Strategic Competitive Outcomes
After its international strategy and mode of entry have been selected, the firm turns its attention to implementation issues (see Chapter 11). Implementation is highly important, because international expansion is risky, making it difficult to achieve a competitive advantage (see Figure 8.1). The probability the firm will be successful with an international strategy increases when it is effectively implemented.
International Diversification and Returns
Firms have numerous reasons to diversify internationally.134 International diversification is a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets. Because of its potential advantages, international diversification should be related positively to firms’ returns. Research has shown that, as international diversification increases, firms’ returns decrease initially but then increase quickly as firms learn to manage international expansion.135 In fact, the stock market is particularly sensitive to investments in international markets. Firms that are broadly diversified into multiple international markets usually achieve the most positive stock returns, especially when they diversify geographically into core business areas.136 Many factors contribute to the positive effects of international diversification, such as private versus government ownership, potential economies of scale and experience, location advantages, increased market size, and the opportunity to stabilize returns. The stabilization of returns helps reduce a firm’s overall risk.137 All of these outcomes can be achieved by smaller and newer ventures, as well as by larger and established firms.
Toyota has found that international diversification allows it to better exploit its core competencies, because sharing knowledge resources across subsidiaries can produce synergy. Also, a firm’s returns may affect...
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