Business comprises a range of geographic units which are used to serve as the basis o a company’s scope and target market. The success of a firm or its entropy measures can reflect not only the multiplicity of its gains but also defines how the business impacts the consumers. International diversification has introduced theories of enhancing a firm’s performance hence there are also studies that showed negative results on its capability (Verbeke, 2005). Further, the results arrayed on the context of consumer impact in the local and international basis.
These however, constituted distinctive reasons which boils down to the verity of implementation of the strategy and that the aforementioned theory varies independently. Advantages of international diversification The concept of international diversification may be collaborated with the logic of having a bigger arena means having a larger audience. Proven initially right, international diversification opens new opportunities as it possesses an expansion across borders of global regions and countries into different locations and markets.
A firm’s level of international diversification is assessed on the number of different markets wherein such operates along with their importance to the firm—in a percentage basis as to how total sales are concerned (Vachani, 1991). As a matter of fact, economists contended that it is through international diversification that a product is crawled to a bigger audience making it renowned not only in the local commerce but open to other ethnicities which is anticipated to reach out to untargeted audience.
This also paves a gateway for perfection though the verity of internalization—refers to bringing new foreign operations within boundaries—compared to arm-length market transactions which does not create a more ideal result (Verbeke, 2005). Kinds of international diversification International diversification does not only apply to a firm but it is also exhibited in products, resources and marketing. Given the fact that commerce embraces a large scope of different methods in reaching the consumers, business tycoons sometimes use the strategy not only in their firm, but also in the products that they produce.
The variation unfolds in the concept of globalization. For example, a company may choose to only introduce a new product internationally but only having their firm focused on one area. It means that the production is made only on the base hence the products are able to be sold to other places but still having direct sales and not through retailing. Through this, they are able to monopolize the sales and their shares are placed in one (Verbeke, 2005).
For the case of resource-base, they internationally establish a name of the company but only through sustaining resources to international or local companies. This then gives them the chance to venture or collaborate with several entities which needs their resources or products. As for marketing diversification, their implementation of marketing is brought to several places thus no products are involved. In such way, the local tie-ups are responsible for their production only that they are internationally renowned through the firm’s name.
All of the mentioned kinds of international diversification have its own advantages, depending on the firm’s ordeal. Disadvantages of international diversification Prior to the advantages presented, there are also cited weaknesses in the implementation of international diversification among firms. As stated above, the larger the scope, the bigger the opportunities, however, the more immense the challenge will be. It will present a more competitive challenge to the firm since they will be competing with local companies.
Further, the financial allocations will be colossal since they are trying to expand their target. Aside from that, the cost of production and the transportation of the products or for the agents to check on with the business will eat a large piece of the company’s funds. While their competitors—local producers—will not worry much on transportation of goods and service. Furthermore, they will need to battle with the complexities of every local unit to have their audience appreciate and shift from their local goods as it will be newly introduced (Vachani, 1991).
Moreover, consumers will expect high quality and low cost which on larger perspective will hasten international competitors since they must adhere to the heeds of the local masses and they will need prior innovations for that. The issue on cultural diversity is at stake, they must critically study the feasibility of their international diversification strategy and see if the consumers will bite their offer and give them a positive response (Verbeke, 2005). Conclusions and further remarks
The theoretical domains of international diversification strategy invests in strategic management and organization, resource based view of the firm, transaction costs and organizational learning. The idea would be ideologically perfect since it aims to exploit market imperfections in the standpoint of local against international evaluation, but for a firm to take the crucial risk meant more than just immediate skills and strategies. As coordination from another is required, GAP Inc. may serve as an example. It was managing the foreign retailers that led them to downfall.
A new audience means new threats. But with proper implementation of such, speculations may be outsmarted and the dream of internationally expanding one’s business may tower even beyond the expected returns of every investment
Vachani, S. (1991). Distinguishing between Related and Unrelated International Geographic Diversification: A Comprehensive Measure of Global Diversification Journal of International Business Studies, 22(2), 307-322. Verbeke, A. (2005). Internalization, International Diversification and the Multinational Enterprise (Vol. 11). Greenwich, CT: JAI Press.