The effect of international diversification on firms' performance : evidence of US based multiproduct manufacturing and service firms

Abstract

This study investigates whether the relationship between international diversification on manufacturing and service firms’ performance is linear or non-linear. This study was conducted by selecting a sample of 335 US based manufacturing firms and 348 US based service firms for 2009-2012. For inclusion in the manufacturing sample, firms were 1) mid-sized or large sized multiproduct public manufacturing companies with current employees more than 200; 2) had average sales exceeding $100 million between 2009 and 2012; 3) all firms selected were product and international diversified manufacturing firms; 4) the study categorized firms into regions, which include Africa, Asia, Pacific, Europe, and America; 5) The sample consisted of four types of manufacturing industries: Consumer Cyclical, Consumer Non-cyclical, Energy, and Industrial. In addition, for inclusion in the service sample, firms were 1) mid-sized or large sized multiproduct public service companies that firms’ current employees are greater than 200. 2) Had average sales exceeding $100 million between 2009 and 2012. 3) All firms selected were product and international diversified service firms. 4) The study divided the firms to regional areas which include Africa, Asia, Pacific, Europe, and America. 5) The sample consisted of four types of service industries: Retailing, Information Technology, Telecommunication services, and utilities. The results of the study showed that the relationship between international diversification and manufacturing firms’ performance is U-shaped. Furthermore, there was an inverse U-shaped relationship between international diversification and service firms’ performance. Finally, the study also demonstrated that the effect of international diversification was independent of types of manufacturing and service firms.