Ma. Hitt et al., A MIDRANGE THEORY OF THE INTERACTIVE EFFECTS OF INTERNATIONAL AND PRODUCT DIVERSIFICATION AND PRODUCT DIVERSIFICATION ON INNOVATION AND PERFORMANCE, Journal of management, 20(2), 1994, pp. 297-326
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.