The Joint Effects of Geographical Diversification to Performance and Systematic Risk: Taiwan MNE Empirical Study

• Main Authors: Yuang-shiang Chao, 趙永祥
• Other Authors: Wei-hwa Pan
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/18055593946666703985

博士 === 雲林科技大學 === 管理研究所博士班 === 98 === This study mainly assesses the joint effects of diversification configuration on firm performance and systematic risk. Findings from this study suggest that their joint effects are curvilinear on performance and systematic risk. Furthermore, low level of region diversification and moderate level of country diversification has significant positive effect on firm performance and negative effect on systematic risk, but turns negative at high level of region and country diversification on performance. At too low or high level of diversification configuration has significant negative effect on firm performance and positive effect on systematic risk. In addition, the joint effect between diversification configuration and performance is different, and shows partially negative relationship with performance but positive with systematic risk (Pan and Chao, 2010). From our findings, high diversification configuration significantly leads to high systematic risk. However, firm performance gets worse at high levels of country and region diversification. Internationalization provides firms with opportunities but incur high transaction costs as well, but transaction costs for geographically diversified firms are lower than internationalization. We construct the terminology “balanced configuration in geographical diversification” to identify that averaging the balance of geographical diversification between country and region via high concentrated China involvement is the optimal strategic diversification strategy in FDI operation. However, those Taiwan multinational enterprises (TMNEs) that have diversified widely across various regions have to limit their scope of foreign markets and those TMNEs that concentrate their business in a small number of countries have to control business diversification in order to moderately focus their business lines to get better profits. The findings led to the conclusion that the moderating effect through “China involvement” which had co-opted and caught the strategic resources from the regions and resource-based country a TMNE was highly concentrated involved had to focus its FDI policy objectives, especially expand the country scope. It’s important to consider how to maintain the competitiveness of their ventures in China to expand the business markets overseas, CI strategy has to be connected with beneficial agreements through Cross-Strait economic cooperation, therefore, the economic cooperation framework agreement (ECFA) is beneficial for TMNEs to obtain tariff advantages. Taiwan MNEs should catch resource-based advantages through high concentrated China involvement strategy connected with light moderate geographical diversification to create better performance and effectively reduce systematic risk.