Product Diversification, Corporate Entrepreneurship and Firm Performance: An Empirical Study of Vietnamese Firms

This paper re-examines the relationship between a firm’s product diversification strategy and its performance. We propose a theoretical framework which explains the non-linear relationship between product diversification strategy and firm performance using the concept of corporate entrepreneurship. This is defined as a process of recognizing and exploiting profit opportunities from within existing organizations. Corporate entrepreneurship give an advantage to incumbents that diversify on new business opportunities over the new entrants. Empirical evidence from the provincial firm-level database in Vietnam shows that diversification has a positive and non-linear decreasing influence on firm-level profitability. Results of estimations are consistent with the various methodological treatments adopted: the diversification index is measured exogenously or endogenously in static versus dynamic models