Corporate Diversification Strategy and Organizational Performance of Retail Firms in Garissa County, Kenya

Corporate diversification strategy is the expansion of a firm’s operations into new product lines, market segments or revenue streams in pursuit of growth and the spreading of risk. It is a fundamental strategic choice for retail firms operating in dynamic markets. While diversification has been extensively studied in developed economies and among large firms, its application and effect among small retail firms in volatile arid and semi-arid contexts remains underexplored. In Garissa County, Kenya, diversification among retail firms is largely driven by short-term survival and not by long-term strategic intent, and evidence on how each form of diversification relates to performance is lacking. Therefore, the purpose of this study was to determine the influence of corporate diversification strategy on the organizational performance of retail firms in Garissa County, Kenya. It explored four strategies, namely horizontal diversification, vertical diversification, concentric diversification and conglomerate diversification. The study was anchored on Dynamic Capabilities Theory, Transaction Cost Economics, Core Competency Theory, Modern Portfolio Theory and the Wheel of Retailing Theory. The study adopted a descriptive research design and targeted the 350 registered retail firms in the county. Stratified random sampling was used to select a sample of 187 firms, and the owner or a senior manager of each firm was the respondent; 166 returned completed questionnaires. Structured questionnaires were used to collect data. Both descriptive and inferential statistical methods were used to analyse the data, which were presented in tables and discussed. The findings revealed that the four strategies jointly explained 71.8% of the variation in organizational performance, and each had a positive and statistically significant influence. Conglomerate diversification was the strongest predictor of organizational performance, although it was the least practised strategy, followed by concentric diversification, horizontal diversification and vertical diversification. The study, therefore, recommends that retail firms strategically expand complementary product lines, pursue vertical integration where supply chain vulnerabilities are significant, leverage their brand reputation and core competencies in related diversification, and selectively consider unrelated diversification for risk reduction after careful assessment of the target industry.