Skip to main content Accessibility help
×
Home

Corporate Strategy and Subsidiary Performance: The Effect of Product and Geographic Diversification

  • Jie Jiao (a1), Yang Liu (a2), Rui Wu (a1) and Jun Xia (a3)

Abstract

In this study, we argue that foreign subsidiaries may benefit from the corporate strategies of multinational enterprises (MNEs) in different ways in terms of knowledge transfer and strategic flexibility. From this viewpoint, we explore the relationship between product diversification and financial performance of their subsidiaries under the condition of MNE geographic diversification. Using panel data on foreign subsidiaries in European countries from 2006 to 2011, we find a U-shaped relationship between product diversification and subsidiary performance and the joint effect of product and geographic diversification. Given the importance of transition economies in international business today, we conducted a subsample test contrasting the results based on the transitional (Central and Eastern European) versus Western European countries. The contrasting results provide important implications for other transition economies like China. We validate the relationship in several ways in our robustness tests.

本文提出海外子公司从不同途径获益于跨国企业集团战略中的知识转移和战略灵活性。从这一观点出发,本文探讨跨国企业在地理多元化条件下,其产品多元化与其海外子公司财务绩效之间的关系。基于欧洲国家海外子公司2006至2011年间的面板数据,本文发现产品多元化与子公司绩效之间存在U型关系,而且产品多元化与地理多元化对子公司绩效产生联合影响。基于转型经济在国际商务中的重要性,本文将以上关系在转型(即中欧及东欧)国家与西欧发达国家两个子样本中分别进行检验,子样本的对比结果对于像中国这样的其他转型经济有重要启示。多种稳健性检验进一步支持了以上结论。

В данном исследовании мы утверждаем, что иностранные дочерние компании могут по-разному извлекать выгоду из корпоративных стратегий многонациональных предприятий (МНП) с точки зрения передачи знаний и стратегической гибкости. В этом отношении, мы исследуем взаимосвязь между диверсификацией продуктов и финансовыми показателями дочерних компаний в условиях географической диверсификации МНП. На основании панельных данных из иностранных дочерних компаний в европейских странах за период 2006–2011 годов, мы обнаруживаем U-образную связь между диверсификацией продукции и производственными показателями, а также общее влияние диверсификации продукции и географического положения. Принимая во внимание важность стран с переходной экономикой в международном бизнесе сегодня, мы дополнительно провели сравнительный тест результатов, полученных в странах с переходной экономикой (в Центральной и Восточной Европе) и в странах Западной Европы. Различные результаты имеют важное значение для других стран с переходной экономикой, таких как Китай. Мы проверяем взаимосвязь несколькими способами с помощью тестов на надежность.

En este estudio, discutimos que las filiales extranjeras pueden beneficiarse de las estrategias corporativas de las empresas multinacionales (EMN) de maneras diferentes en términos de transferencia conocimiento y flexibilidad estratégica. Desde este punto de vista, exploramos la relación entre la diversificación de productos y el desempeño financiero de las subsidiarias bajo la condición de diversificación geográfica de las EMN. Usando datos de panel sobre las filiales extranjeras en países europeos entre el 2006 y el 2011, encontramos una relación en forma de U entre la diversificación de diversificación de productos y el desempeño de la filial y el efecto conjunto de la diversificación geográfica y de producto. Dada la importancia de las economías de transición en negocios internacionales hoy, realizamos una prueba de submuestra contrastando los resultados basados en los países de transición (Europa Central y Oriental) versus los países de Europa Occidental. Los resultados contrastantes dan implicaciones importantes para otras economías de transición como China. Validamos la relación de varias maneras en prueba de robustez.

Copyright

Corresponding author

Corresponding author: Rui Wu (wur@sem.tsinghua.edu.cn)

