The relationship between international diversification, innovation performance and firm performance: An empirical analysis of the software industry

The purpose of this study addresses a long-standing debate in the literature regarding the relationship between international diversification and firm performance. Much of the relevant literature represents conflicting... [ view full abstract ]

The purpose of this study addresses a long-standing debate in the literature regarding the relationship between international diversification and firm performance. Much of the relevant literature represents conflicting conclusions about this relationship and employs internationalization theory to explain the conflicting findings.

This paper utilises the three-stage theoretical approach as the theoretical platform for analysis to investigate the international diversification strategy among large MNCs across the world, with the sectoral focus being the Software Industry.

The findings indicate that the degree of international diversification has a significant impact on firm performance in both financial and innovation measurements. However, the impact is not linear, but non-linear or non-monotonous. In addition, the findings suggest that diversifying products support the internationalisation of firm. Moreover, R&D intensity also has a positive effect on firm internationalisation, while marketing activities do not relate to firm internationalisation. Among the control variables, larger firms are more likely to be successful than smaller firms while firm leverage and country-of-origin do not relate to firm performance.

Managerial implications and research limitations are identified in the final section.