Firm Performance Outcomes of Product Diversification Strategies in Pakistan
DOI:
https://doi.org/10.47067/ramss.v8i4.582Keywords:
Product Diversification, Unrelated Diversification, Related Diversification, Firm Performance, Return on Asset, Return on Equity, Tobin’s QAbstract
The purpose of this study is to look into the relationship between Pakistani firms' performance and product diversity. The basic reason for this study is that diversification of related and unrelated products inside the portfolio of a business of operations allow the organization to perform better. Both primary and secondary data was collected. A census 75 manufacturing firms was taken. Secondary data was acquired from these firms' annual reports during a two-year period. Questionnaires from 303 departmental managers were submitted. Stata was used to provide descriptive summaries and do regression analysis on the data. According to this study, there is a significant relationship between product diversification and firm performance. Both related and unrelated product diversification strategies can be useful in enhancing a company's success. While unrelated diversification can create new revenue streams and lessen the likelihood of market consolidation, related diversification can benefit from the resources already available.
References
Abdullah, H. H. (2015). Significance of studying product diversification, geographic diversification, and their interaction impacts for Malaysian companies: A literature review - UUM Repository. Uum.edu.my. https://repo.uum.edu.my/id/eprint/15009/1/47772-164437-2-PB.pdf
Akenga, G. (2017). Effect of Liquidity on Financial Performance of Firms Listed at the Nairobi Securities Exchange, Kenya. International Journal of Science and Research (IJSR), 6(7), 279–285. https://doi.org/10.21275/art20175036
Alcalde Heras, M. del H. (2014). Building product diversification through contractual R&D agreements. R&D Management, 44(4), 384–397. https://doi.org/10.1111/radm.12075
Andersén, J. (2011). Strategic resources and firm performance. Management Decision, 49(1), 87–98. https://doi.org/10.1108/00251741111094455
Ansoff, H. I. (1957). Technological Forecasting. Proceedings - Institution of Mechanical Engineers, 184(1), 1201–1211. https://doi.org/10.1243/pime_proc_1969_184_090_02
Bausch, A., & Pils, F. (2009). Product diversification strategy and financial performance: meta-analytic evidence on causality and construct multidimensionality. Review of Managerial Science, 3(3), 157–190. https://doi.org/10.1007/s11846-009-0027-4
Benito?Osorio, D., Ángel Guerras?Martín, L., & Á ngel Zuñiga?Vicente, J. (2012). Four decades of research on product diversification: a literature review. Management Decision, 50(2), 325–344. https://doi.org/10.1108/00251741211203597
Berger, P. G., & Ofek, E. (1995). Diversification’s effect on firm value. Journal of Financial Economics, 37(1), 39–65. https://doi.org/10.1016/0304-405x(94)00798-6
Bowen, H. P., & Sleuwaegen, L. (2017). Are International and Product Diversification Substitutes or Complements? Theoretical and Empirical Perspectives. Global Strategy Journal, 7(3), 241–256. https://doi.org/10.1002/gsj.1163
Cappa, F., Oriani, R., Peruffo, E., & McCarthy, I. (2020). Big Data for Creating and Capturing Value in the Digitalized Environment: Unpacking the Effects of Volume, Variety, and Veracity on Firm Performance*. Journal of Product Innovation Management, 38(1). https://doi.org/10.1111/jpim.12545
Chang, S.-C., & Wang, C.-F. (2007a). The effect of product diversification strategies on the relationship between international diversification and firm performance. Journal of World Business, 42(1), 61–79.
