International Expansion, Diversification and Regulated Firm Nonmarket Strategy

S. Urbiztondo, J. Bonardi, B. QUÉLIN

Managerial and Decision Economics

September 2013, vol. 34, n°6, pp.379-396

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Keywords: Expansion (Business), Diversification (Finance), Marketing strategy, Economic models, Competition (Economics), Economic development, Economics -- Research

Previous studies have shown that regulated firms diversify for reasons that are different than for unregulated firms. We explore some of these differences by providing a theoretical model that starts by considering the firm–regulator relationship as an incomplete information issue, in which a regulated incumbent has knowledge that the regulator does not have, but the firm cannot convey hard information about this knowledge. The incumbent faces both market and nonmarket competition from a new entrant. In that context, we show that when the firm faces tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission to the regulator more credible. International expansion can thus be a way to solve domestic nonmarket issues in addition to being a catalyst for growth