Footnotes

Hide All

Accepted by: Senior Editor Thomas Hutzschenreuter

Footnotes

References

Hide All
Aaker, D. A., & Mascarenhas, B. 1984. The need for strategic flexibility. Journal of Business Strategy, 5(2): 7482.
Ai, C., & Chen, X. 2013. Efficient estimation of models with conditional moment restrictions containing unknown functions. Econometrica, 71(6): 17951843.
Alkema, R., Koster, M., & Williams, C. 2010. Resuming internationalization at Starbucks. Cambridge, MA: Harvard Business Review.
Anand, J., & Delios, A. 1997. Location specificity and the transferability of downstream assets to foreign subsidiaries. Journal of International Business Studies, 28(3): 579603.
Andersson, U., Forsgren, M., & Holm, U. 2002. The strategic impact of external networks: Subsidiary performance and competence development in the multinational corporation. Strategic Management Journal, 23(11): 979996.
Arellano, M., & Bond, S. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2): 277297.
Barone, G., & Cingano, F. 2011. Service regulation and growth: Evidence from OECD countries. Economic Journal, 121(555): 931957.
Bartlett, C. A., & Ghoshal, S. 1989. Managing across borders: The Transnational Solution. Boston, MA: Taylor & Francis.
Bartlett, C. A. 2006. GE's growth strategy: The Immelt initiative. Cambridge, MA: Harvard Business School.
Baysinger, B., & Hoskisson, R. E. 1989. Diversification strategy and R&D intensity in multiproduct firms. Academy of Management Journal, 32(2): 310332.
Baysinger, B., & Hoskisson, R. E. 1990. The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management Review, 15(1): 7287.
Berry, H., Guillén, M. F., & Zhou, N. 2010. An institutional approach to cross-national distance. Journal of International Business Studies, 41(9): 14601480.
Björkman, I., Barner-Rasmussen, W., & Li, L. 2004. Managing knowledge transfer in MNCs: The impact of headquarters control mechanisms. Journal of International Business Studies, 35(5): 443455.
Blundell, R., & Bond, S. 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1): 115143.
Bode, C., Wagner, S. M., Petersen, K. J., & Ellram, L. M. 2011. Understanding responses to supply chain disruptions: Insights from information processing and resource dependence perspectives. Academy of Management Journal, 54(4): 833856.
Bureau Van Dijk, B. M. 2010. Amadeus: A database of comparable financial information for public and private companies across Europe. Brussels: Bureau Van Dijk.
Castellucci, F., & Ertug, G. 2010. What's in it for them? Advantages of higher-status partners in exchange relationships. Academy of Management Journal, 53(1): 149166.
Chang, S.-C., & Wang, C.-F. 2007. The effect of product diversification strategies on the relationship between international diversification and firm performance. Journal of World Business, 42(1): 6179.
Chang, Y.-Y., Gong, Y., & Peng, M. W. 2012. Expatriate knowledge transfer, subsidiary absorptive capacity, and subsidiary performance. Academy of Management Journal, 55(4): 927948.
Chung, C. C., Lu, J. W., & Beamish, P. W. 2008. Multinational networks during times of economic crisis versus stability. Management International Review, 48(3): 279296.
Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. 2003. Applied multiple regression/correlation analysis for the behavioral sciences. Mahwah, NJ: Erlbaum.
Contractor, F. J., Kundu, S. K., & Hsu, C.-C. 2003. A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34(1): 518.
D'Aveni, R. A. 1989. The aftermath of organizational decline: A longitudinal study of the strategic and managerial characteristics of declining firms. Academy of Management Journal, 32(3): 577605.
Daniels, J. D. 1994. Combining strategic and international business approaches through growth vector analysis. Management International Review, 34(1): 2132.
David, P., O'Brien, J. P., Yoshikawa, T., & Delios, A. 2010. Do shareholders or stakeholders appropriate the rents from corporate diversification? The influence of ownership structure. Academy of Management Journal, 53(3): 636654.
Deephouse, D. L. 1999. To be different, or to be the same? It's a question(and theory) of strategic balance. Strategic Management Journal, 20(2): 147166.
Delios, A., & Beamish, P. W. 2001. Survival and profitability: The roles of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44(5): 10281038.
Delios, A., Xu, D., & Beamish, P. W. 2008. Within-country product diversification and foreign subsidiary performance. Journal of International Business Studies, 39(4): 706724.
Denis, D. J., Denis, D. K., & Yost, K. 2002. Global diversification, industrial diversification, and firm value. Journal of Finance, 57(5): 19511979.