Chen, Y., Jiang, Y., Wang, C., & Chung Hsu, W. (2014). How do resources and diversification strategy explain the performance consequences of internationalization? Management Decision, 52(5), 897–915. https://doi.org/10.1108/md-10-2013-0527
Choi, M., & Lee, K.-H. (2008). A Strategy for Enhancing Financial Performance. The Health Care Manager, 27(4), 288–297. https://doi.org/10.1097/hcm.0b013e31818c806e
Datta, D. K., Rajagopalan, N., & Rasheed, A. M. A. (1991). Diversification and Performance: Critical Review and Future Directions. Journal of Management Studies, 28(5), 529–558. https://doi.org/10.1111/j.1467-6486.1991.tb00767.x
Delios, A., & Beamish, P. W. (1999). Geographic scope, product diversification, and the corporate performance of Japanese firms. Strategic Management Journal, 20(8), 711–727. https://doi.org/10.1002/(sici)1097-0266(199908)20
Delios, A., Xu, D., & Beamish, P. W. (2008). Within-country product diversification and foreign subsidiary performance. Journal of International Business Studies, 39(4), 706–724. https://doi.org/10.1057/palgrave.jibs.8400378
Doukas, J. A., & Lang, L. H. P. (2003). Foreign direct investment, diversification and firm performance. Journal of International Business Studies, 34(2), 153–172. https://doi.org/10.1057/palgrave.jibs.8400014
Geringer, J. M., Tallman, S., & Olsen, D. M. (2000). Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21(1), 51–80. https://doi.org/10.1002/(sici)1097-0266(200001)2
Gomez-Mejia, L. R. (1992). Structure and process of diversification, compensation strategy, and firm performance. Strategic Management Journal, 13(5), 381–397. https://doi.org/10.1002/smj.4250130506
Grant, R. M. (2021). Toward a Knowledge-Based Theory of the Firm. Strategic Management Journal, 17(S2), 109–122.
Hall, P. A., & Taylor, R. C. R. (1996). Political Science and the Three New Institutionalisms. Political Studies, 44(5), 936–957.
Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). INTERNATIONAL DIVERSIFICATION: EFFECTS ON INNOVATION AND FIRM PERFORMANCE IN PRODUCT-DIVERSIFIED FIRMS. Academy of Management Journal, 40(4), 767–798. https://doi.org/10.2307/256948
Hoskisson, R. E., & Hitt, M. A. (1990). Antecedents and Performance Outcomes of Diversification: A Review and Critique of Theoretical Perspectives. Journal of Management, 16(2), 461–509. https://doi.org/10.1177/014920639001600210
Ittner, C. D., Larcker, D. F., & Randall, T. (2003). Performance implications of strategic performance measurement in financial services firms. Accounting, Organizations and Society, 28(7-8), 715–741. https://doi.org/10.1016/s0361-3682(03)00033-3
Jha, S. K., Bhawe, N., & Satish, P. (2021). Scaling Social Enterprises through Product Diversification. Sustainability, 13(21), 11660. https://doi.org/10.3390/su132111660
Jung, J., & Chan-Olmsted, S. M. (2005b). Impacts of Media Conglomerates’ Dual Diversification on Financial Performance. Journal of Media Economics, 18(3), 183–202. https://doi.org/10.1207/s15327736me1803_2
Kang, K. H., Lee, S., & Yang, H. (2011). The effects of product diversification on firm performance and complementarities between products: A study of US casinos. International Journal of Hospitality Management, 30(2), 409–421. https://doi.org/10.1016/j.ijhm.2010.06.008
Kogut, B., & Zander, U. (1992). Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology. Organization Science, 3(3), 383–397.
Lu, J. W., & Beamish, P. W. (2004a). INTERNATIONAL DIVERSIFICATION AND FIRM PERFORMANCE: THE S-CURVE HYPOTHESIS. Academy of Management Journal, 47(4), 598–609. https://doi.org/10.2307/20159604
Luo, Y. (2002). Product diversification in international joint ventures: performance implications in an emerging market. Strategic Management Journal, 23(1), 1–20. https://doi.org/10.1002/smj.203
Marangu, W. N., Matoke, J., Yegon, R., & Egessa, R. (2014). Moderating effect of Organizational Factors on the relationship between Diversification Strategies and Competitiveness: Case of Sugar Firms in Kenya. European Journal of Business and Management, 6(8), 95–103.
