Purpose This study aims to advance and analyze the influence that firms’ diversification approach brings to the businesses’ performance via competitive advantage (CA) and access to capital in a developing economy. Design/methodology/approach Using primary mode, the present study uses the sample of 104 diversified manufacturing firms to analyze the conditional indirect effect of firms’ diversification approach on efficient resource allocation using SAS process macros. Findings This study corroborates that in the era of uncertainty (when businesses are struggling to survive), a diversification approach can help the firms to build resilience against uncertainties to achieve resource allocation efficiency. Furthermore, findings also reveal that for successful strategic implementation firm’s access to capital (tangible and intellectual capital) play a critical role. Research limitations/implications Theoretically, this study has made a sizeable contribution to the resource-based theory of a firm’s literature with a new compositional-based theoretical perspective and also by providing an insight into the relationship between strategic approaches, access to capital and resource allocation efficiency. However, the current study’s ability to provide a deep understanding of the phenomenon was restricted by the lack of data availability and a self-reporting questionnaire approach. Practical implications Potential applications of the current research exist for manufacturing industry managers and policymakers to achieve efficiency and CA. This study provides evidence of the obstacles to diversification discounts while allocating resources. At the same time, it provides a crucial connotation for maintaining distinctive tangible and intangible capital for value addition. Originality/value The current study fills out by investigating the conditional indirect effect of access to capital in industrial era 4.0. Moreover, according to researchers’ knowledge, this study is the first to establish and empirically investigate a comprehensive model that involves a strategic approach, access to tangible and intellectual capital and performance outcome obtained through the integration of all these crucial factors.
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