Balancing growth across geographic diversification and product diversification: A contingency approach

We theorize that firms simultaneously seek to balance their growth across both the geographic and product diversification domains. To achieve this balance, businesses commonly adopt a strategy of expanding an under-diversified direction at the expense of an over-diversified one. Accordingly, we depict geographic diversification and product diversification as being an endogenous relationship, from which we hypothesize that firms that have under-diversified in a given direction and over-diversified in the other will expand the former at the expense of the latter. Meanwhile, firms that have under-diversified in both directions will expand both diversification paths, while firms that have over-diversified in both directions will contract in both diversification routes. We investigate these predicted relationships and show them empirically using a sample of leading Japanese multinationals in the 1990–2000 period.

► We argue that firms simultaneously seek to balance their growth across the geographic diversification and product diversification domains. ► In this seeking for balance, a common strategy is that an under-diversified direction is expanded at the expense of an over-diversified one. ► Firms that have under-diversified in a given direction and over-diversified in the other will expand the former at the expense of the latter. ► Firms that have under-diversified in both directions will expand both diversification paths. ► Firms that have over-diversified in both directions will contract in both diversification routes.