Title: The circular relationship between geographical and product diversification in Spanish MNEs

Authors: Diana Benito-Osorio; Alfredo Jiménez; Marta Peris-Ortiz

Addresses: Department of Management, Rey Juan Carlos University, Madrid, Spain ' Department of Business Economy and Management, University of Burgos, Burgos, Spain ' Department of Organización de Empresas, Universitat Politècnica de València, Valencia, Spain

Abstract: Diversification as a strategic response to global opportunities has become increasingly important for firms. Drawing on the Resource Based View of the Firm, this paper investigates these strategies by analysing a circular relationship between product and geographical diversification. The results, obtained from a sample of leading Spanish multinational firms, suggest that adaptation to a wide range of different countries hinders the necessary coordination of activities that related product diversification requires and vice-versa. In contrast, unrelated diversification strategies can provide financial synergies, experience and flexibility, which help the process of internationalisation. Simultaneously, greater geographical diversification allows each subsidiary to behave as an independent unit and to develop more efficient internal control systems and resource allocation.

Keywords: product diversification; geographical diversification; simultaneous equations; multinational enterprises; Spanish firms; MNEs; Spain; diversification strategies; multinationals; internationalisation; resource based view; RBV; internal control; resource allocation.

DOI: 10.1504/EJIM.2014.064896

European Journal of International Management, 2014 Vol.8 No.6, pp.600 - 620

Received: 21 Feb 2013
Accepted: 21 Feb 2013
Published online: 21 Oct 2014 *

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