The costs and the benefits of international diversification Essay

The costs and the benefits of international diversification - Essay Example The process of international diversification enables the firms to reap in advantages like economies of scale. According to Bartlett & Ghoshal (2000) it accelerates the process of innovation besides reducing the associated costs. However there is no consistency in the empirical studies with regard to the performance advantages arising from international diversification. Various studies conducted by Buckley & Casson (1976), Caves (1982) and Rugman (1979) have drawn attention to the internationalisation theory, highlighting that the process of international diversification does not improve performance rather the leveraging of the intangible assets of the firm bring in performance advantages. This calls for advanced ways of information co-ordination and processing in order to identify and take advantage of the overseas opportunities. As per Kogut (1985b) the acquisition of this form of information co-ordination and processing requires significant investments and the gains arising from th e international diversification varies across the firms (Chari et al., 2007). ... This form of diversification enhances the market potential of the various product lines of the firms but this also gives rise to the complexities of managing a firm that is internationally diversified as well as product diversified. Research has shown that the gains from geographic and product diversification are higher in the case of media firms. It has also been seen that in the less developed economies the firms benefit more from product diversification as compared to the businesses in developed economies. The international diversification offers exploitation and exploration benefits. As per Caves (1996) by way of internationalisation the firms can achieve economies of scope and scale. Kim et al (1993) highlight that the fluctuations in the revenues of the firm can be can be reduced by distributing the investment risks across various countries. The international operations facilitate cost reduction and enhance revenue base as it strengthens the market position of the firm giving i t a strong bargaining power over the customers, suppliers and distributors. The firm may have unutilised resources therefore by way of international expansion the firm is able to achieve economies of scale. A higher production lowers the overall production costs (Lu & Beamish, 2004). Evidences have shown that top management groups that are culturally diverse are more informed about the international markets and their unconventional behaviour. The impetus for internationalisation arises from the availability of the opportunities of exploiting market imperfections from the use of intangible assets across the border. According to Buckley (1988) a business can achieve extra-normal returns by using its internal assets