impact on firm performance (Chandler, 1962; Ansoff, 1965; Rugman et al., 2011; Verbeke, 2012). Such performance is based on a firm’s ability to exploit foreign market opportunities and imperfections through internalisation.
Numerous studies have examined the relationship between international diversification and firm performance, but these studies have only provided evidence of conflicting outcomes (Lu & Beamish, 2004; Thomas & Eden, 2004). Subsequently, this has prompted research that focused on potential theoretical reasons as to why there are inconsistent findings or a lack of. These studies have shed some light on the basis that a curvilinear relationship is centrefold between international diversification and firm performance as opposed
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Some studies suggest that international diversification offers prospective market opportunities which give firms the opportunity for greater growth (Buhner, 1987), while other studies argue that international diversification has been grounded on the theoretical assumption that firms exploit the benefits of internationalisation in international markets (Rugman et al., 2011; Verbeke, 2012). The benefits of market internalisation are suggested to be economies of scale, scope and learning (Kogut, 1985) as well as sharing core competencies within different business segments and international markets (Porter, 1990; Hamel, …show more content…
Despite several studies agreeing on a positive relationship, other studies have opposed this idea and shown either a negative relationship or no relationship whatsoever (Siddhartan & Lall, 1982; Kumar, 1984). Critically, the studies that favour the relationship between international diversification and firm performance as linear have only been thought so under formal assumption (Thomas & Eden,
...ative aspects of diversification, for example through better corporate planning, human recourse management and reaching further synergies between its various business lines.
Outsiders wondered how each company’s internal changes would affect their endless competitive battle in the industry. The case illustrates how global competitiveness depends on the organizational capability, the difficulty of overcoming deeply rooted administrative heritage, and the limitations of both classic multinational and global models.
There are many critical factors contributing to the success of a global company. Some significant aspects that I had seized are the global brands (Holt et al., 2004), the distance matter (Ghemawat, 2001), the international strategy (Ghemawat, 20...
Saturation of domestic markets and the need by firms to diversify their markets have provided firms with the need to go international (MA sum, & Fernandez, 2008). Internationalization can be defined as the act by companies to explore international markets, although there has not been a clear definition of internationalization (Andersen 1997, p.28). Internationalization is a huge decision by firms and the wrong strategy can lead to ultimate fall of the organization. Internationalization allows firms and companies to own or control businesses and activities in several countries; a process that affects the whole organization making it more international (Dunning, 1993) and by going international, companies can gain competitive
Internationalization significantly represents value creation and growth for firms of all shapes and sizes (Root, 1994). This is mainly because it creates new opportunities for the majority of firms. Internationalization is a very broad term; however, it can be defined as “Expanding a firm’s business from its original location to one or more additional foreign markets to enter” according to Barringer and Greening (1998). Recently, internationalization has increasingly become a crucial issue even for small and medium enterprises (SMEs) due to the international growth (Hollensen et al., 2014). The internationalization of SMEs has increasingly been facilitated by the reduction in trade barriers, transport costs as well
Product Diversification Strategy: According to Ansoff’s Model for market growth strategies, to enter into a new market Samsung followed a Product Diversification strategy for the market outside Korea (Lee & Slater, 2007). In 1997 it introduced a series of innovative products in the market like the mobile handset with voice a...
All research fully carried out on Entry nodes on the long run remain limited to large manufacturing firms. The foreign market selection and the choice of its entry modes drastically ascertain the performance of a specific firm. Entry mode can be defined as an arrangement for an organization that is organizing and conducting business in foreign countries like contractual transfers, joint ventures, and wholly owned operations (Anderson, 1997). Internationalization is part of a strategy which is going on for businesses and organizations transfers their operations across the national borders (Melin, 1992). The firm that is planning to have the operations across the border will have to choose the country that they are planning to visit. Anderson (1997) argues that the strategic market entry decisions forms a very important part of an organizational strategy. The decision to go international is part of the internationalization strategy of the firm. Multinational Corporations that desire to have international operations will find the strategy to go international, the mode of entry is very important. Even though there are studies which have shown that the main effect of being pioneers in a market promises superior performance in terms of market share and profitability than the late movers, Luo (1997) and other researchers have found out that the effect of the first mover may be conditional and will depend on the mode of strategy that is used (Isobe, & Montgomery, 2000). There are different strategies that MNCs can use to enter new foreign markets; they include exporting, licensing/franchising, full ownership and joint ventures. The mode of exporting entails a company selling its physical products which are usually manufactured outside the...
In diversification an organization tries to grow its market share by introducing new offerings in new markets. It is the most risky strategy because both product and market development is required and it may be out of the core competencies of the business firm and there lies the challenge and the statement “With high risks come great rewards”.
Fernandez, John P. and Barr, Mary, (1993). The Diversity Advantage: How American Business Can Out-Perform Japanese and European Companies in the Global Marketplace.
geographically and firm- Specific advantages, the International strategy whereby if advantages and drivers are strong enough to warrant an international strategy, then a whole lot of strategic approaches can open up. (Johnson, 2014)
The most important external driving forces of an increasing internationalization are the openness to new markets due to liberalization and deregulation, further development in technologies and logistics, as well as shorter product life cycles, and a homogenous consumer behavior whereas internally the strategic-focused attitude of companies represents an essential factor.
This video provides an overview of product diversification. It explains that there are two types of diversification, which are related diversification and unrelated diversification. In addition, the video informs that diversification often involves merger and acquisition activities. Furthermore, it stresses the importance of keeping diversifications balanced, as in some instances, companies that do not take advantage of diversification, can miss out on some benefits, and/or could experience negative effects. However, on the other hand, the opposite could also occur, because some companies that over-diversify, extend themselves too far and can experience detrimental and disadvantageous effects as well. The key is staying
This is based on the resulting desired effects that include: ownership advantages; location advantages; and internalisation advantages (Agarwal & Ramaswami 1991). Ownership advantages relate to an organisation’s ability to develop (especially differentiated products), its multinational experience and the organisation’s size. These components represent an organisation’s skill and assets. Ideally, for any organisation to successfully compete with other companies in the host country, they need to possess superior or advanced set of these assets and skills to enable it earn significant economic returns capable of surpassing the higher costs they will incur in foreign market servicing (Agarwal & Ramaswami 1991). In addition, with the capability of manufacturing differentiated products, an organisation or firm possesses higher control modes that eventually leads to increased efficiency. This practice is supported by empirical data as observed by Coughlan and Flaherty (Coughlan & Flaherty 1983). An organisation requires substantial resources during international expansion to cushion it against high marketing costs, economies of scale achieved, and contract and patents enforcing (Hood & Young 1979). The organisation’s size would naturally indicate its costs absorption capabilities. According to Buckley and Casson, an organisation’s
Oesterie, M. J., Richta, H. N., & Fisch, J. H. (2012). The influence of ownership structure on internationalization. International Business Review, 22(1), 187-201.
The objective of this study is to examine intricately the relationship between firm diversification and productivity