Four decades of research on product diversification: a literature review

Abstract

PurposeThe purpose of this study is to gain new insight into the true nature of the relationship between product diversification and performance, as well as to explore the roles the home country environment and time can play on this relationship.Design/methodology/approachThe study reviews a large part of the research that has addressed the relationship between product diversification and performance over the last four decades.FindingsThis study identifies the main views (models) that can help scholars to adequately understand, both theoretically and empirically, the potential effect of product diversification on performance: the premium diversification model; the discount diversification model; and the U‐inverted model. The study confirms a wide diversity of results. Drawing from the institutional‐based view, it is argued that a significant part of this heterogeneity stems from the effect of two factors that have often been ignored: the home country environment and time period. The review of recent empirical research seems to provide some support for the central argument that the value firms achieve through product diversification may be contingent both on the specific home country environment (environmental dependency) and time period (time dependency) under study.Originality/valueThis study yields an alternative explanation to the inconsistency in findings that goes beyond strictly theoretical and methodological reasons. It shows that the arguments related to different views (or models) need to be considered “environment‐dependent” and “time‐dependent”. It concludes by proposing a framework to guide future research.