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GEOGRAPHIC SCOPE, PRODUCT DIVERSIFICATION AND
THE CORPORATE PERFORMANCE OF JAPANESE FIRMS

ANDREW DELIOS
Department of Management of Organizations
Hong Kong University of Science and Technology
Clear Water Bay, Kowloon HONG KONG
Tel: (852) 2358-7743
Fax: (852) 2335-5325
E-mail: mndelios@ust.hk

PAUL W. BEAMISH
Richard Ivey School of Business
University of Western Ontario
London, ON CANADA N6A 3K7
Tel: (1-519) 661-3237
Fax: (1-519) 661-3700
E-mail: pbeamish@ivey.uwo.ca

This research was supported by a Social Sciences and Humanities Research Council of Canada Grant (# XXXX), and by the Asian Management Institute at the University of Western Ontario. This manuscript benefited from comments received from seminar participants at the Richard Ivey School of Business, The Hong Kong University of Science and Technology, and the Fisher College of Business. We would like to thank Ayako Kira, Jo Jo Lam, Jimmy Miyoshi and Nancy Suzuki for assistance in data collection and coding.

Key Words: Geographic scope, multinationality, corporate performance Running Head: Geographic Scope and Performance

GEOGRAPHIC SCOPE, PRODUCT DIVERSIFICATION AND
THE CORPORATE PERFORMANCE OF JAPANESE FIRMS

Abstract.
The study extends research on the geographic scope, product diversification and performance relationship by exploring both the antecedents and consequences of geographic scope. In so doing, it addresses a fundamental criticism of the geographic scope-performance relationship; namely, that the observed positive relationship between geographic scope and performance is spurious because it is the possession of proprietary assets that are the foundation of superior performance, not expansion into international markets per se. We tested the research model with data on the corporate performance of 399 Japanese manufacturing firms. In the Partial Least Squares analyses used to examine the study’s six main hypotheses, we demonstrate that geographic scope was positively associated with firm profitability, even when the competing effect of proprietary assets on firm performance was considered. Further, we find that performance was not related to the extent of product diversification; although investment levels in rent-generating, proprietary assets were related to the extent of product diversification.

An important question concerning the internationalization of a firm involves the relationship between geographic scope and performance. This question is particularly salient in a world in which multinational enterprises (MNEs) are accounting for larger and larger shares of worldwide production (UNCTAD, 1997). Increasingly, managers are being urged to increase the firm’s geographic scope, presumably to increase its competitiveness and profitability. We explore this issue of geographic scope, defined as the international extent of a firm’s operations, and corporate performance, by examining the international experiences of Japanese manufacturing firms. Research in strategic management and international business has addressed the issue of geographic scope and performance in several ways, but with a common objective – to identify the nature of the relationship between the two. In general, the consensus in the literature is that (1) international diversification decreases the variability, or risk, of a firm’s revenue stream (Rugman, 1979; Hisey and Caves, 1985; Kim, Hwang and Burgers, 1993), and (2) geographic scope is positively, although not necessarily linearly, related to performance (Beamish and daCosta, 1984; Tallman and Li, 1996; Hitt, Hoskisson and Kim, 1997). However, a persistent criticism is that the observed relationship between geographic scope and performance is spurious. As an example of this line of critique, Dess et al. (1995) contend geographic scope is not related to performance; rather, it is the possession of proprietary assets – which is the impetus to foreign direct investment – that is the ultimate source of...
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