Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Internationalization and Performance 
Strategic asset and core competence
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synergy are the most popular concepts used to support the benefits of 
internationalization. By transferring core competences between sub-business units, an international firm is able to 
accelerate the rate and lower the cost at which it utilizes and accumulates strategic assets (Markides, 1995). 
Excluding the industry effect, Rumelt (1982) found that the most profitable firms were those that diversified 
primarily into the areas that drew on some common core skill or resource. Stimpert and Duhaime (1997) also 
concluded that a limited amount of diversification into related businesses that shared similar opportunities can have 
a positive impact on performance by allowing firms to make better use of the resources of a core business (Rumelt, 
1982) or to share resources across businesses (Chatterjee & Wernerfelt, 1991). Stimpert and Duhaime (1997) argued 
that simply exploiting existing strategic assets (i.e., reaping economies of scale) will not create a long-term 
competitive advantage. In a dynamic world, only firms that are able to continuously build new strategic assets faster 
and more cheaply than their competitors will earn superior returns over the long term and transferring core 
competences among sub-business units is an efficient way to achieve that goal. Such a rationale could be easily 
applied to the hotel industry. Through internationalization, a hotel could increase its efficiency and reduce the cost 
of utilizing and accumulating its strategic assets (brand equity and distribution channels) by transferring core 
competences (operation and management skills) among sub-business units. In sum, from a strategic asset viewpoint, 
internationalization could improve the performance of hotel companies.
Risk reduction is another benefit from internationalization (Lewellen, 1971). With less-than-perfectly 
correlated earnings, the volatility of corporate cash flow would be reduced and so are the cash-flow-associated risks. 
As a result, internationalized firms have significantly lowered overall capital cost, even though the equity cost rises 
with the level of internationalization (Singh & Nejadmalayeri, 2004). There are also some costs associated with 
internationalization. Hitt et al. (1997) postulated that although moderate level of internationalization provides 
multiple benefits; as geographic dispersion escalates, a great deal of transaction costs, both from internal 
transactions among managers in geographically diverse units and external transactions with government officials, 
suppliers, and customers, would rise in order to coordinate the efforts of entering and operating in new markets. 
Palich et al. (2000) summarized these costs into two categories: 1) the costs of entering new markets and 2) the costs 
of managing a disparate portfolio of business. For example, as a hotel corporation enters new markets in foreign 
countries, it would face trade barriers, logistical difficulties, cultural diversity, and differences in employee skills 
and experience more control-and-effort losses, coordination costs, and internal capital market inefficiency.