The professional service sector plays a crucial role in the world economy, especially in emerging countries. This research explores the impact of diversification strategies and operational capabilities on financial performance in Thai professional firms. Financial data of 96 companies in the service sector listed on the Stock Exchange of Thailand (SET) was collected. Partial Least Squares (PLS) regression was selected as an analysis method. The results find that service diversification strategy, but not international diversification strategy, has a significant effect on a firm’s financial performance. The empirical findings support the importance of diversification strategies. The result also shows that operational capabilities have a significant negative impact on a firm’s financial performance. This study contributes to previous literature in a few ways. The first contribution lies in explaining the direct effect of service and international diversification strategies and operational capabilities on a firm’s financial performance. Second, this study advances service and management literature by exploring professional service firms in an emerging country, Thailand. The professional service sector plays an important role in Thailand and other emerging countries’ economies.

1. Aarikka-Stenroos, L., & Jaakkola, E. (2012). Value co-creation in knowledge intensive business services: A dyadic perspective on the joint problem solving process. Industrial Marketing Management, 41(1), 15–26. doi:https://doi.org/10.1016/j.indmarman.2011.11.008
2. Alejandro, T. B., Javalgi, R. R. G., Gross, A. C., Joseph, W. B., & Granot, E. (2011). Assessing competitive advantage of emerging markets in knowledge intensive business services. Journal of Business & Industrial Marketing, 26(3), 171-180. doi:https://doi.org/10.1108/08858621111115895
3. Amit, R., & Schoemaker, P. J. H. (1993). Strategic assets and organizational rent. Strategic Management Journal, 14(1), 33–46. doi:https://doi.org/10.1002/smj.4250140105
4. Asian Development Bank. (2015). Industrialization and economic catch-up (Tech. Rep.). Manila, Philippines: Asian Development Bank. Retrieved from https://bit.ly/33fjQh8
5. Assaker, G., & Hallak, R. (2013). Moderating effects of tourists’ novelty-seeking tendencies on destination image, visitor satisfaction, and short- and long-term revisit intentions. Journal of Travel Research, 52(5), 600–613. doi:https://doi.org/10.1177/0047287513478497
6. Ayuningrat, M. P., Noermijati., & Hadiwidjojo, D. (2016). Green product innovation’s effect on firm performance of managerial environmental concern and green communication. Journal of Administrative and Business Studies, 2(2), 56-63. doi:https://doi.org/10.20474/jabs-2.2.1
7. Balasubramanian, S., & Bhardwaj, P. (2004). When not all conflict is bad: Manufacturing-marketing conflict and strategic incentive design. Management Science, 50(4), 489–502. doi:https://doi.org/10.1287/mnsc.1030.0180
8. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. doi:https://doi.org/10.1177/014920639101700108
9. Barney, J. B. (2002). Strategic management: From informed conversation to academic discipline. Academy of Management Perspectives, 16(2), 53–57. doi:https://doi.org/10.5465/ame.2002.7173521
10. Battour, M. M., Battor, M. M., & Ismail, M. (2012). The mediating role of tourist satisfaction: A study of muslim tourists in Malaysia. Journal of Travel & Tourism Marketing, 29(3), 279–297. doi:https://doi.org/10.1080/10548408.2012.666174
11. Berger, P. G., & Ofek, E. (1995). Diversification’s effect on firm value. Journal of Financial Economics, 37(1), 39–65.
12. Bettis, R. A., & Mahajan, V. (1985). Risk/return performance of diversified firms. Management Science, 31(7), 785–799. doi:https://doi.org/10.1287/mnsc.31.7.785
13. Boyer, K. K., & Lewis, M. W. (2009). Competitive priorities: Investigating the need for trade-offs in operations strategy. Production and Operations Management, 11(1), 9–20. doi:https://doi.org/10.1111/j.1937-5956.2002.tb00181.x
14. Bresciani, S., Thrassou, A., & Vrontis, D. (2015). Determinants of performance in the hotel industry – an empirical analysis of italy. Global Business and Economics Review, 17(1), 19. doi:https://doi.org/10.1504/gber.2015.066531
15. Chakrabarti, A., Singh, K., & Mahmood, I. (2006). Diversification and performance: Evidence from East Asian firms. Strategic Management Journal, 28(2), 101–120. doi:https://doi.org/10.1002/smj.572
16. Chatterjee, S., & Wernerfelt, B. (1991). The link between resources and type of diversification: Theory and evidence. Strategic Management Journal, 12(1), 33–48. doi:https://doi.org/10.1002/smj.4250120104
17. Chin, W. (1998). The partial least squares approach to structural equation modeling. Modern Methods for Business Research, 295(2), 295-336.
