Loading...
The impact of foreign-based competition on firm diversification: a resource-based perspective
Bowen, Harry Wiersema, Margarethe
Bowen, Harry
Wiersema, Margarethe
Citations
Altmetric:
Publication Type
Working paper
Editor
Supervisor
Publication Year
2003
Journal
Book
Publication Volume
Publication Issue
20
Publication Begin page
Publication End page
Publication NUmber of pages
45
Collections
Abstract
The globalization of industries over the past two decades has resulted in domestic markets facing increasing inroads by foreign competitors. Utilizing resource-based theory, this paper examines how increased foreign competition impacts a firm's diversification strategy. Building on the important role of a firm's core competences as the basis for sustainable competitive advantage, we postulate that increased foreign-based competition, as measured by the degree of import penetration in a firm's core business industry, will engender a defensive response by the firm to protect its core business. This defensive response will in turn lead the firm to focus on its core business at the expense of non-core business activities with a consequent reduction in the firm's level of diversification. In addition, we conjecture that this increased focus and reduction in diversification will be greater the more attractive is the firm's core business to the firm and the more attractive is the firm's core industry. Our empirical analysis is conducted using a unique panel data set of both diversified and undiversified U.S. firms over the period 1985-1994. The special nature of the data sample raises important methodological and statistical issues which are addressed here by the use of a nonlinear TOBIT procedure. Our results indicate strong support for the hypothesized negative relationship between firm diversification and foreign-based competition. Moreover, we find significant evidence that this negative relationship is moderated by the attractiveness of a firm's core business industry, the profitability of the firm's core business and overall firm performance. These findings lend support to the resource-based theory of the firm and they suggest that the observed trend in corporate refocusing over the last decade has, to a significant extent, been driven by increased foreign-based competition.
Research Projects
Organizational Units
Journal Issue
Keywords
Strategic Context & International Business