Academic journal article Asian Social Science

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

Academic journal article Asian Social Science

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

Article excerpt

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.

Keywords: product diversification strategy, geographic diversification strategy, Malaysian public listed companies

1. Introduction

Determining firm's boundaries have been among one of the basic concerns for strategy makers and an important investigation in past research. But, in spite of almost over 40 years of research targeted into finding pros and cons of corporate diversification, it is quite possible to conclude that there has been no consensus on the impact of product diversification and geographic diversification on performance, or in other words, confident set of guidelines could not be developed about whether a firm should diversify (product wise or geographically) or it should remain undiversified (Asrarhaghighi, Rahman, Sambasivan, & Mohamed, 2013; Lu & Beamish, 2004; Mehmood & Hilman, 2013). Moreover, the interaction impacts of product diversification and geographic diversification on corporate performance did not achieve agreement among scholars (Capar, 2003; Kang, 2011).

Traditionally, perspectives and arguments have been laid by various theorists about the possible benefits and drawbacks associated with product and/or geographic diversification but more could be explored and suggested about these strategies (Asrarhaghighi et al., 2013) by studying them in different contexts and using latest approaches. Historical as well as contemporary theorists in internal market efficiency and transaction cost economics advocated diversification on the grounds that it offered organizations substantial advantages in terms of lower transaction costs inside the organization as compared to costs outside the organization and also provided them a healthy internal market in terms of capital, assets, technology, land and HR for mutual transfer and sharing (Lins & Servaes, 1999; Williamson, 1998).

Theorists in market power view advocated product based and/or geographic based diversification on the basis of their ability to provide a firm greater market power in various product and geographic segments in terms of greater brand repute and recognition compared to its competitors (George, 2007; Park, 2010). Similarly, theorists related to resource based theory argued in favour of diversification as they suggested that excess resources and capabilities that were unique and those possessing potential to provide sustainable competitive advantages could be exploited through product diversification as well as geographic diversification (Matrin & Sayrak, 2003; Teece, 1982). …

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