Geographic diversification is a strategy to reduce risk (Rugman, 1976) and increase performance (Lin et al., 2018). However, it is not enough to diversify internationally, according to the Upstream-downstream Hypothesis, risk mitigation depends on the place of origin and destination of the companies’ operations (Kwok & Reeb, 2000). To reduce risks and competitive pressure, the tendency for companies from an emerging economy is to diversify into other markets (Lin et al., 2018), as they face challenges and uncertainties due to the immaturity of the domestic market and structural changes in the economy (Nachum, 2004).

In this context, characteristics of the companies’ environment may allow or require them to seek and explore opportunities for international diversification (Ruigrok et al., 2013). According to the Contingency theory, the company’s performance depends on the fit between structure, processes, and organizational environment (Drazin & Van de Ven, 1985).

Dess and Beard (1984) classified the organizational environment into three dimensions: munificence, dynamism, and complexity. Environmental munificence differs from dynamism and complexity, as the dynamic environment is more challenging, and the complex one is more difficult to manage (Jung et al., 2020), therefore detrimental to performance (Baum & Wally, 2003). Environmental munificence, on the other hand, refers to the scarcity or abundance of critical resources needed to support the sustainable growth of companies (Aldrich, 1979; Castrogiovanni, 1991).

Thus, from a contingency perspective, in dynamic and complex environments, companies diversify internationally to reduce risk (Kwok & Reeb, 2000) and improve their performance (Nachum, 2004; Lin et al., 2018). International diversification can generate positive effects on performance, as it allows organizations to explore existing markets in different countries (Yuan et al., 2016) and internalizes environmental resources that support growth and competitive advantage (Penrose, 1959).

According to the Resource-Based View (RBV) theory, how companies acquire and exploit their versatile, valuable, heterogeneous, and dynamic resources can improve their performance (Penrose, 1959; Wernerfelt, 1984; Barney, 1991), including through international diversification (Pergelova et al., 2019). More munificent environments allow companies to have access to external resources to support their sustainable growth (Aldrich, 1979), providing reserves against competitive and environmental threats, and having positive effects on performance (Baum & Wally, 2003).

The relationship between international diversification and performance is extensively explored in the international business literature. Previous studies have reported a positive, negative, U-shaped, inverted-U, and S-shaped relationship between international diversification and performance and, therefore, the literature is still inconclusive (Dikova & Veselova, 2021). Recent meta-analyses have shown that these relationships can be moderated by the environment in which the company operates, modifying the relationship between international diversification and performance.

These inconclusive results may result from not properly considering the effects of the context of the environment in the company’s countries of origin on the relationship between international diversification and performance (Marano et al., 2016). Previous studies (Bausch & Krist, 2007; Kirca et al., 2011) showed that multinationals’ country of origin can alter the generally positive relationship between international diversification and performance.

The effects of environmental conditions in the country of multinationals origin remain a topic to be further explored in research on the international diversification of companies (Mezias et al., 2008). Given the above, it becomes relevant to investigate the use of resources by companies to face environmental contingencies, considering the opportunities for international diversification and their effects on performance.

Therefore, the objective of this theoretical essay is to present a framework in which to analyze the effects of international diversification on the performance of companies, based on the dynamism, complexity, and munificence of the operational environment of companies, integrating the theoretical aspects of the Upstream-downstream Hypothesis, Contingency theory, and RBV.

This study contributes to the theory by suggesting the interlocution between the Upstream-downstream Hypothesis, Contingency, and RBV theories, offering a broader lens for the analysis of international diversification and a deeper understanding of its effect on performance based on dynamism, complexity and availability of resources of the companies operating environment, approaching the country of origin and destination of their activities.

Thus, it contributes to the field by considering the study of multifaceted international diversification, in which company characteristics and the operating environment must be integrated so that the relationship between international diversification and performance is understood through the conciliation of different theoretical aspects.

It also contributes to the field by proposing new lines of research regarding business diversification, considering the regional characteristics of the operating environment of companies within the same country, and making use of concepts from international business literature and Economic Geography in the development of research intra-country diversification.

