-proposition and distribution-channel relatedness). While previous research has typically investigated how related diversification along the product dimension affects performance, this study argues that superior performance may be driven by heretofore widely neglected intangible dimensions of relatedness beyond the product dimension. We test this argument using a unique dataset of 170 multiunit chain organizations for the period from 1999 to 2010. We first verify prior empirical findings by showing that related product diversification alone appears to be positively related to performance. Moreover, beyond previous findings, results show that related diversification along the customer and value-proposition dimensions also increases performance. Interestingly, the tangible product dimension of relatedness becomes insignificant in combination with intangible relatedness dimensions, providing support for our argument that superior performance is mainly driven by resource flows along intangible dimensions of relatedness.

Specific match between specific types of strategic flexibility and sourcing strategy: another strategic approach to build competitive advantage

Strategic flexibility, sourcing strategy and organisational performance are often a source of contention among firms in manufacturing sectors. This paper explores effects of specific types of strategic flexibility and product diversifications (related and unrelated) on strategic sourcing of make and buy. Questionnaires were sent to top management personnel of firms in four manufacturing sectors namely electrical and electronics, chemicals (including petroleum), food and beverages and fabricated metal. The results confirmed that the make or buy sourcing strategy acts as mediators and it partially does so on the relationship between related product diversification strategy and organisational performance. In addition, the buy strategy mediated partially the relationship between unrelated product diversification strategy and organisational performance. These findings go along with the theories that support both constructs, Industrial Organisation (IO) Theory, Transaction Cost Theory and Resource–Based View (RBV). All these findings should enable practitioners to make better manufacturing and sourcing decisions.

Diversification and Innovation Revisited: An Absorptive Capacity View of Technological Knowledge Creation

The relationship between innovation and product diversification in firms has been studied and debated for decades. Early articles proposed a positive relationship, while subsequent research supported a negative influence on innovation from product diversification based on observable reductions in research and development expenditures. Such findings also suggest a negative influence on absorptive capacity from increasing product diversification. This paper uses an absorptive capacity perspective to revisit the relationship. Together with related literature on knowledge creation and transfer processes, a positive association between related product diversification by firms and the quantity of created technological knowledge is suggested. Evidence to support such a relationship is provided using patent data from technology-based firms in a sample of 1997 firm years between 1990 and 2006. Some evidence of a negative association between knowledge creation and very high levels of unrelated diversification is indicated, qualifying and supporting the “M-form” hypothesis. The findings more closely align understandings of the relationship between product diversification and innovation with the relationship between product diversification and firm performance.

The Circular Relationship Between Geographical and Product Diversification in Spanish MNEs.

Diversification as a strategic response to global opportunities has become increasingly important for firms. Drawing on the Resource Based View of the Firm, this paper investigates these strategies by analysing a circular relationship between product and geographical diversification. The results, obtained from a sample of leading Spanish multinational firms, suggest that adaptation to a wide range of different countries hinders the necessary coordination of activities that related product diversification requires and vice-versa. In contrast, unrelated diversification strategies can provide financial synergies, experience and flexibility, which help the process of internationalisation. Simultaneously, greater geographical diversification allows each subsidiary to behave as an independent unit and to develop more efficient internal control systems and resource allocation.

Building new competitive advantage through match between specific types of strategic flexibility and sourcing strategy

Strategic flexibility, sourcing strategy and organisational performance are often a source of contention among firms in manufacturing sector. This paper explores the effects of specific types of strategic flexibility ? related and unrelated product diversification ? that matched with specific types of sourcing strategy ? make and buy. Questionnaires were sent to respondents who were top management officers of firms from four major manufacturing sectors: electrical and electronics, chemicals including petroleum, food and beverages, and fabricated metal. The results confirmed that a specific type of sourcing strategy (make or buy) mediated a specific type of strategic flexibility (related or unrelated product diversification). Specifically, the make strategy partially mediated the relationship between related product diversification strategy and organisational performance, whereas the buy strategy partially mediated the relationship between unrelated product diversification strategy and organisational performance. These findings go along with the theories that support both constructs: industrial organisation theory, transaction cost theory and resource-based view. All these findings would enable practitioners to make better manufacturing and sourcing decisions.

The effect of product diversification strategies on the relationship between international diversification and firm performance

Previous studies have provided mixed evidence on the interaction effect of product and international diversification on firm performance. This study extends this stream of research by investigating the differential impacts of product diversification strategies on the relationship between international diversification and firm performance. We find that while related product diversification positively influences the performance of multinational firms, unrelated product diversification negatively moderates the international diversification–performance relationship. The evidence is robust for different models of international diversification and firm performance, and holds for firms in both the service and manufacturing industries. Our findings highlight the importance of distinguishing different product diversification strategies, and provide a potential explanation for prior mixed evidence.

