SMJ 2008 Corporate Diversification

Strategic Management Journal
Strat. Mgmt. J., 29: 115–132 (2008)
Published online 4 October 2007 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.653
Received 11 March 2005; Final revision received 21 August 2007

CORPORATE DIVERSIFICATION: THE IMPACT OF
FOREIGN COMPETITION, INDUSTRY
GLOBALIZATION, AND PRODUCT DIVERSIFICATION
MARGARETHE F. WIERSEMA1 * and HARRY P. BOWEN2
1

Paul Merage School of Business, University of California, Irvine, California, U.S.A.
McColl School of Business, Queens University of Charlotte, Charlotte, North
Carolina, U.S.A.
2

The globalization of markets and industries has fundamentally changed the competitive conditions facing firms. Yet, how globalization has influenced the international diversification strategies of firms is an issue largely overlooked in both the strategic management and international business literatures. This paper develops a theoretical framework to understand how industry globalization, foreign competition, and firm product diversification may influence a firm’s choice of its degree and scope of international diversification. Utilizing a panel dataset of U.S. manufacturing firms for the period 1987–99, we provide the first empirical evidence that industry globalization and foreign-based competition are statistically significant factors explaining the degree and scope of international diversification by U.S. firms. Copyright  2007 John Wiley
& Sons, Ltd.

INTRODUCTION
One of the most significant changes in the world economy over the past two decades has been a growing globalization of markets and industries. Numerous forces have contributed to rising globalization, including reductions in multilateral and regional trade barriers (Krueger, 1995), reduced costs of international transport and communications (Hummels, 1999), and reform and greater global integration of capital markets (Sachs and Warner, 1995). The ongoing consequences of globalization include widespread industry rationalization and

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