Foreign-based competition and corporate diversification strategy

Citation

(2006), "Foreign-based competition and corporate diversification strategy", Strategic Direction, Vol. 22 No. 4. https://doi.org/10.1108/sd.2006.05622dad.002

Foreign-based competition and corporate diversification strategy

Foreign-based competition and corporate diversification strategy

Bowen H.P., WiersemaM. F. Strategic Management Journal (UK), Dec 2005, Vol. 26 No. 12, Start page: 1153, No. of pages: 19

Purpose – to investigate the factors affecting a firm’s choice of diversification strategy and how this evolves in response to changing business conditions. Design/methodology/approach – notes the reduction in trade and non-trade barriers since the late 1970s, resulting in an increase in the importance of foreign competition. Uses transaction cost theory and resource-based theory to predict the extent and nature of firm diversification in response to such competition. Analyses panel data from single-business and diversified US firms covering the period from 1985 to 1994, noting that this was a period of increasing foreign-based competition for US firms. Adopts there measures of firm diversification: total entropy, Herfindahl index and number of standard industrial classifications (SICs) covered by the firm. Findings – observes that core industry import penetration has a significant negative effect on all three measures of the level of firm diversification. Does not obtain support for the hypothesis that the more attractive a firm’s core business industry, the more negative the relationship between firm diversification and core industry import penetration. Finds that at low levels of firm performance there is a more negative relationship between the level of firm diversification and core industry import penetration. Shows that the total marginal effect of an increase in import penetration on resource-based relatedness is positive and significant at the high and mean value of profitability and industry growth. Originality/value – offers a systematic investigation of the impact of increased foreign competition on corporate diversification strategy, showing how and why a firm might be expected to refocus.Style: Research paperISSN: 0143-2095Reference: 34AZ111

Keywords: Competitors, Corporate strategy, Direct investment, Diversification, Imports