Significance of Studying Product Diversification, Geographic Diversification, and Their Interaction Impacts for Malaysian Companies: A Literature Review

Abstract

The objective of this study was to comprehensively and critically review research literature on impacts of product diversification strategy and geographic diversification strategy, conducted particularly in Asian context, and set forth guidelines for future studies. The study concludes that past research into impacts of product diversification and geographic diversification produced indecisive results. There has also been absence of any consensus on the interaction impacts of the two strategies on corporate performance. Although past research studied the topic using variety of methodologies but there has been limited research on the topic for Asian economies compared to Western ones. This is especially true about Malaysian public listed companies (PLCs) for which, particularly, studies regarding interaction impacts of the two strategies are extremely limited. For Malaysia, the challenging business scenario in future coupled with quite significant number of diversified companies warrant research into these areas. Future research could take up the objective of analysing and understanding individual and interaction impacts of product diversification and geographic diversification on corporate performance of Malaysian companies and contribute significantly to this research field. It could adopt new and advanced methodologies for measuring diversification strategies as well as employ several measures of corporate performance to produce comprehensive and robust results. Findings of such research would certainly be useful for practicing managers, particularly Malaysian strategists, and guide them in their decisions concerning diversification strategies and help them better manage their companies' performance.

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

“…We extend the diversification literature (Hilman, 2015; Wiersema & Bowen, 2011), which has traditionally focused on the firm's perspective (Hitt et al, 2006; Palich, Cardinal, & Miller, 2000), by drawing attention to the subsidiary's perspective. Scholars have largely focused on whether the effects of product and geographic diversifications on performance are linear or curvilinear, and the results are mixed in the literature (Palich et al, 2000; Tallman & Li, 1996).…”

“…Moreover, we consider the joint effect of product and geographic diversification on subsidiary performance. Although the two types of diversification share many similarities, such as benefits from economies of scale and scope, extension of core competencies, market power, and growth opportunities, as well as accesses to foreign knowledge, resources, and institutions (Hilman, 2015; Hitt et al, 1997; Hitt et al, 2006), the two types of diversification strategies may affect subsidiary performance through different mechanisms. When an MNE is also geographically diversified, according to Kogut's (1985) study on operating flexibility, being active in multiple countries enables the firm to engage in arbitrage by shifting activities from one country to another.…”

“…The literature on international diversification suggests that MNEs’ product diversification is often coupled with geographic diversification (Hilman, 2015; Sambharya, 1995; Vachani, 1991). The coupling generates four types of strategic combination (Kim, Kim, & Pantzalis, 2001): low-low combination (low product and geographic diversification), low-high combination (low product and high geographic diversification), high-low combination (high product and low geographic diversification), and high-high combination (high product and geographic diversification).…”

Diversification and company sales efficiency: Synergy influence on business valuation

“…Some other authors (Akkermans, 2010), having different opinions, divide the synergistic effect into operational and financial (when assessing the value of a business). Others also add to these two factors, the synergy associated with management (Dosi & Teece, 1998; Haim, 2015; Valis‐Boas & Suarez‐Gonzalez, 2007). In addition, these concepts are supplemented by subitems (Hasby et al, 2017; Morris et al, 2017; Shyu & Chen, 2009; Xia & Zhang, 2011).…”