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| Does Technological Diversification Enhance Firm Performance? |
| Huang Can,Xu Ge |
| (School of Management, Zhejiang University, Hangzhou 310058, China) |
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Abstract In the fast-changing and highly complex technological environment, firms need to build up technological capabilities in multiple fields to sustain competitive success. Technological diversification, i.e. a corporation's expansion of its technological competence into multiple fields, has become an important engine for firms to carry out technological innovation, expand new business and improve economic performance. However, there is no consistent conclusion on whether technological diversification could enhance firm performance. Some studies suggest that technological diversification brings the benefits of “cross-fertilization” and economies of scope. While others argue that technological diversification would bring extra integration and coordination cost, and firms must overcome the obstacle of recombining technology in multiple fields. Efficient cross-domain technology recombination is the key for firms to benefit from technological diversification. Existing studies have obtained different empirical findings on the relationship between technological diversification and firm performance, but few of them investigate how the different organizational contexts influence this relationship. Although the importance of accumulating resources is addressed when employing technological diversification strategy, there is a lack of discussion on the differences in technological search and recombination across firms, and it is unclear how to get better firm performance from technological diversification by improving the technological recombination process. Therefore, from the technological search and recombination perspective, this study aims to identify how firms might benefit from technological diversification by technological recombination. The study proposes that there is an inverted U-shaped relationship between technological diversification and firm performance, and it further investigates the moderating effects of technological recombination patterns and scientific knowledge search on this relationship. #br#This study conducts the empirical analysis using a sample of Chinese listed firms from high-tech industries.The performance information of those firms from CSMAR database is collected and their patent data is extracted from Incopat patent database to construct the measurements. Finally, a panel dataset of 1 559 firms from 2007 to 2020 is constructed. The study tests the hypotheses using the method of panel data fixed effect model. #br#The empirical results show that (1)there is an inverted U-shaped relationship between technological diversification and market-based firm performance; (2) technological recombinant creation flattens the inverted U-shaped relationship between technological diversification and firm performance, and on the contrary, the inverted U-shaped curve is steepened with the occurrence of technology recombinant reuse , which means the negative effect of excessive technological diversification becomes more salient; (3) the moderating effect of scientific knowledge search intensity on the relationship between technological diversification and enterprise performance is not significant. However, scientific knowledge search intensity makes the moderating effect of technological recombinant creation more salient. For firms with high scientific knowledge search intensity and high level of technological recombinant creation, technological diversification becomes positively related to firm performance, turning the "excessive technological diversification trap" into a "technological diversification advantage". The above results indicate that firms can benefit from technological diversification not only by accumulating resources, but also by improving the technological recombination process.#br#These findings enrich the literature on the relationship between technological diversification and firm performance. By investigating the moderating effects of technological recombination patterns and scientific knowledge search, this study introduces new organizational contextual factors on the relationship between technological diversification and firm performance. Technological diversification brings better firm performance when firms focus on technological recombinant creation and actively search for scientific knowledge. The fit between the level of technological diversification and technological recombination process is the key for firms to getting better performance.#br#This study also yields several managerial implications. Technological diversification generates both benefits and costs for firms. As the degree of technology diversification increases, firms should shift from technological recombinant reuse to technological recombinant creation, and enhance learning and application of scientific knowledge to obtain good performance from the technological diversification strategy.#br#
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Received: 06 July 2022
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