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The effect of within‐industry diversification on firm performance: synergy creation, multi‐market contact and market structuration

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  • Stan Xiao Li
  • Royston Greenwood

Abstract

This paper examines the effect of diversification upon intra‐industry performance. We propose that intra‐industry diversification promises three sets of benefits, which, separately and in combination, provide firms with a competitive advantage: synergies arising from economies of scope; premiums from mutual forbearance enabled by multi‐market competition; and efficiencies derived from market structuration. The additive and integrative effects of the first two have not been explored. The benefits of market structuration remain untheorized and thus untested. The test of our theoretical model in the Canadian general insurance industry indicates that mutual forbearance provides advantage under specified conditions, that market structuration also provides advantages, but that diversification per se does not. Copyright © 2004 John Wiley & Sons, Ltd.

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  • Stan Xiao Li & Royston Greenwood, 2004. "The effect of within‐industry diversification on firm performance: synergy creation, multi‐market contact and market structuration," Strategic Management Journal, Wiley Blackwell, vol. 25(12), pages 1131-1153, December.
    • Handle: RePEc:bla:stratm:v:25:y:2004:i:12:p:1131-1153
    DOI: 10.1002/smj.418
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    1. Chen Zheng & Henry Tsai, 2019. "The moderating effect of board size on the relationship between diversification and tourism firm performance," Tourism Economics, , vol. 25(7), pages 1084-1104, November.
    2. Raja Roy & Soumodip Sarkar, 2022. "Boundary conditions of the mutual forbearance hypothesis: Impact of technology evolution on multimarket competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2545-2556, September.
    3. Fiona Kun Yao & Ming-Jer Chen & Jiatao Li & Danielle Combs & Qiang Li, 2024. "A review of 50 years of research since Knickerbocker (1973): competitive dynamics in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(5), pages 522-550, July.
    4. Chien-Nan Chen & Chengli Tien & Bernard Gan, 2019. "The postentry performance of business groups’ new venture affiliates," Australian Journal of Management, Australian School of Business, vol. 44(2), pages 325-343, May.
    5. Karthik, D. & Upadhyayula, Rajesh, 2011. "Performance Implications of Diversification in Professional Service Firms: The Role of Synergies," IIMA Working Papers WP2011-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    6. Bai, Xiwen & Lam, Jasmine Siu Lee, 2021. "Freight rate co-movement and risk spillovers in the product tanker shipping market: A copula analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    7. Giuseppe Arcuri & Nadine Levratto & Aziza Garsaa & Lara Abdel Fattah, 2019. "Firm soundness and knowledge externalities: a comparative regional analysis," EconomiX Working Papers 2019-10, University of Paris Nanterre, EconomiX.
    8. Garrido-Prada, Pablo & Delgado-Rodriguez, Maria Jesús & Romero-Jordán, Desiderio, 2019. "Effect of product and geographic diversification on company performance: Evidence during an economic crisis," European Management Journal, Elsevier, vol. 37(3), pages 269-286.
    9. Ramnath K. Chellappa & Nilesh Saraf, 2010. "Alliances, Rivalry, and Firm Performance in Enterprise Systems Software Markets: A Social Network Approach," Information Systems Research, INFORMS, vol. 21(4), pages 849-871, December.
    10. Ivan Pavic & Maja Pervan, 2010. "Effects Of Corporate Diversification On Its Performance: The Case Of Croatian Non-Life Insurance Industry," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 19(1), pages 49-66, june.
    11. Gao, Ya & Li, Bing & Sun, Weizeng, 2023. "Resource curse on innovation: A perspective on local mining industry monopolies in resource-based cities in China," China Economic Review, Elsevier, vol. 81(C).
    12. Arora, Punit & Gaur, Ajai, 2022. "Peer directors’ effort, firm efficiency and performance of diversified firms: An efficacy-based view of governance," Journal of Business Research, Elsevier, vol. 151(C), pages 593-608.
    13. Paul F. Skilton, 2009. "Does the human capital of teams of natural science authors predict citation frequency?," Scientometrics, Springer;Akadémiai Kiadó, vol. 78(3), pages 525-542, March.
    14. O. Cem Ozturk & Necati Tereyagoglu, 2022. "Distribution Channel Relationships in the Presence of Multimarket Contact," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 218-238, January.
    15. Friberg, Richard, 2019. "All the bottles in one basket? Diversification and product portfolio composition," CEPR Discussion Papers 14119, C.E.P.R. Discussion Papers.
    16. Wang, Liang & Xie, Zaiyang & Abdi, Majid & Lee, June Y. & Li, Stan Xiao, 2024. "The rise of female board representation in China as a glocalization process (2010–2018)," Journal of Business Research, Elsevier, vol. 172(C).
    17. Grimm Noh, 2019. "Strategic Decoupling in Korean Business Groups: Ambiguous Identity as a Strategy in Chaebol Groups," Sustainability, MDPI, vol. 11(9), pages 1-18, May.
    18. Duc-Niem Le & Van-Hoa Nguyen, 2024. "Does Quality Certification or Product Diversification Improve the Performance of Small and Medium Enterprises?," Sustainability, MDPI, vol. 16(5), pages 1-11, February.
    19. Jin, Tuofu & Eapen, Alex, 2022. "‘Delayed Forbearance’: Multipoint contact and mutual forbearance in inaugural and subsequent competitive actions," Journal of Business Research, Elsevier, vol. 149(C), pages 938-953.
    20. Qiang Zhang & Yan Wang, 2018. "Struggling towards virtuous coevolution: institutional and strategic works of Alibaba in building the Taobao e-commerce ecosystem," Asian Business & Management, Palgrave Macmillan, vol. 17(3), pages 208-242, July.
    21. Joon Mahn Lee & Rahul Kapoor, 2017. "Complementarities and Coordination: Implications for Governance Mode and Performance of Multiproduct Firms," Organization Science, INFORMS, vol. 28(5), pages 931-946, October.
    22. Subrato Banerjee & Basri Savitha, 2021. "Competition reduces profitability: the case of the Indian life microinsurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 383-398, July.
    23. Sean T. Hsu & Susan K. Cohen, 2022. "Overcoming the Incumbent Dilemma: The Dual Roles of Multimarket Contact During Disruption," Journal of Management Studies, Wiley Blackwell, vol. 59(2), pages 319-348, March.
    24. Kocaman, Barış & Gelper, Sarah & Langerak, Fred, 2023. "Till the cloud do us part: Technological disruption and brand retention in the enterprise software industry," International Journal of Research in Marketing, Elsevier, vol. 40(2), pages 316-341.
    25. Jaeho Choi & Anoop Menon & Haris Tabakovic, 2021. "Using machine learning to revisit the diversification–performance relationship," Strategic Management Journal, Wiley Blackwell, vol. 42(9), pages 1632-1661, September.

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