Diversification, Internationalization, and Performance: A Comparative Study of High- vs. Low-Diversified Japanese Manufacturing Industries

This study extends prior research on strategic resilience by examining how diversification and internationalization strategies influence performance in Japanese manufacturing firms, focusing on differences between industries with high vs. low diversification levels. Specifically, it identifies industry average diversification as a key condition that moderates these strategies’ effectiveness, especially during crises such as the COVID-19 pandemic. Although previous work suggests that internationalization enhances performance while diversification undermines it, our findings show these effects vary significantly across industries with different profiles. Drawing on a panel dataset of 2,675 firm-year observations covering all manufacturing companies listed on the Tokyo Stock Exchange Prime Market over the period 2017-2023, we use entropy-based diversification metrics and foreign sales ratios (FSTS) to assess performance outcomes and the moderating effects of COVID-19. Results reveal that in highly diversified industries, internationalization significantly enhances performance, and this positive association strengthens during the pandemic. Diversification remains negatively associated with performance; the COVID–diversification interaction is not significant, providing no evidence of an additional buffering effect. By contrast, in less diversified industries, neither strategy significantly impacts performance. These insights underscore the importance of tailoring internationalization and diversification approaches to the industry’s baseline diversification level. Through subgroup analysis and interaction tests, this research advances theoretical understanding of strategic resilience and provides managerial guidance for navigating global disruptions.