Modern Financial Markets

There is no consistency in the empirical studies with regard to the performance advantages arising from international diversification. Various studies conducted by Buckley &amp. Casson (1976), Caves (1982) and Rugman (1979) have drawn attention to the internationalization 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 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 the international diversification vary across the firms (Chari et al., 2007).
An international business initiative can lower the overall risk of a firm owing to the benefits associated with international diversification (Madura, 2008, p.375). It enables the firms to make more returns on their innovation by way of accessing a number of markets and brings down the risks associated with research and development investments. Therefore, it can be inferred that international diversification provides the necessary incentives for innovative practices (Hitt et al., 2007, p.232).
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&nbsp.exploitation and exploration benefits. As per Caves (1996) by way of internationalisation the firms can achieve economies of scope and scale.