Durand, R., & Jourdan, J. 2012. Jules or Jim: Alternative conformity to minority logics. Academy of Management Journal, 55(6): 12951315.
Fang, Y., Wade, M., Delios, A., & Beamish, P. W. 2007. International diversification, subsidiary performance, and the mobility of knowledge resources. Strategic Management Journal, 28(10): 10531064.
Fang, Y., Jiang, G.-L. F., Makino, S., & Beamish, P. W. 2010. Multinational firm knowledge, use of expatriates, and foreign subsidiary performance. Journal of Management Studies, 47(1): 2754.
Fieller, E. C. 1954. Some problems in interval estimation. Journal of the Royal Statistical Society. Series B (Methodological), 16(2): 175185.
Gaur, A. S., & Lu, J. W. 2007. Ownership strategies and survival of foreign subsidiaries: Impacts of institutional distance and experience. Journal of Management, 33(1): 84110.
Geiger, S. W., & Cashen, L. H. 2007. Organizational size and CEO compensation: The moderating effect of diversification in downscoping organizations. Journal of Managerial Issues, 19(2): 233252.
Geringer, J. M., Beamish, P. W., & DaCosta, R. C. 1989. Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10(2): 109119.
Geringer, J. M., Tallman, S., & Olsen, D. M. 2000. Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21(1): 5180.
Gerstner, W.-C., König, A., Enders, A., & Hambrick, D. C. 2013. CEO narcissism, audience engagement, and organizational adoption of technological discontinuities. Administrative Science Quarterly, 58(2): 257291.
Ghemawat, P., & Nueno, J. 2006. Case Zara, fast fashion. Boston, Harvard Business School Study Case.
Ghoshal, S., & Bartlett, C. A. 1990. The multinational corporation as an interorganizational network. Academy of Management Review, 15(4): 603626.
Giannetti, M., Liao, G., & Yu, X. 2015. The brain gain of corporate boards: Evidence from China. Journal of Finance, 70(4): 16291682.
Goerzen, A., & Beamish, P. W. 2003. Geographic scope and multinational enterprise performance. Strategic Management Journal, 24(13): 12891306.
Grosse, R., & Trevino, L. J. 1996. Foreign direct investment in the United States: An analysis by country of origin. Journal of International Business Studies, 27(1): 139155.
Guillén, M. F. 2000. Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43(3): 362380.
Haans, R. F., Pieters, C., & He, Z.-L. 2016. Thinking about U: Theorizing and testing U-and inverted U-shaped relationships in strategy research. Strategic Management Journal, 37(7): 11771195.
Hansen, L. P., & Singleton, K. J. 1982. Generalized instrumental variables estimation of nonlinear rational expectations models. Econometrica, 50(5): 12691286.
Hashai, N. 2015. Within-industry diversification and firm performance—an S-shaped hypothesis. Strategic Management Journal, 36(9): 13781400.
Henderson, A. D., & Fredrickson, J. W. 1996. Information-processing demands as a determinant of CEO compensation. Academy of Management Journal, 39(3): 575606.
Hennart, J-F. 2007. The theoretical rationale for a multinationality-performance relationship. Management International Review, 47(3): 423452.
Heugens, P. P., & Lander, M. W. 2009. Structure! Agency!(and other quarrels): A meta-analysis of institutional theories of organization. Academy of Management Journal, 52(1): 6185.
Hill, C. W., & Hoskisson, R. E. 1987. Strategy and structure in the multiproduct firm. Academy of Management Review, 12(2): 331341.
Hillman, A. J., & Wan, W. P. 2005. The determinants of MNE subsidiaries' political strategies: Evidence of institutional duality. Journal of International Business Studies, 36(3): 322340.
Hilman, H. 2015. Significance of studying product diversification, geographic diversification, and their interaction impacts for Malaysian companies: A literature review. Asian Social Science, 11(10): 238250.
Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. 1994. A mid-range theory of the interactive effects of international and product diversification on innovation and performance. Journal of Management, 20(2): 297326.
Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4): 767798.
Hitt, M. A., Tihanyi, L., Miller, T., & Connelly, B. 2006. International diversification: Antecedents, outcomes, and moderators. Journal of Management, 32(6): 831867.
Hoskisson, R. E., & Hitt, M. A. 1994. Downscoping: How to tame the diversified firm. Oxford: Oxford University Press.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43(3): 249267.
Hoskisson, R. E., Johnson, R. A., & Moesel, D. D. 1994. Corporate divestiture intensity in restructuring firms: Effects of governance, strategy, and performance. Academy of Management Journal, 37(5): 12071251.
