A contingency theory of diversification : the case of diversification into the Thai telecommunications industry
During the past two decades, the trend towards diversification by large corporations in the advanced industrialised nations has been a transition from diversification to specialisation. However, there is little evidence of these same trends being duplicated in the emerging-market countries. Are large business enterprises in the emerging market countries slow in responding to the new strategic logic or is there some justification for such discrepancy'? The study provides the rationale to support a contingency theory of diversification. Diversification strategy is an outcome of not only a firm's resource base and the characteristics of industries, but also depends upon the level of development and transactional efficiency of resource markets within the country and the role of inter-firm collaboration. The study follows a resource-based approach to corporate strategy. The study is based on a qualitative case study approach. The empirical analysis is based on two levels. First, I examined the overall diversification strategies of the 20 largest Thai business groups. Second, I conducted detailed case studies of the diversification decisions of three Thai business groups focusing specifically upon diversification into the telecommunications sector. The case studies are constructed around three companies that diversified into the telecommunications industry in Thailand during the same period. Data from another 13 diversifying companies and five public organisations also provide additional sources of empirical evidence. The empirical evidence shows that diversification into a business which may not be operationally related to the core business -a concept which has lost favour in many of the Anglo-Saxon countries - makes strategic sense in the business environment of the emerging market countries. Essentially, the 'general' theory of diversification holds true in many cases. The key is a) to recognise the different characteristics of markets for resources and the strategic resources in different parts of the world, and b) to understand that strategic resources do not depend on just availability of resources in the market and internal resources within the firm, but also the role of inter-firm collaboration. Differences in business environment raises the question of whether a single diversification strategy is universally applicable.