International contraction for the sake of international expansion

Research Summary We present novel theoretical arguments suggesting that the contraction of international market presence does not only allow firms to expand their presence into new business domains, but also to resume their international market presence in the long term. We argue that when firms contract their international market presence, they spark two subsequent processes: First, they free up non‐scale free financial resources that become available for expanding into new business domains. Subsequently, such expansion creates new scale free technological knowledge resources that facilitate renewed international expansion. We find support for the existence of this novel growth trajectory in an analysis of changes in the international market presence and business segment presence of an extensive sample of public US‐based firms between 1997 and 2019. Managerial Summary Political frictions, economic crises, and pandemics in the wake of the 21st century have led to volatility in the international presence of firms. In this article, we argue and show that firms that contract their international market presence can use scarce financial resources that are freed up due to such contraction to expand their business scope. In turn, business scope expansion allows these firms to create new technological knowledge resources that support resumed international expansion. Generalizing this phenomenon, we argue that, in an age where firms need to navigate international contraction and expansion, contracting international presence in the short term does not only allow the expansion of business domains but also supports the expansion of international presence in the long term. Studying an extensive sample of public US‐based firms between 1997 and 2019 lends support to this view.