Hoskisson, R. E., Wright, M., Filatotchev, I., & Peng, M. W. 2013. Emerging multinationals from mid-range economies: The influence of institutions and factor markets. Journal of Management Studies, 50(7), 12951321.
Imbs, J., & Wacziarg, R. 2003. Stages of diversification. American Economic Review, 93(1): 6386.
Jensen, R., & Szulanski, G. 2004. Stickiness and the adaptation of organizational practices in cross-border knowledge transfers. Journal of International Business Studies, 35(6): 508523.
Kim, C., Kim, S., & Pantzalis, C. 2001. Firm diversification and earnings volatility: An empirical analysis of US--based MNCs. American Business Review, 19(1): 26.
Kogut, B. 1985. Designing global strategies: Comparative and competitive value-added chains. Sloan Management Review, 26(4): 1528.
Kogut, B., & Kulatilaka, N. 1994. Operating flexibility, global manufacturing, and the option value of a multinational network. Management Science, 40(1): 123139.
Kostova, T., & Zaheer, S. 1999. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24(1): 6481.
Kostova, T., & Roth, K. 2002. Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. Academy of Management Journal, 45(1): 215233.
Kreft, I. G., Kreft, I., & de Leeuw, J. 1998. Introducing multilevel modeling. London: Sage.
Kristensen, P. H., & Zeitlin, J. 2005. Local payers in global games: The strategic constitution of a multinational corporation. Oxford: Oxford University Press.
Kumar, M. 2009. The relationship between product and international diversification: The effects of short-run constraints and endogeneity. Strategic Management Journal, 30(1): 99116.
Lind, J. T., & Mehlum, H. 2010. With or without U? The Appropriate test for a U-Shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1): 109118.
Lu, J. W., & Beamish, P. W. 2001. The internationalization and performance of SMEs. Strategic Management Journal, 22(6–7): 565586.
Lu, J. W., & Beamish, P. W. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47(4): 598-609.
Lu, J. W., & Ma, X. 2008. The contingent value of local partners' business group affiliations. Academy of Management Journal, 51(2): 295314.
Lubatkin, M., & Chatterjee, S. 1994. Extending modern portfolio theory into the domain of corporate diversification: Does it apply? Academy of Management Journal, 37(1): 109136.
Ma, X., Tong, T. W., & Fitza, M. 2013. How much does subnational region matter to foreign subsidiary performance? Evidence from Fortune Global 500 Corporations’ investment in China. Journal of International Business Studies, 44(1): 6687.
Mayer, M. C., Stadler, C., & Hautz, J. 2015. The relationship between product and international diversification: The role of experience. Strategic Management Journal, 36(10): 14581468.
Michel, J. G., & Hambrick, D. C. 1992. Diversification posture and top management team characteristics. Academy of Management Journal, 35(1): 937.
Miller, K. D. 1992. A framework for integrated risk management in international business. Journal of International Business Studies, 23(2): 311331.
Miller, S. R., & Eden, L. 2006. Local density and foreign subsidiary performance. Academy of Management Journal, 49(2): 341355.
Mitra, D., & Golder, P. N. 2002. Whose culture matters? Near-market knowledge and its impact on foreign market entry timing. Journal of Marketing Research, 39(3): 350365.
Montgomery, C. A., & Turner, J. M. 1998. Vivendi (A): Revitalizing a French conglomerate.
Moschieri, C. 2011. The implementation and structuring of divestitures: the unit's perspective. Strategic Management Journal, 32(4): 368401.
Nell, P. C., & Ambos, B. 2013. Parenting advantage in the MNC: An embeddedness perspective on the value added by headquarters. Strategic Management Journal, 34(9): 10861103.
North, D. C. 1990. Institutions, institutional change and economic performance. Cambridge, UK: Cambridge University Press.
Palich, L. E., Cardinal, L. B., & Miller, C. C. 2000. Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21(2): 155174.
Peng, M. W. 2012. The global strategy of emerging multinationals from China. Global Strategy Journal, 2(2), 97107.
Porter, M. E. P. M. 1986. Competition in global industries. Cambridge, MA: Harvard Business Press.
Rangan, S. 1998. Do multinationals operate flexibly? Theory and evidence. Journal of International Business Studies, 29(2): 217237.
Rangan, S., & Sengul, M. 2009. The influence of macro structure on the foreign market performance of transnational firms: The value of IGO connections, export dependence, and immigration links. Administrative Science Quarterly, 54(2): 229267.
Rao, C. R. 2009. Linear statistical inference and its applications. New York: John Wiley & Sons.
