To diversify internationally for the purpose of reducing risk, which strategy is appropriate?
A) Establish subsidiaries in markets whose business cycles are the same as those where existing subsidiaries are based.
B) Establish a subsidiary in a market that has relatively low cost of labor or land.
C) Establish a subsidiary in a market where the local currency is weak but is expected to appreciate over time.
D) Establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.

Question

​To diversify internationally for the purpose of reducing risk, which strategy is appropriate?
A) ​Establish subsidiaries in markets whose business cycles are the same as those where existing subsidiaries are based.
B) ​Establish a subsidiary in a market that has relatively low cost of labor or land.
C) ​Establish a subsidiary in a market where the local currency is weak but is expected to appreciate over time.
D) ​Establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.

Quizplus · Accepted Answer

By establishing subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based, a firm can reduce its overall risk exposure to any single market or economy. This is because different markets are affected by different economic factors and may experience different business cycles, so diversifying across a range of markets will spread out risk and increase the chances of stable returns overall. Option A may not provide adequate diversification, as a downturn in one market could still impact all subsidiaries. Option B may be cost-effective but does not necessarily reduce risk. Option C may be a viable option for maximizing profits in the short term, but a weak currency may also be an indicator of economic instability or other potential risks.

​To Diversify Internationally for the Purpose of Reducing Risk, Which

To Diversify Internationally for the Purpose of Reducing Risk, Which