Revisiting the relationship between product diversification and internationalization process in the context of emerging market MNEs

Abstract

We examine the contingent effect of existing product diversification on the scope and speed of firms' subsequent internationalization. Understanding these effects is important because prior research on the product -geographic diversification relationship assumes that the relevant decisions are taken simultaneously. This assumption does not apply to firms that consider international expansion only after having grown domestically through product diversification. Drawing on and extending transaction cost logics, we argue that product-diversified firms following geographically diverse and rapid internationalization incur higher transaction costs and are thus less likely to do so. We also find that international experience plays a moderating role.

Does Knowledge from Home Markets Boost Outward Foreign Direct Investments of Emerging Economy Multinationals? Evidence from Indian Family EMNEs

“…Our results corroborate the extant literature on the importance of prior learning from domestic markets in enabling internationalization (Batsakis and Mohr, 2017;Mayer et al, 2015, Lu et al, 2014, and extends these studies to elucidate the importance of product-market diversification on the international investments of Indian EMNEs. The results from our study suggest that EMNEs that had undertaken extensive product diversification are more adept at investing abroad.…”

“…We make three specific contributions to the international business and family firm internationalization literature. We partake the debate on the influence of product diversification on international diversification (Batsakis and Mohr, 2017;Mayer et al, 2015;Lu et al, 2014;Kumar, 2009). Our initial results demonstrate that knowledge from product diversification in a diverse and complex domestic market is a distinct advantage for EMNEs that enables them in their decision to invest internationally.…”

Which regions matter for MNEs? The role of regional and firm level differences

“…However, Oh and Contractor's argument considers the dichotomy between home versus non-home regions, without consideration of inter-regional differences. Firms with high product diversity that are expanding operations and doing so rapidly, tend to incur high transaction costs anyway (Batsakis and Mohr, 2017), so the negative impact is expected to be stronger in regions where the returns from operations are lower. This is because greater product diversity adds to the overall coordination burden of the MNE, and consequently to its transaction costs, thus reducing the positive impact of expanding operations or increasing the speed of operations.…”

The impact of product diversification and capital structure on firm performance: evidence from Vietnamese manufacturing enterprises

“…In addition, companies with heavily diversified product lines may have to deal with complexities in organisation and operations, increased internal costs due to elevated numbers and complexity of transactions, leading to decreased levels of managerial information, which would result in a decline in their financial performance. Batsakis and Mohr (2017) also confirm that companies providing extensive portfolios of products will have to deal with higher transaction costs while expanding the global markets. In another study, Chang and Wang (2007) also found that multinational corporations applying extensive PD strategy into unrelated areas which do not efficiently utilise firms' resources can lead to lower productivity.…”