An important question concerning the internationalization of a firm involves the relationship between geographic scope and performance. Past researchers have proposed a positive relationship between international diversification and performance, but the results of empirical tests have been decidedly mixed. The reason for these mixed results, we argue, is that the relationship is more complex that has been theoretically argued and empirically tested. Firms in Taiwan always seek for the business opportunities in foreign countries because the limited size of domestic market and the natural scarce source comparing with other developed countries in the world. In order to acquire the relatively low cost of production, Taiwanese firms moved to appropriate countries since 1980s.Therefore, foreign direct investment (FDI) are considered as the common strategies in order to facilitate cost reductions so that the firms have the ability to pursue higher profits. Multinational corporations (MNCs) in the context of globalization, MNCs have to face competitions on the domestic front as well as from abroad. With factors such as market expansion and increased source of resource, MNCs can to focus FDI. How to sum up the experience, knowledge compiled and then become strategy to improve MNCs, performance and become MNCs and academia research issues. The purpose of the study is to examine the relationship between international diversification and performance under Taiwanese context and we also discussed the moderator effect of R&D capability. Besides, we used simultaneous equations system to examine the endogeneity of country diversification to performance. Our result indicates that there is a curvilinear relationship between international diversification and performance, and market capability and revealed comparative advantage will have significant effect to performance.

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