Role of Cultural Diversity in Innovative Performance of International Business Collaborations

International business (IB) collaborations can create a difference in the performance of the firms. Some previous studies had doubt if this superior performance is due to the internationalization itself or is related to the characteristics of one of the partners. However, here it is argued that difference in performance can be due to the characteristics of dyad between the partners, i.e. cultural distance. We tested the role of cultural distance (cultural diversity) between partners, while considering a network of countries. Social network analysis (SNA) is applied by utilizing UCINET software. This study built a database of around six hundred thousand patents data from The United States Patent and Trademark Office, and analyzed innovations resulting from cross-cultural collaborations. The result illustrates that increase in cultural distance decreases the number (quantity) of innovations, but has an inverted U-shape relationship with the quality of innovations. Researches which studied the relationship between cultural diversity and innovation in IB, mainly either conclude diversity hinders innovation or promotes it. This study fills this gap by analyzing two important dimensions of innovation i.e. quantity and quality of innovation.