Dynamic Effects of Product Diversity, International Scope and Keiretsu Membership on the Performance of Japan's Textile Firms in the 1990s

This paper examines how product diversity, international scope and group membership have affected economic performance in Japanese textile firms since the early 1990s. Through statistical approaches employing cross-sectional time-series data, the study attempts to explore the long-term effectiveness of various business models adopted by the companies. The results indicate that technology investment and related-product diversification are favorably associated with profitability, even in a mature industry, although domain commitment to textiles with the sequence of processing stages has not generated long-lasting yields. Marketing-centered entry into growing but unrelated markets has also proven unsuccessful, as has international diversification. The findings show insignificant performance effects of product diversity from increasing international expansion. The outcomes also suggest that shihon keiretsu membership seems to reduce international diversity in member firms, while not being a significant predictor of particular types of product diversity. Such keiretsu affiliation shows no direct impact on profitability, but weakly moderates the effects of export sales on performance. Main-bank relationships (yushi keiretsu) do not significantly influence a firm's financial outcomes.

Diversification Strategy of Global Media Conglomerates: A Comment

Chan-Olmsted and Chang's (2003) framework for the analysis of product-diversification strategies of media conglomerates is critiqued from a dynamic resource-based perspective. In the spirit of spurring intellectual debate, this article proposes a revised framework that incorporates newer findings about the benefits of related product-diversification strategies from the strategic management literature. A differentiated view of the "media content" notion is presented that distinguishes between assets, skills, and capabilities and competencies. From this differentiated perspective, I argue that there are 2 types of scope effects: traditional economies of scope that grant the media firm a short-term competitive advantage over rivals and dynamic scope effects that contribute to a sustainable competitive advantage.

The bigger, the better? Measuring the financial health of media firms

This study examined the degrees of product diversification of media conglomerates since the Telecommunications Act of 1996 and tested the impact of product diversification of the firms on their financial health. The strategy of related product diversification enables firms to gain market power and synergy effect, then improves financial performance. Based on that assumption, for a sample of 26 media firms from 1996 to 2002, this study conducted a regression analysis to test the hypotheses. The results showed two contradictory curvilinear models. First, revenue, EBITDA and sales growth rates revealed a U‐shaped relationship with diversification. That is, performance decreased as firms shifted from concentrated business strategies to related diversification, but performance increased as firms changed from related diversification to unrelated diversification. On the other hand, financial efficiency variables measuring management effectiveness or profitability (ROS, ROA and ROE) and stock market evaluation (earnings per share) showed an inverted U‐shape relationship. Thus, the unrelated diversification led to a decrease in financial efficiency.

Partner Selection and Venturing Success: The Case of Joint Ventures with Firms in the People's Republic of China

It has been hypothesized in the international joint venture (IJV) literature that partner selection affects interpartner “fit” which in turn influences a synergistic effect on IJV performance. This study investigates the relationship between IJV success and the strategic and organizational traits of local partners. We address this issue in the context of an emerging economy (P.R. China). Newly emerging economies have in recent years become major hosts of direct investment by multinational corporations (MNCs) because these rapidly expanding economies, characterized by an exploding demand previously stifled by ideologically-based government intervention, provide tremendous opportunities which MNCs can preempt. MNCs in such economies, however, face the challenges of structural reform, weak market structure, poorly specified property rights, and institutional uncertainty. Right local partners can help MNCs boost market expansion, obtain insightful information, mitigate operational risks, and provide country-specific knowledge. The analysis of the data obtained from China suggests that both strategic and organizational traits of local partners are significantly associated with some individual dimensions of IJV performance. Among strategic traits, absorptive capacity, product relatedness, and market power are favorable to IJVs' market and financial outcomes. Market power and experience significantly reduce IJVs' operational uncertainties. Of organizational traits, international experience and organizational collaboration are important for IJVs' not only profitability and stability but also local market expansion and export growth. Organizational form and size influence IJVs' local market performance. The findings provided by this study can help MNCs determine what criteria they should use in opting for local partners and what criteria are vital to their goal accomplishment. Those investors seeking local market expansion should select those local partners that have rich market experience, superior market position, high absorptive capacity, and related product diversification with the IJVs. Those seeking profitability and stability should select local firms that have superior international experience, longer organizational collaboration, and greater market power. While MNCs should use appropriate strategic and organizational criteria to select local partners, the host government or local firms can try to make these traits available to attract more stable and profitable foreign direct investment.