The combined effects of product and geographical diversification on performance: Evidence in manufacturing SMEs

• Published in: BRQ Business Research Quarterly Vol. 23; no. 2; pp. 91 - 106
• Main Authors: Benito-Osorio, Diana, Colino, Alberto, Guerras Martín, Luis Angel, Zúñiga-Vicente, José Ángel
• Format: Journal Article
• Language: English
• Published: London Sage Publishing 01.04.2020; SAGE Publications
• Subjects: dynamic panel data; Geographical diversification; related product diversification; ROA; Spanish manufacturing SMEs; unrelated product diversification; unrelated product diversification; ROA; Spanish manufacturing SMEs; related product diversification; dynamic panel data; Geographical diversification
• ISSN: 2340-9436; 2340-9444; 2340-9444
• DOI: 10.1177/2340944420916332

This study explores both the individual impact of geographical diversification and its effect combined with product diversification on small and medium-sized enterprises' (SMEs) performance. Unlike most prior studies, this study distinguishes between related and unrelated product diversification. The research setting is a sample of manufacturing SMEs (1994-2014). By using dynamic panel data models, the results provide statistical support for the existence of a horizontal S-shaped relationship between geographical diversification and performance. The findings also indicate that while related product diversification positively enhances the performance of those SMEs engaged in geographical diversification (albeit not indefinitely), unrelated product diversification may significantly impair it, especially for SMEs opting for low and high levels of international diversification. Our study reveals that product and international diversification strategies in the case of SMEs are complementary or substitutive strategies depending on the specific type of product diversification strategy and the level of geographical diversification adopted.