Rodgers, R., & Wong, J. 1996. Human factors in the transfer of the ‘Japanese best practice'manufacturing system to Singapore. International Journal of Human Resource Management, 7(2): 455488.
Rosenzweig, P. M., & Singh, J. V. 1991. Organizational environments and the multinational enterprise. Academy of Management Review, 16(2): 340361.
Salomon, R., & Wu, Z. 2012. Institutional distance and local isomorphism strategy. Journal of International Business Studies, 43(4): 343367.
Sambharya, R. B. 1995. The combined effect of international diversification and product diversification strategies on the performance of US-based multinational corporations. Management International Review, 35(3): 197218.
Seo, J., Gamache, D. L., Devers, C. E., & Carpenter, M. A. 2015. The role of CEO relative standing in acquisition behavior and CEO pay. Strategic Management Journal, 36(12): 18771894.
Shinkle, G. A., & Kriauciunas, A. P. 2012. The impact of current and founding institutions on strength of competitive aspirations in transition economies. Strategic Management Journal, 33(4): 448458.
Shinkle, G. A., & McCann, B. T. 2014. New product deployment: The moderating influence of economic institutional context. Strategic Management Journal, 35(7): 10901101.
Steensma, H. K., & Lyles, M. A. 2000. Explaining IJV survival in a transitional economy through social exchange and knowledge-based perspectives. Strategic Management Journal, 21(8): 831851.
Stern, I., & Henderson, A. D. 2004. Within-business diversification in technology-intensive industries. Strategic Management Journal, 25(5): 487505.
Stock, J. H., & Yogo, M. 2005. Testing for weak instruments in linear IV regression. In Andrews, D. W. K. & Stock, J. H. (Eds.), Identification and inference for econometric models: Essays in honor of Thomas Rothenberg: 80108. Cambridge, UK: Cambridge University Press.
Sundaram, A. K., & Black, J. S. 1992. The environment and internal organization of multinational enterprises. Academy of Management Review, 17(4): 729757.
Svaleryd, H., & Vlachos, J. 2005. Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries. European Economic Review, 49(1): 113144.
Szulanski, G. 1996. Exploring internal stickiness: Impediments to the transfer of best practice within the firm. Strategic Management Journal, 17(S2): 2743.
Tallman, S., & Li, J. 1996. Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1): 179196.
Vachani, S. 1991. Distinguishing between related and unrelated international geographic diversification: A comprehensive measure of global diversification. Journal of International Business Studies, 22(2): 307322.
Von Zedtwitz, M., & Gassmann, O. 2002. Market versus technology drive in R&D internationalization: Four different patterns of managing research and development. Research Policy, 31(4): 569588.
Wan, W. P., & Hoskisson, R. E. 2003. Home country environments, corporate diversification strategies, and firm performance. Academy of Management Journal, 46(1): 2745.
Westney, D. E. 1993. Institutionalization theory and the multinational corporation. In Ghoshal, S. & Westney, D. E. (Eds.), Organization theory and the multinational corporation: 5376. New York: Springer.
Westphal, J. D., Gulati, R., & Shortell, S. M. 1997. Customization or conformity? An institutional and network perspective on the content and consequences of TQM adoption. Administrative Science Quarterly, 42(2): 366394.
Wiersema, M. F., & Bowen, H. P. 2011. The relationship between international diversification and firm performance: Why it remains a puzzle. Global Strategy Journal, 1(1–2): 152170.
Williamson, O. E. 2000. The new institutional economics: taking stock, looking ahead. Journal of Economic Literature, 38(3): 595613.
Woodcock, C. P., Beamish, P. W., & Makino, S. 1994. Ownership-based entry mode strategies and international performance. Journal of International Business Studies, 25(2): 253273.
Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. 2005. Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42: 133.
Xu, D., Pan, Y., & Beamish, P. W. 2004. The effect of regulative and normative distances on MNE ownership and expatriate strategies. Management International Review, 44(3): 285307.
Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38(2): 341363.
Zahra, S. A., Ireland, R. D., & Hitt, M. A. 2000. International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management Journal, 43(5): 925950.
Zellmer-Bruhn, M. & Gibson, C. 2006. Multinational organization context: Implications for team learning and performance. Academy of Management Journal, 49(3): 501518.
Zellner, A. 1962. An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57(298): 348368.

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed