1. Introduction
The rapid development of the past few decades tells us that firms greatly destroy the environment in which we live while obtaining great economic benefits [
1]. Therefore, people from all walks of life have reached a consensus that firms should not only ensure their current interests, but also attach importance to the impact of their own development on society and the environment, so as to achieve the goal of sustainable development [
2]. Scholars have carried out a heated discussion on sustainable development in the last decades [
3]. The research focus has changed from responding to the question of “why firms achieve sustainability” to “how firms achieve sustainability”. Early studies have uncovered the underlying logic of why firms implement sustainable strategy from the perspectives of environmental push and corporate pull. External environmental factors mainly include government regulatory power, industrial policy, and consumer demand [
4,
5,
6], while internal pull factors are mainly concentrated at the level of top management teams and CEOs [
7,
8]. Recently, scholars have further turned their attention to the inside of the firm and tried to analyze how to realize sustainable development from the strategic level.
International diversification has started to attract the attention of scholars in the field of strategic management and international business [
9,
10,
11]. Through international diversification, firms can make up for their shortcomings and break through resource and capability bottlenecks. However, the empirical research exploring the impact of international expansion on firms’ sustainable performance does not arrive at the same conclusion. Bojnec and Tomic [
1] and Melane-Lavado et al. [
12] argue that international expansion can positively contribute to firm’s sustainable performance. They contend that entering into international market helps firms achieve economies of scale, provides learning opportunities and access to resources which can finally improve financial returns and help design environmentally friendly new products. In contrast, some researchers document a negative effect of international expansion on firms’ sustainable development. Li and Niu [
13] highlight how international expansion may diminish managers’ attention to long-term investments, which finally jeopardizes firms’ sustainable development. Park [
14] presents that institutional distance may easily decouple the subsidiaries of multinational companies from the headquarters’ sustainable development policies and finally hinder the sustainable development of the entire firm group.
In this research, we are committed to reconciling the contradictory thoughts of international diversification on firms’ sustainable performance in two ways. On the one hand, we divide sustainable performance from the economic and environmental aspects [
15], and test the impact of international diversification on both the environment and the economy. Existing research in the field of international diversification treats sustainable performance as a whole, ignoring to uncover the separate impact of international diversification on economic and environmental dimensions, so it is difficult to reveal the full picture of the sustainable impact of international expansion. On the other hand, we uncover the mediating mechanism by which international diversification affects sustainable performance from the capability perspective. Existing research explains the sustainable effect of international diversification mainly based on the resource-based view [
1,
12]. However, resources are clearly distinguishable from capabilities [
16]. Grant [
17] proposes that resources whether tangible or intangible are inputs used in the production process to convert into products or services. Merely owning resources does not ensure the obtainment of sustainable development because resources can be traded and transferred among different firms. The capability school believes that it is the capabilities that convert firms’ resources into competitive advantages, which in turn help firms to achieve sustainable development goals [
18]. However, it is worth noting that ordinary capabilities can become outdated and firms may fall into a ‘competency trap’ if and when the external environment changes drastically. Wang and Ahmed [
19] further highlight the importance of dynamic capabilities, which emphasize a firm’s unflagging effort to reconfigure resources and capabilities to adapt to the environmental change. Therefore, this study attempts to explain the mediating mechanism of international diversification affecting sustainable performance from the perspective of dynamic capabilities.
Based on the above view, this paper empirically tests the influence of international diversification on sustainable performance [
15], and uses the dynamic capabilities perspective [
19,
20] to disclose the intervening mechanism of international diversification on sustainable performance. Based on the data of Chinese listed manufacturing firms entering into the international markets, we pay attention to two specific dynamic capabilities (adaptive capability and innovative capability), and their relationships to international diversification and sustainable performance (economic performance and environmental performance).
Figure 1 presents our theoretical model of international diversification, dynamic capabilities and sustainable development.
