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Article
Publication date: 1 September 2006

Anders Pehrsson

The purpose of this paper is to extend understanding of business relatedness, a concept that is central to diversification issues. These questions are put forward: What…

1806

Abstract

Purpose

The purpose of this paper is to extend understanding of business relatedness, a concept that is central to diversification issues. These questions are put forward: What characterizes existing types of measurements of business relatedness? What are the weaknesses of these types? What would be the features of a model for measurement of business relatedness?

Design/methodology/approach

As relatedness concerns specific business attributes, common attributes used in measurements are presented. A review of previous studies on types of measurements of business relatedness (codes or indices, researcher assessments and managerial perceptions) is followed by a discussion on correlations between perceptual and objective measurements.

Findings

The review shows that application of standard industrial classification codes/indices and researcher assessments suffer from weak content validity of the measurements, and underestimation of the multidimensionality of the construct. Use of managerial perceptions needs to address the uncertainty inherent in managerial self‐assessments; previous research has found a major divergence between perceptual and objective measurements.

Practical implications

A model is proposed for the measurement of business relatedness using perceptual data. It is stressed that the context of the comparisons (i.e. reason for comparison and units to be compared) has a major influence on the outcomes. Business attributes to be subjectively compared by managers are those that have been singled out as important for financial performance.

Originality/value

The paper is unique as it represents a continuation of the most recent research on measurement of business relatedness, i.e. those measurements that are based on managerial perceptions. Another key value is that the review of research leads to a measurement model.

Details

European Business Review, vol. 18 no. 5
Type: Research Article
ISSN: 0955-534X

Keywords

Article
Publication date: 11 March 2019

Anders Pehrsson

Business relatedness is important in international diversification because it enables a firm’s transfer of resources to business units operating in foreign markets. The purpose of…

Abstract

Purpose

Business relatedness is important in international diversification because it enables a firm’s transfer of resources to business units operating in foreign markets. The purpose of this paper is to develop a conceptual model based on a review of the major contributions of studies regarding the relatedness of subsidiaries, joint ventures or any other foreign unit.

Design/methodology/approach

The paper examines theory bases, the relatedness construct, data issues and the key achievements of previous studies. Drawing on organizational learning, transaction costs economics and industrial organization, a conceptual model and propositions are developed that intend to close important research gaps.

Findings

The model includes competitive strategy as a mediator of the effects of relatedness on foreign unit performance, type of foreign unit – that is, a wholly owned unit or joint venture – as a moderator; and competition barriers as a moderator.

Research limitations/implications

In future research, the propositions need to be transformed into testable hypotheses. It is recommended to treat relatedness as a multidimensional concept.

Practical implications

A firm is primarily advised to evaluate how its relatedness with foreign units enables knowledge transfer. A foreign cost leadership strategy benefits from product relatedness, while a differentiation strategy calls for resource relatedness.

Originality/value

The proposed model is unique as it includes an actionable component that mediates the effects of relatedness on international performance, i.e. competitive strategy, and concerns both wholly owned foreign units and international joint ventures.

Details

European Business Review, vol. 31 no. 2
Type: Research Article
ISSN: 0955-534X

Keywords

Article
Publication date: 18 May 2010

Anders Pehrsson

The purpose of this paper is to improve the existing knowledge of international strategy antecedents of foreign subsidiary performance.

Abstract

Purpose

The purpose of this paper is to improve the existing knowledge of international strategy antecedents of foreign subsidiary performance.

Design/methodology/approach

Hypotheses are developed regarding the impact of perceived relatedness between the foreign subsidiary and the parent firm's core business unit, and the moderating effect of the subsidiary's business strategy. In order to test the hypotheses, the study uses survey data from Europe (Germany and the UK), and the USA, and the subsidiaries belong to Swedish manufacturing firms.

Findings

Perceived relatedness regarding intangible resources affects foreign subsidiary performance positively. Competitive differentiation and market knowledge of a foreign subsidiary reinforce the performance impact of the perceived relatedness.

Research limitations/implications

A foreign subsidiary's relatedness to the core business unit of its parent firm determines the subsidiary's ability to assimilate the parent firm's core competencies. The relatedness represents a synergy potential that is realized by the subsidiary's core competence exploitation and economies of learning.

Originality/value

The paper extends current knowledge of international strategy antecedents of foreign subsidiary performance as it applies the perceptual approach to relatedness and acknowledges the impact of foreign subsidiary strategy.