18. Datta, D. K., Rajagopalan, N., & Rasheed, A. M. A. (1991). Diversification and performance: Critical review and future directions. Journal of Management Studies, 28(5), 529–558. doi:https://doi.org/10.1111/j.1467-6486.1991.tb00767.x
19. Day, G. S., & Wensley, R. (1988). Assessing advantage: A framework for diagnosing competitive superiority. Journal of Marketing, 52(2), 1. doi:https://doi.org/10.2307/1251261
20. Durand, R., Grant, R. M., & Madsen, T. L. (2016). The expanding domain of strategic management research and the quest for integration. Strategic Management Journal, 38(1), 4–16. doi:https://doi.org/10.1002/smj.2607
21. Dutta, S., Narasimhan, O., & Rajiv, S. (1999). Success in high-technology markets: Is marketing capability critical? Marketing Science, 18(4), 547–568. doi:https://doi.org/10.1287/mksc.18.4.547
22. Eckardt, R., & Skaggs, B. C. (2018). Service diversification and growth of professional service firms. Long Range Planning, 51(1), 111–126. doi:https://doi.org/10.1016/j.lrp.2017.06.003
23. Fang, Y., Wade, M., Delios, A., & Beamish, P. W. (2007). International diversification, subsidiary performance, and the mobility of knowledge resources. Strategic Management Journal, 28(10), 1053-1064. doi:https://doi.org/10.1002/smj.619
24. Freeman, S., Daniel, L. J., & Murad, W. (2011). Knowledge and network development for service firm entry into emerging Asian markets. Asian Business & Management, 11(1), 101–122. doi:https://doi.org/10.1057/abm.2011.29
25. Geringer, J., Tallman, S., & Olsen, D. (2000). Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21(1), 51-80. doi:Ghoshal, S. (1987). Global strategy: An organizing framework. Strategic Management Journal, 8(5), 425–440. doi:https://doi.org/10.1002/smj.4250080503
26. Goerzen, A., & Beamish, P. W. (2003). Geographic scope and multinational enterprise performance. Strategic Management Journal, 24(13), 1289–1306. doi:https://doi.org/10.1002/smj.357
27. Grant, R. M. (1991). The resource-based theory of competitive advantage: Implications for strategy formulation. California Management Review, 33(3), 114–135. doi:https://doi.org/10.2307/41166664
28. Grant, R. M., Jammine, A. P., & Thomas, H. (1988). Diversity, diversification, and profitability among british manufacturing companies, 1972–1984. Academy of Management Journal, 31(4), 771–801. doi:https://doi.org/10.5465/256338
29. Hair Jr, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2016). A primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). New York, NY: Sage publications.
30. Han, H. S. (2012). The relationship among corporate culture, strategic orientation, and financial performance. Cornell Hospitality Quarterly, 53(3), 207–219. doi:https://doi.org/10.1177/1938965512443505
31. Hausman, W. H., Montgomery, D. B., & Roth, A. V. (2002). Why should marketing and manufacturing work together? Journal of Operations Management, 20(3), 241–257. doi:https://doi.org/10.1016/s0272-6963(02)00010-4
32. Heirati, N., O’Cass, A., Schoefer, K., & Siahtiri, V. (2016). Do professional service firms benefit from customer and supplier collaborations in competitive, turbulent environments? Industrial Marketing Management, 55, 50–58. doi:https://doi.org/10.1016/j.indmarman.2016.02.011
33. Ho, T. H., & Zheng, Y.-S. (2004). Setting customer expectation in service delivery: An integrated marketing-operations perspective. Management Science, 50(4), 479–488. doi:https://doi.org/10.1287/mnsc.1040.0170
34. Hoopes, D. G. (1999). Measuring geographic diversification and product diversification. MIR: Management International Review, 39(3), 277–292.