Mishra, S., Singh, S. N., Fang, X., & Yin, B. (2017). Impact of diversity, quality and number of brand alliance partners on the perceived quality of a new brand. Journal of Product & Brand Management, 26(2), 159–176. https://doi.org/10.1108/jpbm-05-2015-0873
Napier, N. K., & Smith, M. (1987). Product diversification, performance criteria and compensation at the corporate manager level. Strategic Management Journal, 8(2), 195–201. https://doi.org/10.1002/smj.4250080210
Patrick, O. (2012, July 9). PRODUCT DIVERSIFICATION ANDPERFORMANCE OF MANUFACTURINF FIRM IN NIGERIA. Www.iiste.org; European Journal of Business and Management. http://www.iiste.org
Palepu, K. (1985). Diversification strategy, profit performance and the entropy measure. Strategic Management Journal, 6(3), 239–255. https://doi.org/10.1002/smj.4250060305
Puck, J. F., Holtbrügge, D., & Mohr, A. T. (2008). Beyond entry mode choice: Explaining the conversion of joint ventures into wholly owned subsidiaries in the People’s Republic of China. Journal of International Business Studies, 40(3), 388–404. https://doi.org/10.1057/jibs.2008.56
Ramírez Alesón, M., & Escuer, M. E. (2002). The impact of product diversification strategy on the corporate performance of large Spanish firms. Spanish Economic Review, 4(2), 119–137. https://doi.org/10.1007/s101080200042
Rasiah, R. (2003). Foreign ownership, technology and electronics exports from Malaysia and Thailand. Journal of Asian Economics, 14(5), 785–811. https://doi.org/10.1016/j.asieco.2003.10.006
Rehman, Z. ur, Khan, A., Khuhro, R. A., & Khan, A. G. (2021). Product Line Diversification and Its Impact on Firm Performance. Journal of Applied Economics and Business Studies, 5(3), 43–58. https://doi.org/10.34260/jaebs.533
Robinson, G., & Dechant, K. (1997). Building a business case for diversity. Academy of Management Perspectives, 11(3), 21–31. https://doi.org/10.5465/ame.1997.9709231661
Rocca, M. L., Fasano, F., Cappa, F., & Neha, N. (2022). The relationship between political connections and firm performance: An empirical analysis in Europe. Finance Research Letters, 49, 103157. https://doi.org/10.1016/j.frl.2022.103157
Ruigrok, W., & Wagner, H. (2003). Internationalization and Performance: An Organizational Learning Perspective. MIR: Management International Review, 43(1), 63–83. https://www.jstor.org/stable/40835634
Sengar, A., Sharma, V., Agrawal, R., & Bharti, K. (2014). Prioritisation of barriers to rural markets: integrating fuzzy logic and AHP. International Journal of Business and Emerging Markets, 6(4), 371. https://doi.org/10.1504/ijbem.2014.065584
Shahbaz, M., Rehman, I. U., & Afza, T. (2015). Macroeconomic determinants of stock market capitalization in an emerging market: fresh evidence from cointegration with unknown structural breaks. Macroeconomics and Finance in Emerging Market Economies, 9(1), 75–99. https://doi.org/10.1080/17520843.2015.1053820
Shocker, A. D., Srivastava, R. K., & Ruekert, R. W. (1994). Challenges and Opportunities Facing Brand Management: An Introduction to the Special Issue. Journal of Marketing Research, 31(2), 149. https://doi.org/10.2307/3152190
Stulz, R. M. (1994). Tobin’s q, Corporate Diversification, and Firm Performance. Journal of Political Economy, 102(6), 1248–1280. https://doi.org/10.1086/261970
Tallman, S., & Li, J. (1996). Effects of International Diversity and Product Diversity on the Performance of Multinational Firms. Academy of Management Journal, 39(1), 179–196. https://doi.org/10.5465/256635
Taouab, O., & Issor, Z. (2019). Firm Performance: Definition and Measurement Models. European Scientific Journal ESJ, 15(1), 93–106. http://dx.doi.org/10.19044/esj.2019.v15n1p93
Thams, Y., Alvarado-Vargas, M. J., & Newburry, W. (2016). Geographical diversification as a predictor of MNC reputations in their home nations. Journal of Business Research, 69(8), 2882–2889. https://doi.org/10.1016/j.jbusres.2015.12.057
Zhao, H., & Luo, Y. (2002). Product Diversification, Ownership Structure, and Subsidiary Performance in China’s Dynamic Market. MIR: Management International Review, 42(1), 27–48.
