The relationship between international diversification and performance in service firms

Abstract

International diversification is a growth strategy that has a major potential impact on firm performance. The relationship between international diversification and firm performance has been extensively studied in the international strategy literature. A major gap in the literature has been the non-existence of studies that have examined the effect of international diversification on performance in service firms. Previous studies that have tested the international diversification–performance relationship were based on samples of manufacturing firms. We argue that the form of the relationship between multinationality and performance is different in service firms. We provide a theoretical argument for this claim and hypothesize that there is a U-shaped curvilinear relationship between multinationality and performance in service firms. Our sample consists of 81 major German service firms, spanning across four industries. Results show that there is support for a U-shaped curvilinear relationship. Based on the findings, implications and directions for future research are provided.