This study investigates the effects of diversification strategy on financial performance as macroeconomic settings change.  It examines the dynamic relationships of diversification and performance for the listed firms in Japanfs mature textile industry since the 1980s.  Panel data analysis show that the strategy-performance nexus is contingent to economic environments, rather than showing fixed relationships.   The results further show that even in a mature industry context such as Japanfs textiles, technology investments and related diversification constitute an enduring growth path that yields higher profitability relative to other business models.  While international diversity and keiretsu relationships has been ineffective, keiretsu membership had a positive moderating role on the effects of international scope on firm performance only in the depressed macroeconomic environments.