35. Hoskisson, R. E., Shi, W., Yi, X., & Jin, J. (2013). The evolution and strategic positioning of private equity firms. Academy of Management Perspectives, 27(1), 22–38. doi:https://doi.org/10.5465/amp.2012.0131
36. Kamboj, S., & Rahman, Z. (2015). Marketing capabilities and firm performance: literature review and future research agenda. International Journal of Productivity and Performance Management, 64(8), 1041–1067. doi:https://doi.org/10.1108/ijppm-08-2014-0117
37. Kim, W. C., Hwang, P., & Burgers, W. P. (1993). Multinationals’ diversification and the risk-return trade-off. Strategic Management Journal, 14(4), 275–286. doi:https://doi.org/10.1002/smj.4250140404
38. Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-capability views of rent creation. Strategic Management Journal, 22(5), 387–401. doi:https://doi.org/10.1002/smj.158
39. Malhotra, M. K., & Sharma, S. (2002). Spanning the continuum between marketing and operations. Journal of Operations Management, 20(3), 209–219. doi:https://doi.org/10.1016/s0272-6963(02)00019-0
40. Menicucci, E. (2018). The influence of firm characteristics on profitability: Evidence from Italian hospitality industry. International Journal of Contemporary Hospitality Management,, 30(8), 2845-2868. doi:https://doi.org/10.1108/ijchm-04-2017-0219
41. Montgomery, C. A., & Wernerfelt, B. (1988). Diversification, ricardian rents, and Tobin’s q. The Rand Journal of Economics, 623–632.
42. Narasimhan, R., & Kim, S. W. (2002). Effect of supply chain integration on the relationship between diversification and performance: Evidence from Japanese and Korean firms. Journal of Operations Management, 20(3), 303–323. doi:https://doi.org/10.1016/s0272-6963(02)00008-6
43. Nath, P., Nachiappan, S., & Ramanathan, R. (2010). The impact of marketing capability, operations capability and diversification strategy on performance: A resource-based view. Industrial Marketing Management, 39(2), 317–329. doi:https://doi.org/10.1016/j.indmarman.2008.09.001
44. Ortega, M. J. R. (2010). Competitive strategies and firm performance: Technological capabilities’ moderating roles. Journal of Business Research, 63(12), 1273–1281. doi:https://doi.org/10.1016/j.jbusres.2009.09.007
45. Ostrom, A. L., Bitner, M. J., Brown, S. W., Burkhard, K. A., Goul, M., Smith-Daniels, V., . . . Rabinovich, E. (2010). Moving forward and making a difference: Research priorities for the science of service. Journal of Service Research, 13(1), 4–36. doi:https://doi.org/10.1177/1094670509357611
46. Park, K., & Jang, S. S. (2013). Effects of within-industry diversification and related diversification strategies on firm performance. International Journal of Hospitality Management, 34, 51–60. doi:https://doi.org/10.1016/j.ijhm.2013.02.009
47. Peng, D. X., Schroeder, R. G., & Shah, R. (2007). Linking routines to operations capabilities: A new perspective. Journal of Operations Management, 26(6), 730–748. doi:https://doi.org/10.1016/j.jom.2007.11.001
48. Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14(3), 179–191. doi:https://doi.org/10.1002/smj.4250140303
49. Piyachat, B. (2017). The relationships among resources’ commitment reverse logistics innovation reverse logistics performance and reverse logistics cost savings: Manufacturing vs service industry. Journal of Administrative and Business Studies, 3(3), 122-135. doi:https://doi.org/10.20474/jabs-3.3.2
50. Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance: With new introduction. New York, NY: Free Press.
