Business relatedness in international diversification

Abstract

Purpose Business relatedness is important in international diversification because it enables a firm’s transfer of resources to business units operating in foreign markets. The purpose of this paper is to develop a conceptual model based on a review of the major contributions of studies regarding the relatedness of subsidiaries, joint ventures or any other foreign unit. Design/methodology/approach The paper examines theory bases, the relatedness construct, data issues and the key achievements of previous studies. Drawing on organizational learning, transaction costs economics and industrial organization, a conceptual model and propositions are developed that intend to close important research gaps. Findings The model includes competitive strategy as a mediator of the effects of relatedness on foreign unit performance, type of foreign unit – that is, a wholly owned unit or joint venture – as a moderator; and competition barriers as a moderator. Research limitations/implications In future research, the propositions need to be transformed into testable hypotheses. It is recommended to treat relatedness as a multidimensional concept. Practical implications A firm is primarily advised to evaluate how its relatedness with foreign units enables knowledge transfer. A foreign cost leadership strategy benefits from product relatedness, while a differentiation strategy calls for resource relatedness. Originality/value The proposed model is unique as it includes an actionable component that mediates the effects of relatedness on international performance, i.e. competitive strategy, and concerns both wholly owned foreign units and international joint ventures.

Surviving after Cross-Border Acquisitions: How Business Relatedness, Host Country Experience, and Cultural Distance Affect Acquired Firms

“…The lack of significance of cultural distance may hence testify that the increased interconnections and communication possibilities brought about by globalization are actually more and more determining a convergence of cultural systems [113]. This result should be interpreted in the light of extant literature suggesting that distance is actually a multifaceted concept [56]: While cultural distance has been extensively recognized as a critical factor affecting the degree to which firm-specific advantages can be transferred to host locations, the analysis of the additional dimensions of distance may further our understanding of the survival of foreign affiliates.…”

“…On the contrary, at greater business similarity between acquirer and target, potential synergies at market, technological, and product-level may possibly increase thanks to the broader set of resources and capabilities that can be transferred to the new subsidiary [56]. In addition, this knowledge base may be more effectively transferred, with positive effects on the sustainable development of target firms.…”

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“…We differentiate these modes in terms of changes in patterns of strategic positioning, such as vertical integration in the established value chain and diversification into emerging related-or unrelated-industry value chains (Baysinger and Hoskisson, 1989;Galbraith and Kazanjian, 1986;Lüthge, 2020;Pehrsson, 2019). Firms' strategic positioning is observable if they re-position around or move away from their center of gravity.…”