Raymond Vernon captured the classic rationale for international diversification.9 He suggested that typically a firm discovers an innovation in its home-country market, especially in an advanced economy such as that of the United States. Often demand for the product then develops in other countries, and exports are provided by domestic operations. Increased demand in foreign countries justifies making investments in foreign operations, especially to fend off foreign competitors. Vernon, therefore, observed that one reason why firms pursue international diversification is to extend a product's life cycle.
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