Determinants of Success in International Expansion

Determinants of Success in International Expansion

International expansion is a critical strategy for firms that attempt to improve their existing businesses in thatrecent economic trends have provided incentives for the firms to expand into overseas markets. Although these trends reinforce the reasons for a firm to expand overseas, firms should carefully decide where to compete because the world offers different locales, opportunities, and risks. Prior empirical studies on the success of international expansion have contributed to the topic. Nonetheless, there should be more understanding of how to evaluate and select overseas markets for success in international expansion. The present study provides a useful definition of success in international expansion. Underpinning the belief that the stock return to a business strategy signifies the long-term financial performance, the study defines the success as the cumulative abnormal returns accrued after an event of international expansion. Drawing on the resource-based theory and the knowledge-based theory, this study also develops an empirically testable model that regards not only firm-level resources but also country-level environments facing international business as the key determinants of the success. The model was tested with a comprehensive dataset drawn from various secondary sources. The findings of the current study show that the success of international expansion is affected by cultural and economic distance and host country risk and openness. The study also indicates the moderating effects of experience in similar culture and economy.