International and Product Diversification: Their Interrelationship and Impact on Firm Performance

Managerial decisions regarding the geographic and product market scope of a firm’s activities are the essence of corporate strategy. Yet, our understanding of the relationship between these strategic choices, and how they jointly interact to impact firm performance, remains equivocal; with the results from prior studies yielding more questions than answers. This paper provides a conceptual and empirical contribution to the international business and strategy literatures by presenting an integrative framework that captures the joint and simultaneous nature of the relationships between international diversification, product diversification, and firm performance. Our framework and empirical methods address several methodological shortcomings of prior work and provide robust statistical evidence to substantiate or refute prior empirical findings regarding the empirical linkages between a firm’s corporate strategic scope and its performance. A key aspect of our integrative framework is that is enables us to gain a better understanding of how managerial decisions regarding the firm’s geographic and product market scope interrelate, an issue that has not been the focus of much prior empirical work.