In this study, we examine the moderation effect of absorptive capacity on the performance consequences of diversification experiences. We suggest that absorptive capacity positively moderates the performance effects of product and international diversification experiences and those of unrelatedness in product and international diversification experiences. An empirical analysis conducted using a longitudinal dataset of Indian firms, from knowledge-intensive manufacturing sectors, for the period 2008–2018, broadly supports our arguments. Findings imply that firms with superior absorptive capacity can acquire and leverage knowledge from their diversification experiences effectively and mitigate the risks of negative transfer associated with unrelatedness in diversification experiences. Findings contribute to the organizational learning literature by examining the role of absorptive capacity in enabling performance outcomes of diversification experiences.

In this study, we argue that foreign subsidiaries may benefit from the corporate strategies of multinational enterprises (MNEs) in different ways in terms of knowledge transfer and strategic flexibility. From this viewpoint, we explore the relationship between product diversification and financial performance of their subsidiaries under the condition of MNE geographic diversification. Using panel data on foreign subsidiaries in European countries from 2006 to 2011, we find a U-shaped relationship between product diversification and subsidiary performance and the joint effect of product and geographic diversification. Given the importance of transition economies in international business today, we conducted a subsample test contrasting the results based on the transitional (Central and Eastern European) versus Western European countries. The contrasting results provide important implications for other transition economies like China. We validate the relationship in several ways in our robustness tests.