Geographic diversification is a much-studied topic in the international business literature (Lu et al., 2015). It has been studied from the point of view of international diversification (e.g. Rugman, 1976; Kwok & Reeb, 2000; Nachum, 2004; Qian et al., 2008; Qian et al., 2010; Yuan et al., 2016; Lin et al., 2018) and also at the subnational level of subsidiaries location of internationally diversified companies (Castellani et al., 2013; Hutzschenreuter et al., 2020).

Previous research has combined the concepts of international business literature with Economic Geography to investigate the process of international diversification based on the location of subsidiaries in subnational regions of host countries (Dunning, 1998; Meyer & Nguyen, 2005; Chan et al., 2010; Chidlow et al., 2015; Hsu et al., 2017; Teng et al., 2017; Oliveira, 2020; Hutzschenreuter et al., 2020) and, in an incipient way, diversification within a single country (Tsai et al., 2018).

There are gaps in the study of intra-country business diversification, in which, for example, research in the area of regional diversification can use the concepts of international diversification, regarding subnational regions, and investigate its effects on company performance.

For more than 40 years, the effects of international diversification on company performance have drawn the attention of researchers in the field of finance, and they are still inconclusive (Dikova & Veselova, 2021). Furthermore, the investigation of international diversification effects on the performance of companies from emerging markets has been little explored and the results have varied considerably (Banalieva & Sarathy, 2011). Studies that, for example, found a positive linear relationship (Nachum, 2004), U-shaped (Contractor et al., 2007), U-inverted (Elango, 2006) and S shaped (Kumar & Singh, 2008).

Previous studies have investigated the effects of international diversification on performance, analyzing company characteristics (Hsu et al., 2013; Chen et al., 2014; Zhang et al., 2014), the sector (Wang et al., 2012) and the country (Elango, 2006; Thomas, 2006; Banalieva & Sarathy, 2011), in view of international diversification with several factors in addition to its direct relationship with performance.

Marano et al. (2016) point out that the inconclusive results on the relationship between international diversification and performance result from not properly considering the effects of the environmental context of the companies' countries of origin. Recent meta-analyses (Bausch & Krist, 2007; Kirca et al., 2011; Marano et al., 2016) identified that the country of origin of multinational companies can alter the generally positive effect of international diversification on performance.

International diversification can be defined as the expansion of a company's business beyond the borders of its country to different countries and geographic regions (Capar & Kotabe, 2003), constituting a growth strategy (Yuan et al., 2016; Lin et al., 2018) and also risk reduction for companies (Rugman, 1976; Kwok & Reeb, 2000; Nachum, 2004).

It was from the work of Dess and Beard (1984) that there was an objective operationalization of the organizational environment. Considering the private sphere, these authors proposed to reduce the dimensions summarized by Aldrich (1979), geographic concentration, heterogeneity and stability of the environment components, turbulence, and capacity of the environment, into three dimensions: munificence, dynamism, and complexity.

Rasheed and Prescott (1992) and Porto et al. (2007) replicated Dess and Beard's (1984) model for the North American context with more up-to-date data and the results supported the validity of the original model. In Brazil, Bataglia et al. (2009) concluded that the model was externally valid. Table 1 presents the environmental dimensions and their respective measurements.

Table 1

Environmental Dimensions	Measurement
1. Munificence
1.1 A Growth in total sales	The regression coefficient of the sales value in the considered period is divided by the average value.
1.2 Growth in the price-cost margin	Ditto 1.1, using the difference between value-added and total wages.
1.3 Growth in total employment	Ditto 1.1, using total employment.
1.4 Growth in value-added by Manufacture	Ditto 1.1, using added value.
1.5 Growth in the number of Establishments	Annual average percentage change in the number of establishments.
2. Dynamism
2.1 Instability in total sales	Standard error of the regression coefficient of sales in the period considered divided by the average value.
2.2 Price-cost margin instability	Ditto 2.1, using value-added minus total wages.
2.3 Instability in total employment	Ditto 2.1, using total employment.
2.4 Value-added instability	Ditto 2.1, using added value.
3. Complexity
3.1 Geographic concentration of sales of the industry	Sum of the square of the sales volume in each census division, divided by the square of the total sales volume in all the census divisions.
3.2 Geographic concentration of value added by manufacture	Ditto 3.1, however, with the added value.
3.3 Geographic concentration of the number of employees	Ditto 3.1, however, with total employment.
3.4 Geographic concentration of the number of industry establishments	Ditto 3.1, however, with the number of establishments.

