Abstract
What are the relationships among firm size, initial product diversity, international diversification, and abrupt change in product diversity? Data analysis using a sample of 555 firms in diverse industries from COMPUSTAT for the period 1978–90 characterizes these relationships in terms of fluidity (versus rigidity) effects. Specifically, we find that initial product diversity, international diversification, and firm size have significant linear, quadratic, and cubic effects, respectively. Significant interactive relationships among the variables reveal that increasing firm size at the extreme lower as well as higher levels enables internationally diversifying firms to change more (or less) abruptly when they have higher (or lower) initial product diversity. These effects of firm size are less pronounced at the medium levels of firm size or for firms with a low level of international diversification. These strategic choices may be explained by firm capabilities developed through experience and learning as a result of high initial product diversification and subsequent international diversification and reinforced by varying levels of resources and inertia associated with firm size.
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