Details

Journal of Strategy and Management, vol. 3 no. 2
Type: Research Article
ISSN: 1755-425X

Keywords

Article
Publication date: 9 October 2017

Anders Pehrsson

The study draws on the resource-based view and the contingency view of strategy. The purpose of this paper is to contribute to international strategy literature by extending the…

Abstract

Purpose

The study draws on the resource-based view and the contingency view of strategy. The purpose of this paper is to contribute to international strategy literature by extending the current understanding of foreign subsidiary’s competitive strategy in terms of cost leadership and product differentiation.

Design/methodology/approach

Hypotheses concern associations between corporate support building on product and skills relatedness and subsidiary strategies. Also, it is hypothesized that strategies are due to the type of local competitive intensity. The hypotheses were tested on wholly owned subsidiaries of Swedish industrial firms in Germany, the UK and the USA.

Findings

Product and skills relatedness between the subsidiary and the corporate core unit are positively associated with the subsidiary’s emphasis on cost leadership. Also, a positive association was found between skills relatedness and product differentiation, and extensive competitive intensity strengthens the relationship.

Research limitations/implications

The study specifies what business relatedness is needed for a subsidiary’s competitive strategy; skills relatedness is more important than product relatedness; the type of local competitive intensity is important; corporate support and local strategy operate simultaneously.

Practical implications

Management is advised to implement a foreign subsidiary’s competitive strategy by recognizing the mechanisms identified in this study.

Originality/value

In a unique way, the study captures the role of corporate support of a foreign subsidiary’s competitive strategy relying on business relatedness and the importance of aligning the strategy with competitive intensity.

Details

European Business Review, vol. 29 no. 6
Type: Research Article
ISSN: 0955-534X

Keywords

Book part
Publication date: 5 July 2016

Martin Weiss

The linkage between diversification and performance has puzzled scholars for decades. A vast amount of empirical studies, together with the help of meta-analyses condensing…

Abstract

The linkage between diversification and performance has puzzled scholars for decades. A vast amount of empirical studies, together with the help of meta-analyses condensing diverse results, established a widely shared understanding that related diversification leads to superior firm performance. The main rationale for this finding is that relatedness within a company’s portfolio of businesses allows the company to achieve synergies by sharing or transferring resources. Although the predominant importance of related diversification seems generally accepted, scholars raise severe concerns about our ability to precisely define and measure relatedness. In most studies, traditional measures of diversification such as the Berry index are used, which assess relatedness from a product/market perspective. However, these measures face strong criticisms for their low degree of content validity. So if we doubt our understanding of relatedness, how can we agree on the performance effect of related diversification? To reassure our understanding of the diversification-performance linkage, this study critically reflects upon the underlying phenomenon of relatedness. By compiling and evaluating the different perspectives of relatedness with their heterogeneous conceptualizations and measures, this study supports the view that the multi-facetted nature of relatedness can only be captured inadequately so far. Moreover, most prior work mainly focuses on synergy potential rather than on the realization of synergies, thereby neglecting a mechanism that may have an important bearing on the performance effects of diversification.

Book part
Publication date: 27 June 2017

Timo Sohl and Govert Vroom

While the literature on corporate strategy has typically focused on examining diversification along the industry and geographical market dimensions, this study seeks to supplement…

Abstract

While the literature on corporate strategy has typically focused on examining diversification along the industry and geographical market dimensions, this study seeks to supplement previous research by introducing the concept of business model as a new way of thinking about diversification. Specifically, by integrating the literatures on business models, diversification, and acquisition strategy, we provide a conceptual analysis of how business model relatedness may influence performance implications of M&As. When business models among acquirers and targets are related, the sharing and transfer of superior resources may improve post-acquisition performance. In contrast, when business models among acquirers and targets are unrelated, internal and external identity conflicts may harm post-acquisition performance. Moreover, the conceptual framework developed in this study suggests that even if acquirers and targets are related in a product and geographical market sense, dissimilarities across business models may still harm post-acquisition performance. Overall, we suggest that using the recently emerged concept of business model may provide a new step in examining diversification decisions above and beyond the traditionally examined concepts of product and geographical markets, providing a more complete understanding of when and how multibusiness firms can create value.

