A Theory of Global Strategy and Firm Efficiencies: Considering the Effects of Cultural Diversity

Abstract

The concept of “relatedness,” though common in the product diversification literature, has not yet been widely applied to theories of internationalization. Expanding internationally requires managerial adaptation due to differences between national cultures, but these dynamics have not been used to represent the cultural diversity that may hinder efforts to integrate and coordinate efforts as required by global strategies. Tempering popular perspectives that extol the benefits of diversity, the present theory posits that cultural diversity among international divisions of a global firm may actually impede efforts to merge activities and expertise between those units. Specifically, direct (market, production, technology) and indirect (knowledge-based) benefits are more difficult to exploit when cultural diversity makes activity sharing and expertise transfer less efficient. Parallel to established product relatedness theory, this thinking postulates that culturally related international firms will enjoy greater efficiencies than culturally diverse multinationals.