Raymond Vernon captured the classic rationale for international diversification (Vernon 191). He suggested that, typically, a firm discovers an innovation in its home-country market, especially in an advanced economy such as that of the United States. Some demand for the product may then develop in other countries, and exports are provided by domestic operations. Increased demand in foreign countries justifies direct foreign investment in production capacity abroad, especially because foreign competitors also organize to meet increasing demand. "As the product becomes standardized, the firm may rationalize its operations by moving production to a region with low manufacturing costs" (Vernon 203). Vernon, therefore, suggests that firms pursue international diversification to extend a product's life cycle.
"Firms can derive four basic benefits from using international strategies: increased market size; greater returns on major capital investments or on investments in new products and processes; greater economies of scale, scope, or learning; and a competitive advantage through location (for example, access to low-cost labor, critical resources, or customers)" (Hill 381).
Increased Market Size
Firms can expand the size of their potential market by moving into international markets. As part of its expansion efforts, Whirlpool learned how to be successful in emerging markets. In India, the firm conducted 14 months of research on local tastes and values. The company also provided incentives to Indian retailers to stock its products, and its uses local contractors to collect payment and deliver appliances throughout