Capability Deepening, Capability Broadening, and Firm Performance of Emerging Market Firms.

We analyze how capability upgrading impacts the performance of emerging market firms. Building on the organizational learning literature to theorize upgrading as a problem-solving process, we propose that the benefit of capability upgrading on performance depends on the firm's selection of an upgrading direction that is appropriate for its particular challenges. Thus, we distinguish between capability-deepening (i.e., focusing on improving the quality of a few capability domains) and capability-broadening (i.e., expanding the stock of capabilities in multiple capability domains). We argue that emerging market firms' reliance on low-cost competitiveness or on government support strengthens the positive impact of capability deepening on performance, while manufacturing intensity or institutional friction strengthens the positive impact of capability broadening on performance. [ABSTRACT FROM AUTHOR]