Effects of Business and Technology Diversification on Performance: Evidence from Japanese Electronic Equipment Industry
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The impact of a firm’s diversification strategy on its economic performance is a significant issue in strategic management research. The main purpose of this research is to analyze how both business and technology diversification affects firm’s performance comprehensively. A sample of 265 electronic equipment firms was selected using unbalanced panel data. Empirical results significantly represented the negative effects of business diversity. This result can be explained by the diseconomies of scope, particularly in cases of non-manufacturing business diversification. From a technology strategy viewpoint, technology diversification has positive effects on firm profitability, strongly supporting the importance of technical variety for enhanced performance. Moreover, firms possessing diverse technology knowledge can improve profitability by undergoing business diversification. This result is robust and consistent in both the simple count patent model and the citation count model. This research indicates that having expertise in a variety of technical fields is a key factor for the electronic equipment industry, as it requires a broad range of parts and technologies. Also, the results show that downstream diversification has positive effects on performance. Throughout these empirical results, this study found different effects of business and technology diversification on performance. Overall, these results suggest that to precisely establish the effect of diversification researchers should consider not only the business elements impacting on a firm, but also the technology elements and the direction of the diversification.
Abstract
The impact of a firm’s diversification strategy on its economic performance is a significant issue in strategic management research. The main purpose of this research is to analyze how both business and technology diversification affects firm’s performance comprehensively. A sample of 265 electronic equipment firms was selected using unbalanced panel data. Empirical results significantly represented the negative effects of business diversity. This result can be explained by the diseconomies of scope, particularly in cases of non-manufacturing business diversification. From a technology strategy viewpoint, technology diversification has positive effects on firm profitability, strongly supporting the importance of technical variety for enhanced performance. Moreover, firms possessing diverse technology knowledge can improve profitability by undergoing business diversification. This result is robust and consistent in both the simple count patent model and the citation count model. This research indicates that having expertise in a variety of technical fields is a key factor for the electronic equipment industry, as it requires a broad range of parts and technologies. Also, the results show that downstream diversification has positive effects on performance. Throughout these empirical results, this study found different effects of business and technology diversification on performance. Overall, these results suggest that to precisely establish the effect of diversification researchers should consider not only the business elements impacting on a firm, but also the technology elements and the direction of the diversification.
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