This study aims to identify the effect of a firm’s external resources on the relationship between within-industry diversification and firm performance. While previous within-industry diversification studies focused on the moderating effects of in-house resources on within-industry diversification and firm performance, these studies demonstrated mixed results suggesting another factor, which is not known yet. Our study identifies the effects of the degree of maturity on within-industry diversification, and the moderating effects of external resources on the within-industry diversification and firm performance.
Using data from software vendor firms in the Japanese console game industry, consisting of 756 firm-year observations from 1997–2016, the results of our study are as follows: (1) We found the degree of maturity as a boundary condition of within-industry diversification and firm performance. Previous studies suggest that within-industry diversification and firm performance have a U-shaped relationship, but in the Japanese console game industry, within-industry diversification and firm performance show a negative relationship. This can be explained by the fact that the degree of maturity of within-industry diversification in the console game industry is low, and unlike prior research, the economy of scope is not exhibited, and negative transfer effects and transfer costs are affected. (2) External resources had a positive moderating effect on the relationship between within-industry diversification and firm performance; the use of external developers reduces negative transfer effects and transfer costs, thus mitigating the negative relationship between within-industry diversification and firm performance.
