BUS613: Advanced International Business

This paper addresses the question of how resource allocation and international diversification impact firm performance. The hypotheses are tested through regression analysis employing various models. First model employed base variables of capital and R&D expenditures, international diversification, and all of them are significantly impacting the firm returns. Resource allocation has varying consequences depending on what kind of expenditure is made. This particular study reveals that research and development expenditures on average undermine the firm performance. Contrary to some of the literature, we don't find support for the argument of the positive link between R&D and firm performance. How and why a firm undertakes research and development should be made clear before the actual expenditure takes place. Its consequences, repercussions and responsibilities that management would assume should be reckoned and scaled very carefully. The capital expenditure extends the firm performance at similar levels in almost all models. Confirming with the prior research, the resource allocation decision pertaining to the expansion of the firm capital, on average, leads to prolific firm operations. Hypothesis 2 is supported.

Excluding the industry dummy variables, the models have weak explanations of the variation in firm returns. In addition, the diversification variable is estimated to be negative in all models, but significant in three out of eight models regardless of its asset diversification or sales diversification. Our analysis produced results that are not conclusive regarding the impact of international diversification. We conclude with caution that the relationship between international diversification and firm performance is more sophisticated than being a linear association. However, we cannot support our hypothesis 3 that proposed a positive association between these constructs. With regards to hypothesis 4, sales diversification is positively and significantly correlated with R&D expenditure (0.09) whereas asset diversification is negatively and significantly correlated with R&D expenditure (-0.07). Both diversification (sales and asset) variables have very low correlation coefficients with capital expenditure. Therefore, the relationships between these constructs are not conclusive. Thus, we cannot support hypothesis 4. In addition, the interactive terms are not estimated significantly, not supporting hypothesis 5.

The determinants of international diversification are still an issue to be studied further and more comprehensive academic perspectives should be developed for a better understanding. In addition, casting different approaches from various disciplines would strengthen the insights derived from the data. To sum up, resource allocation has been among the critical strategic decisions of firms. The set of optimum resources allocated are primary issues for management teams to bear in mind. Going international has been an issue dependent upon capability, market prospects, opportunities that are attracting the firm to engage in global markets.