International Corporate Diversification Essay Example | Topics and Well Written Essays - 3250 words

International Corporate Diversification - Essay Example This is a part of the companies’ growth strategy, and the increasingly predominant phenomenon is directly linked to globalization effects, as well as, the ever rising competition intensity. This phenomenon is generally referred to as international diversification and many academicians agree that, it offers a company access to a wide array of opportunities in overseas markets thus making it possible to overcome development challenges. International diversification could also enhance the respective company’s general performance. In academics, varying outlooks have been utilized to elucidate this phenomenon diversification. For instance, theoretical concepts like portfolio investment, foreign direct investment (FDI), and resource-based theories, all propose that, international diversification is associated with increased economies of scale, broadened learning scope, stable revenues or profits, and operational flexibility (Waisako, 2002, pp. 109-134 ). However, irrespective of the numerous advantages associated with global business diversification, research has shown that, simply venturing overseas does not guarantee exemplary performance for companies. The diversification process usually requires an organization to accrue sizeable costs as a result of strategies’ restructuring or resource reallocation. Other challenges include concerns such as increased complexity in managerial structure, target market or employees’ resistance to transformation and increased communication problems owing to the diversity of cultures involved. Additionally, global diversification could be accompanied by unexpected, yet substantial expenses like fluctuations in currency exchange rates, political insecurity and inflation. This paper seeks to explore the varying advantages and disadvantages associated with international corporate diversification. The study attains this, by evaluating drivers of international diversification; cases of companies that have eith er succeeded in the venture of international diversification and those that failed extensively, as well as, the reasons that led to this success or failure. General Advantages of International Corporate Diversification International Talent Pool and Opportunity to Lower Labour Costs Increasing globalization and competition among businesses has constantly driven operation costs to an elevated level. Additionally, the escalating competition requires organizations to have unique methods of conducting, which can best be attained by employees with distinctive talents. For this reason, the increased costs of hiring workers, as well as, the need for a highly gifted labour force, are both crucial drivers of global diversification. For example, Apple, Inc. a computer and peripherals manufacturer develops its products’ designs in California, but assembly of the products takes place in China. The same applies for many multinational companies (MNCs) which seek to lower labour and other op eration costs. This happens mainly because; labour in developed nations is more costly in comparison to that available in developing nations. Additionally, global diversification makes it possible for an organization to gain access to a labour force that is highly diverse in terms of talent and expertise, thus gaining a higher chance of succeeding in the business environment (Dastidar and Weiner, 2007, pp. 24-36). Occasionally, as certain areas of developing nations evolve and costs increase, MNCs may opt to move their operations to locations of the same nation that have not developed fully, thus continually saving on costs. In addition, a global company can get cost benefits through economies of scale. This is attainable through centralizing production processes in one or a few locations hence doing away with