Global Diversification and Firm Performance: A Dynamic Perspective.

In concert with increasing attention to global competition, global diversification has emerged as a significant area of study in strategic management. This study examined a sample of U.S. manufacturing firms to investigate several important issues in the relationship between global diversification and firm performance. The results showed that changes in global diversification have a significant influence on changes in all accounting measures of performance used in this study. However, when the data were analyzed cross-sectionally, global diversification had only a limited influence on profitability and its stability. This indicates that attempts to postulate any dynamic relationship with inference from cross-sectional results should be done with caution. The dynamic analysis also showed that global diversification components are interactive rather than independent in their influence on firm performance. The interactions between global diversification components provide insights for some high performing dynamic global diversification strategies. Ohmae\u27s (1985) assertion that technology-oriented firms tend to enter the triad region (Western Europe, North America and Japan) for technological advantage and market enlargement was only partially supported. However, firms which are primarily operating in low-tech industries can improve their performance through increasing global diversification in non-triad countries. A geographic measure of global diversification was developed for this study. The results showed that diversification measures with a geographic orientation are better than those with a product orientation in explaining the impact of global diversification on firm performance from the dynamic perspective. Implications for future research and management practice are also discussed