51. Prahalad, C. K., & Hamel, G. (1990). Core competency concept. Harvard Business Review, 64(3), 70-92.
52. Ramanathan, R., Ramanathan, U., & Zhang, Y. (2016). Linking operations, marketing and environmental capabilities and diversification to hotel performance: A data envelopment analysis approach. International Journal of Production Economics, 176, 111–122. doi:https://doi.org/0.1016/j.ijpe.2016.03.010
53. Rumelt, R. P. (1974). Strategy, structure, and economic performance. Retrieved from https://bit.ly/2UbYQUr
54. Sabara, Z., Soemarno, S., Leksono, A. S., & Tamsil, A. (2019). The effects of an integrative supply chain strategy on customer service and firm performance: an analysis of direct versus indirect relationships. Uncertain Supply Chain Management, 517–528. doi:https://doi.org/10.5267/j.uscm.2018.11.004
55. Sahli, M., & Nowak, J.-J. (2007). Does inbound tourism benefit developing countries? A trade theoretic approach. Journal of Travel Research, 45(4), 426–434. doi:https://doi.org/10.1177/0047287506295948
56. Santoro, G. (2015). Evaluating performance in the hotel industry: An empirical analysis of piedmont. Journal of Investment and Management, 4(1), 17. doi:https://doi.org/10.11648/j.jim.s.2015040101.13
57. Sawhney, R., & Piper, C. (2002). Value creation through enriched marketing-operations interfaces: An empirical study in the printed circuit board industry. Journal of Operations Management, 20(3), 259–272. doi:https://doi.org/10.1016/s0272-6963(02)00006-2
58. Song, M., Benedetto, C. A. D., & Nason, R. W. (2007). Capabilities and financial performance: The moderating effect of strategic type. Journal of the Academy of Marketing Science, 35(1), 18–34. doi:https://doi.org/10.1007/s11747-006-0005-1
59. Song, M., Nason, R. W., & Benedetto, C. A. D. (2008). Distinctive marketing and information technology capabilities and strategic types: A cross-national investigation. Journal of International Marketing, 16(1), 4–38. doi:https://doi.org/10.1509/jimk.16.1.4
60. Swink, M., & Hegarty, W. H. (1998). Core manufacturing capabilities and their links to product differentiation. International Journal of Operations & Production Management, 18(4), 374–396. doi:https://doi.org/10.1108/01443579810199748
61. Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179–196. doi:https://doi.org/10.5465/256635
62. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. doi:Terjesen, S., Patel, P. C., & Covin, J. G. (2010). Alliance diversity, environmental context and the value of manufacturing capabilities among new high technology ventures. Journal of Operations Management, 29(1-2), 105–115. doi:https://doi.org/10.1016/j.jom.2010.07.004
63. Wasike, C. N. (2017). Financial regulation as moderating, influence of corporate governance, institutional quality, human capital and firm size on financial institutions performance in Kenya. Journal of Administrative and Business Studies, 3(6), 292-304. doi:https://doi.org/10.20474/jabs-3.6.4
64. White, G. P. (1996). A survey and taxonomy of strategy-related performance measures for manufacturing. International Journal of Operations & Production Management, 16(3), 42–61. doi:https://doi.org/10.1108/01443579610110486
65. World Bank. (2018). World development indicators (Tech. Rep.). Bangkok, Thailand: World Bank.
66. Yeung, P.-K., & Lau, C.-M. (2005). Competitive actions and firm performance of hotels in Hong Kong. International Journal of Hospitality Management, 24(4), 611–633. doi:https://doi.org/10.1016/j.ijhm.2005.06.005
67. Yu, W., Ramanathan, R., & Nath, P. (2014). The impacts of marketing and operations capabilities on financial performance in the UK retail sector: A resource-based perspective. Industrial Marketing Management, 43(1), 25–31. doi:https://doi.org/10.1016/j.indmarman.2013.07.014

Thirathon, U., & Meeprom, S. (2020). The impact of diversification strategies and operational capabilities on financial performance in Thai professional service firms. International Journal of Business and Administrative Studies, 6(1), 21-30. doi: https://dx.doi.org/10.20469/ijbas.6.10003-1