Enterprise Capabilities, Managerial Cognition And Geographic Diversification: An Empirical Study Under Condition Of Market Segmentation In China

With China’s accession to the WTO and the improvement of opening to the outside world,multinational enterprises (MNs) accelerate their pace of entering China, which makes Chinesefirms have to face the intense competition from MNs even though in the domestic market. Inparticular, they continue to occupy the Chinese market by Greenfield investment or mergersand acquisitions, the living space of Chinese enterprises is seriously squeezed. In this case, toenhance the international competitiveness of Chinese enterprises is particularly urgent andimportant. The successful experience of the only Chinese enterprises with world-classiccompetitiveness showed that improving their main business’s domestic market share throughgeographic diversification strategy is an important strategic ways to enhance the internationalcompetitiveness of Chinese enterprises. However, the market segmentation greatly limits thecross-regional expansion in the domestic market. So breaking through the constraints ofmarket segmentation is very important for Chinese enterprises to improve the degree ofgeographic diversification, and then improve the international competitiveness. Thus, aquestion with important theoretical and practical value is posed: under the condition ofChinese market segmentation, what factors determine the degree of geographicdiversification?According to the previous study, scholars discuss this issue from different perspectives,but integration of different theoretical perspectives is lack. At the same time, most studiesfocus on the factors of international diversification, and few on the factors of geographicaldiversification in the domestic market. Based on the privous study and Chinese context, thispaper integrates three theoretical perspectives including resource-based view,institution-based view and managerial cognitive theory, and studies the relationship amongthe two different typles of enterprise capabilities (market capabilities, and non-marketcapabilities), managerial cognition (managerial interpretation on market segmentation) andgeographical diversification (depth and breadth). Specific questions are as following:(1) Howdo enterprise capabilities affect geographical diversification?(2) How does managerialcognition affect the geographical diversification?(3) How do enterprise capabilities affect themanagerial cognition?(4) How does Managerial Cognition play mediating effect between the enterprise capabilities affect the geographical diversification?To answer the four questions, this article takes162enterprises with branches outside theprovince as research objects, and obtains survey data through questionnaire. Then, we usestructural equation modeling (SEM) analysis and hierarchical regression analysis to test theconceptual model and the hypotheses, the empirical results show as following:(1)Technological capabilities (the proxy variable of market capabilities) have a significantpositive effect on both the depth and breadth of geographic diversification; the curvilinear(U-shape) relationship between political relations (the proxy variable of non-marketcapabilities) and depth of geographic diversification is significant, but the one betweenpolitic relations and breadth of geographic diversification is not.(2) The positiveinterpretation of market segmentation has a significant positive effect on both the depth andbreadth of geographic diversification, but controllable interpretation of market segmentationdoesn’t.(3) Technological capabilities have a significant positive effect on both the positiveinterpretation and controllable interpretation; political relations have a significant positiveeffect on controllable interpretation and a significant curvilinear (U-shape) relationship withpositive interpretation.(4) Positive interpretation plays a significant partial mediating effecton the relationship between technological capabilities and geographic diversification (depthand breadth), and a significant curvilinear (U-shape) mediating effect on the relationshipbetween technological capabilities and the depth of geographic diversification, but not thebreadth of geographic diversification; addition, the mediating effects controllableinterpretation are all not significant.This paper contributes to theoretical literature and managerial practice in terms of threeaspects:(1) Under the context of market segmentation, this study investigates the relationshipamong enterprise capabilities, managerial cognition and geographical diversification, whichunfolds the black box of enterprise capabilities and geographical diversification, and enrichesthe theorical knowledge of geographical diversification stratege;(2) This study discusses theeffect of two different typles of enterprise capabilities——market capabilities, andnon-market capabilities on geographical diversification, and the conclusions of empiricalstudy show that effects of the two are different. These results enrich the theorical connotationof enterprise capabilities in developing countries, and also provide new interpretation for the argument that enterprises’s development should depend on government or market?(3) Theresearch on the effect of managerial cognition in this paper is an exploratory empirical studywhich is based on the cognitive theory. The antecedents and outcomes of managerialcognition are studied by taking it as the mediator of the relationship between enterprisecapabilities and geographical diversification, then, cognitive theory in the field of strategicmanagement is expanded vastly. In addition, the conclusions of this paper have somereference and guidance for managerial practices and government policy-making. Finally, thepaper also points out the shortcomings of the paper and the future research directions.