Does digital transformation matter for international diversification? The role of product market competition

Purpose This study aims to investigate the impact of product market competition on the relationship between firm digital transformation and international diversification. It aims to uncover how competition moderates this relationship and to reveal the nonlinear dynamics between digital transformation and international diversification in strategic decision-making processes. Design/methodology/approach Using a panel logistic regression analysis, this study examines data from 235 Malaysian nonfinancial listed companies from 2012 to 2019. The analysis focuses on the manufacturing and technology industries due to the availability of digital transformation data, leading to a data set of 1,180 year-firm observations. Findings The results reveal a nonlinear relationship between digital transformation and international diversification, intensified by product market competition. Initially, digital transformation positively affects international diversification, but this effect turns negative as competition increases. Robustness checks validate these findings, indicating that competition’s impact varies with the level of digital transformation. Research limitations/implications This study’s findings are based on text analysis as a proxy for digital transformation, which may not fully capture organizational changes. Future research could use reported transformation costs or mandatory disclosures. In addition, this study focuses solely on international diversification, excluding other forms of diversification and financial constraints. Practical implications Policymakers should recognize that high product market competition can negate the benefits of digital transformation on internationalization. They need to balance promoting digital transformation with addressing competitive challenges. Managers should analyze the competitive landscape before pursuing international expansion, as high competition can diminish the advantages of digital transformation. Originality/value This research enriches agency and resource-based view theories by revealing the complex dynamics between digital transformation, competition and international diversification. It introduces a parabolic relationship between competition and diversification, challenging traditional assumptions and providing a comprehensive framework for understanding strategic decisions in competitive environments.