Integrating the Knowledge-Based View of international business and Human Capital Resources Theory, we examine how multinational enterprises (MNEs) leverage knowledge gained through regional diversification to harness organizational innovation. We argue that while regional diversification initially increases access to diverse learning opportunities, the growing complexity of coordinating knowledge across multiple regions ultimately constrains its enterprise-wide innovative potential, resulting in an inverted U-shaped relationship between RD and innovation. Moreover, we show how the curvilinear relationship between regional diversification and organizational innovation is moderated by human capital stock and flow, with the direction of this effect depending on the effectiveness of high-performance work systems. Specifically, at higher adoption levels of high-performance work systems, human capital stock and flow flatten the inverted U-shaped relationship between regional diversification and organizational innovation, while at lower levels, this effect is less pronounced. Drawing on a sample of 486 MNEs, comprising 37,260 managers and employees, across diverse manufacturing sectors spanning from the period 2006–2016, our findings reveal the nuanced complementary role of human capital and high-performance work systems in enhancing MNE innovation through regional diversification.
