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PurposeThe main purpose of this paper is to introduce a comprehensive model explaining what affects the scope of the firm and also to find out its impact on firm performance.Design/methodology/approachThis paper is based on an empirical analysis of a sample of 312 hardware manufacturing companies in Taiwan.FindingsThe research findings indicate that capability exploitation and upgrading will exert a positive influence on corporate diversification. In addition, corporate diversification will exhibit a curvilinear effect on firm performance.Practical implicationsUnder the logic of capability‐based growth, managers should manage portfolios of capability upgrading and capability exploitation; and then, managers have to conduct econometric analyses to find out a firm's optimal level of corporate diversification for performance maximization.Originality/valueThis study attempts to propose a dynamic capabilities perspective, which suggests that the successful growth of a firm hinges on a strategic logic of capability‐based growth management containing both capability exploitation and capability upgrading, for exploring the antecedents and consequences of corporate diversification.

0This study uses a dynamic capabilities perspective to illustrate how global configurations of value chain activities are able to contribute to a firm's capability development through foreign direct investment. 0 Using Taiwanese firms as an empirical sample, we develop testable hypotheses regarding the impact of global configuration in terms of entry timing, entry location, and completeness of value chain activities.0 Results indicate that foreign investment made by a multinational corporation (MNC) at an earlier time will enable a higher level of technological and manufacturing capability development than that made at a later time. We also find that MNCs are likely to make foreign investment in developed countries for the development of technological and marketing capabilities, and in less developed countries for the development of manufacturing capabilities. In addition, we discover that the more complete an MNC's value chain configuration is, the higher the level of capability development the MNC is likely to achieve.