5. Conclusions and Discussion
Extant research interests have changed from “why firms achieve sustainability” to “how firms achieve sustainability”, and have been aware of the significance role of international diversification for firms to achieve sustainability, but not reached consistent conclusions [
1,
12,
14]. According to the theoretical perspective of dynamic capabilities, this paper examines the mediating role of adaptive capability and innovation capability played in the relationship between international diversification and sustainable performance. The empirical results reveal that international diversification positively influence both economic performance and environmental performance, and adaptive capability and innovation capability partially mediate the relations of international diversification and sustainable performance.
Our research contributes to existing literature on two aspects. First, we have empirically explored and found that international diversification is positively related to economic performance and environmental performance respectively. Although international expansion has attracted the attention of researchers on the underlying benefit for sustainable development, existing research treats sustainable development as a whole and does not uncover the respective influence of internationalization on economic performance and environmental performance. This paper contributes at this point through clearly disclosing whether and how international diversification affect firms’ sustainable performance from the economic and environmental way.
Second, the finding expands our understanding of the influencing mechanism of international diversification by highlighting the intervening role of adaptive capability and innovation capability in enhancing firms’ sustainable performance. Existing theoretical explanation about international diversification mainly employs the logic of resources-based view to interpret the impacting mechanism of international diversification on sustainable performance [
1,
12,
14]. However, this study puts forward that international diversification not only offers novel valuable strategic resources as inputs important for firms’ economic and environmental oriented development but also act as intermediate mechanisms through which international firms operating in host markets with local partners learn and build routines that finally promote the establishment of dynamic capabilities. The results provide proof to the capability view, which emphasizes the significance of resource integration and capability upgrading to improve other resources’ productivity [
16,
19]. Thus, we extend the theoretical foundation of firms’ sustainable development from the perspective of international diversification.
This research also has some practical implications. Driven by sustainable development needs and limited by internal resource bottlenecks, most firms need to think about how to obtain resources from outside to promote sustainable development. Our research results signify that business managers in international firms should be conscious of the important role of foreign markets in the improvement of firm’s economic performance and environmental performance. Otherwise, firm’s managers need to be more aware that global markets not only provide the source to seek novel resources, but also offer the channel to develop adaptive capability and innovation capability which help firms achieve sustainable development under dynamic conditions. Therefore, our results also imply that, in the process of internationalization, international firms should build adaptive capability and innovation capability to respond to their economic and environmental development demand.
For policy makers, our study recommends that government department should develop encouraging policies that promote firms to go internationalization which in turn helps them establish adaptive capability and innovation capability. Due to lack of international development experience and encountering some difficult international obstacles, many firms in our country have shown a certain degree of fear of international market. Therefore, on the one hand, government agencies should promote firms’ internationalization through incentive policies, and on the other hand, they should build a platform for domestic firms to connect with the international market, so as to reduce the cost and difficulty of internationalization.
There are some limitations in this study, providing space for further exploration in the future. First, we select international diversification as an indicator to characterize internationalization strategies, ignoring such other features of internationalization as entry mode and speed. However, existing research has uncovered that different entry modes and international speed may bring about different resources and learning effect [
49,
50]. Future endeavors may explore how differentiated entry modes and speed of internationalization can exert influence on dynamic capabilities and sustainable performance. Second, this study mainly uses Wang and Ahmed’s [
19] division of dynamic capabilities. However, the definition and dimension division of dynamic capabilities are far from consensus in the theoretical circles, so future research is necessary to continue by examining other scholars’ interpretations, division and measurement indices of dynamic capabilities. Third, the research sample is limited to listed manufacturing companies in China, which hinders the finding’s generalizability. Therefore, future research can further compare the relationship between international diversification, dynamic capabilities and sustainable performance of service firms, firms in other emerging or developed countries. Fourth, this study only explores the mediating mechanism by which international diversification affects sustainable performance, and does not reveal contextual mechanisms. In fact, the contradictory relationship between international diversification and sustainable performance indicates that future research may consider revealing the conditions under which international diversification is beneficial and detrimental to sustainable performance.