Source: Adapted from Dess and Beard (1984)

Environmental munificence is the level of scarcity or abundance of critical resources necessary for the activities and sustainable development of organizations (Aldrich, 1979; Dess & Beard, 1984; Castrogiovanni, 1991), which facilitate the survival of companies (Porto et al., 2007). Generous environments support the increase of resources within the company and provide reserves against competitive and environmental threats, having positive effects on performance (Baum & Wally, 2003). Low levels of munificence increase competition for ever-smaller resources and negatively affect the company (Mezias et al., 2008).

Environmental dynamism is associated with the rate of the unpredictability of change in the external environment of organizations. Volatility, patternlessness, and unpredictability are the best measures of environmental stability-instability (Dess & Beard, 1984). Environmental dynamism is one of the most important external influences on company performance (Hitt et al., 1998) and is generally detrimental to performance (Baum & Wally, 2003).

Environmental complexity is the degree of dispersion of the environment or heterogeneity of environmental activities that the company develops to ensure its survival in the environment, as well as the degree of knowledge required for this purpose (Aldrich, 1979; Dess & Beard, 1984). Complex environments are more difficult to manage and therefore detrimental to performance (Jung et al., 2020).

From the perspective of the Contingency theory, a framework is presented to investigate the effects of international diversification and the environmental dimensions proposed by Dess and Beard (1984) on the performance of companies. It is proposed the intersection of the concepts of the Upstream-downstream Hypothesis of Kwok and Reeb (2000) and the RBV of Penrose (1959) and Barney (1991) with environmental dynamism and complexity. In addition, the intersection of RBV concepts with environmental munificence.

Figure 1 presents the scenario matrices that can be structured based on the relationship between international diversification, the dynamism/complexity and munificence of the companies operating environment.

Figure 1 Source: Prepared by the authors (2022).

The main contribution of this study lies in the proposition of integrating theoretical aspects of different theories in the analysis of the relationship between geographic diversification and company performance, allowing the outlining of opportunities for future research.

The concepts of the Upstream-downstream Hypothesis, Contingency theory and RBV were discussed in the context of the businesses geographic diversification, more specifically the international diversification. We sought to integrate aspects of the home country task environment of multinational companies with the relationship between international diversification and company performance since the international business literature has shown mixed and inconclusive results.

We observed that the relationship between international diversification and performance can be explored by addressing the interaction of the theoretical perspectives of the Upstream-downstream Hypothesis, Contingency theory and RBV. Consider, for example, a company from an emerging country that operates in an environment with low availability of resources, which diversifies internationally in order to have access to versatile resources and uses them in a dynamic or complex environment (understood as having greater risk) in the domestic market. Or even, an emerging country company that expands its sales to the foreign market or invests directly abroad, as a way of increasing scale and scope, internalizes resources and uses them in a more or less generous domestic environment. These are questions that can be answered in light of the interlocution of these theories.

In addition, it was observed that more recent studies have examined the internationalization of companies through mediation, seeking a more holistic view of this phenomenon. The analysis of international diversification, the use of resources and their effects on the company's performance, depending on the task environment in which it is inserted can be carried out through mediation.

Previous research has investigated the indirect effect of international diversification on performance mediated by firm-specific assets, such as, for example, competencies generated in the internationalization process. It is suggested that further research study and propose new variables at the company level related to the international diversification process, such as assets that meet the characteristics proposed by Penrose (1959) and Barney (1991).

As for the environment of origin and destination of the internationally diversified company, it is suggested that researchers examine the effects of international diversification on performance, taking into account the operational environment at the regional level if the munificence, dynamism, and complexity of the region where the company is located company moderate this relationship. Location can be a determinant of the performance of exporting companies, especially concerning the availability of resources for their activities.

It is also proposed that future studies adopt the concepts of international business literature and environmental contingencies to the context of intra-country diversification, and regional diversification. Brazil, for example, is a country of continental dimensions which has in its geographic extension several subnational regions that are different in their cultural, social, legal, institutional, and economic aspects.