Making better foreign friendships: the effects of increased cultural diversity in alliance portfolios and portfolio configuration decisions on firm performance

What is it about?

Adding culturally diverse partners to a firm’s alliance portfolio leads to increased alliance portfolio cultural diversity (IAPCD). This research examines the effect of IAPCD on the firm’s sales performance and how portfolio configuration decisions moderate this effect. Results based on a sample of 7,616 alliances reveal an inverted-U relationship between IAPCD and firm performance. Data limitations led to examining moderating effects only on the upslope portion of the inverted-U, indicating that an increasing percentage of joint ventures in a firm’s alliance portfolio strengthens IAPCD’s contribution to performance. Further, increased numbers of marketing alliances or R&D alliances and increased percentage of horizontal alliances in an alliance portfolio have the opposite effect, dampening IAPCD’s positive effect on performance. Our findings indicate that firms can leverage the additions of culturally diverse partners toward improved performance through astute configuration decisions in alliance portfolio composition.

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