The economies of common governance arise because a firm integrates its
existing activities with new activities. For example, a firm that is currently
producing in country A, and believes it wil benefit from the economies of scope
and by the diversification of risks if it produces in country B, wil gain from such
diversification, only if it produces in both country A and country B! A firm that
benefits from the cross-border economies of scope or scale wil only do so if the new investment is in addition to its existing investment. A firm that makes a
foreign acquisition to obtain new and up-to-date technology or managerial
capabilities presumably does so because it believes it can use such assets along
with its existing core competences in a way which wil protect or augment its
competitive position.6 This may seem an obvious point, but to me at any rate, the
distinction between the benefits that accrue from the gains to be had from
internalising the market of an existing asset and those that arise from coordinating
existing assets with new assets, vis-a-vis Á some alternative use which might be
made of those assets, is an important one.