Corporate diversification strategies and their effects on firm performance - the case of Samsung's venture into healthcare

Abstract

The question of how and why firms diversify has been a focal point of strategy research for several decades. However, results have been contradictory, especially in regard to the diversification-performance dichotomy. While there is a certain acceptance for the curvilinear relationship between the degree of relatedness of the target industry and firm performance i.e. performance increases in (constrained) related cases, and decreases with decreasing levels of relatedness, some studies have found reverse effects. This thesis investigates the nature of unrelated diversification through a case study on Samsung’s venture into healthcare. By comparing Samsung’s recent diversification into the medical device and biosimilar industries in terms of industry relatedness, market entry strategies, and firm performance, the thesis will present a case in which the unrelated diversification target (biosimilars) is outperforming the (constrained) related one (medical devices). As such, this thesis will present an alternative to the established theory on corporate diversification strategies. Based on a combination of the external, internal, and financial perspectives of diversification theory, this thesis finds that the case of Samsung’s venture into healthcare contradicts several prior findings from the external and internal perspectives, while confirming most of the theories from the financial perspective. As diversification research has historically been grouped into studies on firms from developed and emerging markets respectively, the case of Samsung presents the opportunity to analyze a conglomerate that has developed in the context of an emerging economy, which is currently transitioning quickly towards a developed country. As such, Samsung needs to adapt its approach to conducting business in globalized and hyper competitive markets. Keywords: Corporate diversification strategies; firm performance; related and unrelated diversification, Samsung, healthcare.