Types of diversification: Organizations have extended the boundaries of their firm by concentrating on technical capacity or market knowledge or both, leading to horizontal, vertical, concentric, or conglomerate diversification (Ansoff, 1965). In horizontal diversification, since firms operate within the same economic environment, there is little flexibility (Laurila and Ropponen, 2003) – they remain sensitive to the same cyclical fluctuations and competition (Wiersema and Bowen, 2008). Synergy, along with extension of technological range, is a major trigger for achieving efficiency of scale and increased market power (Helfat and Eisenhardt, 2004). Resource specificity, complete information, and less resistance from organizational structure influence the decision, although regulations and industry characteristics have little impact (Shaffer and Hillman, 2000). The markets and hierarchies paradigm suggests that vertical integration eliminates the transaction costs of using the market to regulate exchanges (Williamson, 1975). Vertical diversification may be triggered for various reasons, such as enhanced bargaining power in terms of quality/quantity and margins (David et al., 2010), and desire to leverage networks to improve the sales of present products and increase profits (Tanriverdi and Lee, 2008). Diversification decisions are influenced by …show more content…
The firm’s networks (Miller, 2006), resource endowment (Kor and Leblebici, 2005), processes and systems (Galan and Sanchez‐Bueno, 2009), which are flexible, may influence concentric diversification along with other external factors like industry characteristics, regulatory impact, and timing of entry (Brouthers and Brouthers,