262 Part 2: Strategic Actions: Strategy Formulation
This has made the governments of the key resource firms nervous about such strategic
assets falling under the control of state-owned Chinese firms.^119 Terrorism has also been
of concern. Indonesia has difficulty competing for investment against China and India,
countries that are viewed as having fewer security risks.
As noted earlier, the differences and fluctuations in the value of currencies is among
the foremost economic risks of using an international strategy.^120 This is especially true
as the level of the firm’s geographic diversification increases to the point where the
firm is trading in a large number of currencies. The value of the dollar relative to other
currencies can affect the value of the international assets and earnings of U.S. firms.
For example, an increase in the value of the U.S. dollar can reduce the value of U.S.
multinational firms’ international assets and earnings in other countries. Furthermore,
the value of different currencies can, at times, dramatically affect a firm’s competitive-
ness in global markets because of its effect on the prices of goods manufactured in
different countries. An increase in the value of the dollar can harm U.S. firms’ exports
to international markets because of the price differential of the products. For example,
Johnson & Johnson recently reported that the firm’s international results were impacted
negatively by the increased value of the dollar, while Unilever’s results were positive due
to the decreased value of the euro relative to the dollar.^121 Thus, government oversight
and control of economic and financial capital, as well as corporate governance rules in
a country, affect not only local economic activity, but also foreign investments in the
country.^1228-6 Strategic Competitiveness Outcomes
As previously discussed, international strategies can result in three basic benefits
(increased market size; economies of scale and learning; and location advantages) for
firms. These basic benefits are gained when the firm successfully manages political,
economic, and other institutional risks while implementing its international strategies.
In turn, these benefits are critical to the firm’s efforts to achieve strategic competitiveness
(as measured by improved performance and enhanced innovation—see Figure 8.1).
Overall, the degree to which firms achieve strategic competitiveness through interna-
tional strategies is expanded or increased when they successfully implement an interna-
tional diversification strategy. As an extension or elaboration of international strategy, an
international diversification strategy is a strategy through which a firm expands the
sales of its goods or services across the borders of global regions and countries into a
potentially large number of geographic locations or markets. Instead of entering one or
just a few markets, the international diversification strategy finds firms using interna-
tional business-level and international corporate-level strategies for the purpose of
entering multiple regions and markets in order to sell their products.8-6a International Diversification and Returns
Evidence suggests numerous reasons for firms to use an international diversification
strategy,^123 meaning that international diversification should be related positively to a
firm’s performance as measured by the returns it earns on its investments. Research has
shown that as international diversification increases, a firm’s returns decrease initially
but then increase quickly as it learns how to manage the increased geographic diversifi-
cation it has created.^124 In fact, the stock market is particularly sensitive to investments
in international markets. Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns, especially when they diversify
geographically into core business areas.^125An international
diversification strategy is
a strategy through which a
firm expands the sales of its
goods or services across the
borders of global regions and
countries into a potentially
large number of geographic
locations or markets.