Article
Publication date: 8 June 2020

Robert Garrett, Shaunn Mattingly, Jeff Hornsby and Alireza Aghaey

The purpose of this study is to evaluate the effect of opportunity relatedness and uncertainty on the decision of a corporate entrepreneur to pursue a venturing opportunity.

Abstract

Purpose

The purpose of this study is to evaluate the effect of opportunity relatedness and uncertainty on the decision of a corporate entrepreneur to pursue a venturing opportunity.

Design/methodology/approach

The study uses a conjoint experimental design to reveal the structure of respondents' decision policies. Data were gathered from 47 useable replies from corporate entrepreneurs and were analyzed with hierarchical linear modeling (HLM).

Findings

Results show that product relatedness, market relatedness, perceived certainty about expected outcomes and slack resources all have a positive effect on the willingness of a corporate entrepreneur to pursue a new venture idea. Moreover, slack was found to diminish the positive effect of product relatedness on the likelihood to pursue a venturing opportunity.

Practical implications

By providing a better understanding of decision-making schemas of corporate entrepreneurs, the findings of this study help improve the practice of entrepreneurship at the organizational level. In order to make more accurate opportunity assessments, corporate entrepreneurs need to be aware of their cognitive strategies and need to factor in the salient criteria affecting such assessments.

Originality/value

This paper adds to the limited understanding of corporate-level decision-making with regard to pursuing venturing opportunities. More specifically, the paper adds new insights regarding how relatedness and uncertainty affect new venture opportunity assessments in the presence (or lack thereof) of slack resources.

Details

Management Decision, vol. 59 no. 5
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 July 2004

Anders Pehrsson

This article presents a study of the link between strategy competence and performance in the context of international market entry. The concept of strategy competence encompasses…

11824

Abstract

This article presents a study of the link between strategy competence and performance in the context of international market entry. The concept of strategy competence encompasses international market entry and business relatedness. It is assumed that efforts of a firm to establish a business in a market where the firm encounters limited entry barriers, and where the local business belongs to the corporate core, lead to high performance in the local business. The empirical findings are based on a study of 173 Swedish ventures in Germany and indicate that limited customer access problems lead to high performance. At the same time, high relatedness between the core business and the local business, in terms of similar requirements for management skills and similar brand recognition, leads to high performance of the local business. In light of the findings, management would be well advised to leverage key management skills such as brand management from the core to the local business and to continuously evaluate ways to achieve customer access.

Details

Management Decision, vol. 42 no. 6
Type: Research Article
ISSN: 0025-1747

Keywords

Book part
Publication date: 1 April 2003

Ranjay Gulati and Lihua Olivia Wang

This chapter examines the factors that may influence the total value created in a joint venture (JV) and also the relative value appropriated by each partner in the venture. We…

Abstract

This chapter examines the factors that may influence the total value created in a joint venture (JV) and also the relative value appropriated by each partner in the venture. We look at the effects of both partners’ embeddedness in prior networks of relationships and the asymmetry of business relatedness of two partners with the JV on these two important outcomes. Results of an event study of stock market reaction to JV announcements by the largest U.S. firms during 1987–1996 suggest that both network embeddedness of partners and the asymmetry of business relatedness of two firms with the JV affect the total value creation of all partners but not the relative value appropriation between the partners.

Details

The Governance of Relations in Markets and Organizations
Type: Book
ISBN: 978-1-84950-202-3

Article
Publication date: 1 December 1998

Prescott C. Ensign

Discusses how interrelationships can be developed for synergy. Also focuses on horizontal strategy as a way to achieve competitive advantage. Organizational context can determine…

6572

Abstract

Discusses how interrelationships can be developed for synergy. Also focuses on horizontal strategy as a way to achieve competitive advantage. Organizational context can determine a firm’s motivation and ability to develop interrelationships that result in overall competitive advantage. Corporate strategy must move beyond the idea that the primary way of creating synergy is the combination of related businesses (by buying and selling businesses). Corporate strategy must focus on creating value that is independent of business unit value. This means developing horizontal strategies that have the objective of coordinating activities and developing programs that encourage the sharing of resources and skills. An understanding of the horizontal organization helps to emphasize that organizational structure and processes are significant in developing interrelationships with the potential to reach the goals of synergy and competitive advantage.

Details

Management Decision, vol. 36 no. 10
Type: Research Article
ISSN: 0025-1747

Keywords

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