A MIDRANGE THEORY OF THE INTERACTIVE EFFECTS OF INTERNATIONAL AND PRODUCT DIVERSIFICATION AND PRODUCT DIVERSIFICATION ON INNOVATION AND PERFORMANCE

Some research in international management has focused on international diversification as a strategy, while substantial research in strategi c management has focused on product diversification. However, corporat e strategies may include both product and geographic international div ersification components. Furthermore, little theoretical work has link ed the interaction of these two strategies to innovation and performan ce. This paper develops theoretical arguments depicting the interactiv e effects of international and product diversification in a comprehens ive model. The theory presented suggests that international diversific ation is positively related to both innovation and firm performance, a nd positively moderates the relationship between product diversificati on and innovation and performance. The central concept is that innovat ion is generally facilitated by international diversification, while t he general relationship between product diversification and innovation is negative. However, because of the complexity and information asymm etries, it is difficult to manage internationally diversified firms. A dditionally, it is difficult to achieve global integration and local r esponsiveness in highly internationally diversified firms. Thus, there are limits to international diversification, but, given appropriate f irm capabilities and country circumstance, international diversificati on facilitates innovation and performance.