How International Diversity Increases Innovation
In August of 2021, Sasa Ding, Frank McDonald, and Yingqi Wei published their research article titled: “Is Internationalization Beneficial to Innovation?” They examined the effects of internationalization on innovation and how research methods can affect results. As we continue to learn more about the importance of diversity, equity, and inclusion (DEI), it is important to stay up-to-date with current findings and research. This helps us not only learn about the importance of DEI, but gives us greater insight on how to increase the diversity of our coaches, clients, employees, or executives.
“Cultural differences should not separate us from each other, but rather cultural diversity brings a collective strength that can benefit all of humanity.” - Robert Alan Aurthur
Review of current research
Researchers Ding, McDonald, and Wei state that while most research articles “predict positive outcomes from internationalization,” some identify “negative outcomes” due to “increased uncertainty and complexity.” These research studies used a “variety of theoretical approaches” or methods when conducting their research and as a result, “provide inconsistent findings” due to “contextual factors” such as the development of countries and the different types of internationalization and innovation.
To get a wide scope view of the effects that internationalization or globalization of a business has on innovation, these researchers chose to do a meta-analysis of all the current research surrounding internationalization and innovation. Their meta-analysis synthesizes all current research, looking for “the more general effects” of internationalization on innovation. When searching for research to analyze, Ding et al. found “99 studies published between 1998 and 2018.”
“Real cultural diversity results from the interchange of ideas, products, and influences, not from the insular development of a single national style.” - Tyler Cowen
Ding et al. summarize their research stating that “internationalization has small but positive effects on firm innovation.” However, they point out “contextual factors” such as firm size, location, and industry. They also indicate that their research supported the importance of the “depth” of internationalization versus the “breadth.” They explain that having deep-rooted internationalization through employees, customers, and executives, and not just “arbitrage operations across different locations,” is “often required to effectively integrate acquired knowledge and resources” from diverse firms. Internationalization with more breadth, however, is likely to be an “important factor in causal change based on organizational learning, network theories, and spillover approaches due to the wider range of knowledge that is available from wide-ranging internationalization.”
Ding et al. share that the findings of their research “provide some insights for managers and policymakers.” They state that their findings should encourage business leaders to “assess the evidence for the net benefits” of internationalization “found in studies” of companies similar to theirs while also assessing the potential “risk of adopting inappropriate internationalization.”
“Innovation is all about people. Innovation thrives when the population is diverse, accepting, and willing to cooperate.” - Vivek Wadhwa
Lessons and learnings
How do we apply this research study to our executive coaching or business endeavors? Consider the following key takeaways from this research article.
Diversity encourages innovation
This research study, along with many others, suggest that the internationalization of businesses and firms increase rates of innovation. Consider the research by Piperopoulos, Wu, and Wang. They state that “outward foreign direct investment” has a positive effect on innovation. As a result, they also encourage business leaders to globalize their businesses in developed countries (Piperopoulos et al., 2018).
“Diversity drives innovation- when we limit who can contribute, we in turn limit what problems we can solve.” - Telle Whitney
Type of diversity matters: depth vs. breadth
Ding et al. state that there are three characteristics of diversity: “breadth,” “depth,” and “speed.” They define breadth as, “the spread of activities across foreign locations” and depth as, “the extent of operations conducted outside the home country.” Ultimately, internationalization of breadth indicates the involvement of many countries while the internationalization of depth indicates that these foreign branches are vital to a business and have deep-seated roots via employees, culture, and financial margins.
Ding and the research team state that “depth is more strongly associated with firm innovation than breadth,” however, two other research studies claim that breadth has stronger effects on performance than depth. Ultimately, both forms of diversity are important and have different roles. When engaging in the internationalization of breadth, “arbitrage operations across different locations... enable the diversification of risks and thereby secure better financial or market performance.”
However, internationalization of depth can “effectively integrate acquired knowledge and resources in organizational learning and in securing benefits from business networks.” Ding et al, also explain that “only depth is connected to innovation intermediate outputs.”
Both forms of internationalization and diversity have merit, therefore business leaders must consider their overall goal for their businesses when deciding how they want to internationalize.
The importance of examining research
The importance of examining research is also apparent in this article. For executives who lead businesses and make decisions, it is vital that decisions are based on valid and applicable research. Ding et al. state that “robust evidence” regarding innovation and internationalization is “important for managers engaged in developing international strategies” to consider. They also state that “good research design includes addressing important contextual factors” such as business industry, firm size, organizational culture, etc. Different businesses have different needs and are at different stages of development. Consider the graphic below that outlines some contextual factors that differentiate businesses.
When examining research and studies to put into practice for your coaching or business, it is important to consider how your contextual factors compare to those of the businesses mentioned in the study. As seen in the graphic above, some contextual factors can include the development and policies of countries involved, the size of the business, the development of a business, and the type of internationalization invested in. All of these factors are considered “moderating effects” on the increase in innovation that comes from internationalization. Before applying findings from research articles to your clients' or your business, it is important to examine all of these moderating effects for optimal profitability and innovation.
“Innovation comes ultimately from a diversity of perspectives. So when you combine ideas from different industries or different cultures, that’s when you have the best sense of developing groundbreaking ideas.” - Frans Johansson
This research supports the concept that when businesses and firms internationalize, globalize, or diversify their business, they increase their rates of innovation. As businesses internationalize and globalize, their employees and customers also diversify in race, gender, culture, and religion. Because of this, current research supports the importance of diversity, equity, and inclusion efforts in the workplace.
For businesses looking to incorporate internationalization into their organization, they should consider the importance of both the breadth and the depth of their targeted internationalization. Both types of internationalization have value and merit in the workplace and offer different benefits. Because of this, business leaders should examine current research that includes contextual factors that are most relevant to their business such as firm size and country development.
“Diversification and globalization are the keys to the future.” - Fujio Mitarai
Ding, S., McDonald, F., & Wei, Y. (2021). Is Internationalization Beneficial to Innovation? Evidence from a Meta-analysis. Management International Review, 61(4), 469–519. https://doi.org/10.1007/s11575-021-00451-0
Piperopoulos, P., Wu, J., & Wang, C. (2018). Outward FDI, location choices and innovation performance of emerging market enterprises. Research Policy, 47(1), 232–240. https://doi.org/10.1016/j.respol.2017.11.001
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