Within-country product diversification and foreign subsidiary performance
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Within-country product diversification and foreign subsidiary performance Andrew Delios1, Dean Xu2 and Paul W Beamish3 1 Department of Business Policy, National University of Singapore, Singapore; 2School of Business, The University of Hong Kong, Hong Kong; 3Richard Ivey School of Business, University of Western Ontario, London, Canada
Correspondence: A Delios, Department of Business Policy, National University of Singapore, 1 Business Link, 117592, Singapore. Tel: þ 65 6516 3094; Fax: þ 65 6775 5059; E-mail: [email protected]
Received: 1 March 2005 Revised: 22 November 2007 Accepted: 11 December 2007 Online publication date: 27 March 2008
Abstract We examine the product diversification of a multinational firm within each of its host-country markets. Based on a sample of 12,992 foreign subsidiaries of Japanese multinational firms, we find that higher levels of within-country product diversity led to higher subsidiary performance where the institutional strength of the local market was weak, and where a firm’s corporate product diversity level was high. Our study highlights the importance of examining a multinational firm’s strategy in its individual host-country markets, as influenced by the institutional characteristics of a host-country market and the corporate-level strategy of the multinational firm. Journal of International Business Studies (2008) 39, 706–724 doi:10.1057/palgrave.jibs.8400378 Keywords: within-country diversification; host-country institutions; corporate-level diversification; subsidiary performance; multinational firms; moderating effect
INTRODUCTION Much attention has been devoted to the product diversification strategy of multinational firms (Delios & Beamish, 1999; Tallman & Li, 1996). This research has extended the literature on the diversification strategy of domestic firms (Palich, Cardinal, & Miller, 2000) to construct arguments for the performance benefits of a multinational firm’s product diversification strategy. Diversifying multinational firms are said to have similar risk–return trade-offs as diversifying domestic firms (Kim, Hwang, & Burgers, 1993), and to generate similar resource-based rents as domestic firms (Geringer, Tallman, & Olsen, 2000). Research has also progressed to examine the interaction effect of a firm’s product and geographic diversity on its performance (Hitt, Hoskisson, & Kim, 1997), but such examination has remained largely at the corporate and global level. This focus on the corporate and global aspects of a multinational firm’s diversification strategy, however, stands at odds with research on multinational strategy that has distinguished between various strategic approaches a firm can pursue in its individual host-country markets (Bartlett & Ghoshal, 1989; Gupta & Govindarajan, 1991), and the strategic imperatives foreign subsidiaries use to implement a multinational firm’s strategic intents in such markets (Birkinshaw & Hood, 1998). The consequence of this oversig
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