1. How do foreign firms suffer from liability of foreignness?
2. What does the institution-based view suggest about how a firm should address the liability of foreignness? What does the resource-based view advise?
3. ON CULTURE What risk does a firm take in putting strategic goals ahead of cultural distance?
4. Describe how four strategic goals may affect the decision of where to enter.
5. Summarize the advantages of being a first mover.
Answer:
6. How does a large-scale entry differ from a small-scale entry?
7. Devise your own example of how a firm may use its capabilities to overwhelmingly offset the liability of foreignness as it moves into a new foreign market.
8. Pick an industry in which firms from your country(USA) are internationally active. What are the top five most favourite foreign markets for firms in that industry? Why?
9. From institution-based and resource-based views, identify the liability of foreignness confronting MNEs from emerging economies interested in expanding overseas. How can such firms overcome them?
10. ON ETHICS: Entering foreign markets, by definition, means not investing in a firm’s home country. For example, Nissan closed factories in Japan and added a new factory in the United States. GM shut down factories at home but kept them open in Europe. What are the ethical dilemmas here?”
Expanding into foreign markets presents lucrative opportunities for firms seeking growth and global presence. However, it also comes with unique challenges, including the liability of foreignness. In this essay, we will explore how foreign firms suffer from liability of foreignness, the institution-based and resource-based views on addressing it, and the risks associated with putting strategic goals ahead of cultural distance. Additionally, we will discuss how strategic goals influence market entry decisions, the advantages of being a first mover, and the differences between large-scale and small-scale entries. Furthermore, we will present a case study illustrating how a firm can offset the liability of foreignness using its capabilities. Lastly, we will examine the top five favorite foreign markets for USA-based firms in a specific industry and the ethical dilemmas associated with foreign market entry.
Foreign firms often suffer from the liability of foreignness, which refers to the inherent disadvantage they face in a foreign market compared to local firms. This disadvantage arises due to cultural differences, unfamiliar institutional frameworks, regulatory hurdles, and the lack of established relationships with local stakeholders.
The institution-based view suggests that a firm should adapt its strategies and operations to the host country’s institutional environment. This involves complying with local regulations, building strong relationships with local partners, and investing in social legitimacy. On the other hand, the resource-based view advises firms to leverage their unique capabilities and resources to overcome the liability of foreignness. By relying on their core competencies, firms can establish a competitive advantage in the foreign market.
Putting strategic goals ahead of cultural distance can expose a firm to several risks. Neglecting cultural differences may lead to misunderstandings, miscommunications, and even offend local consumers. Moreover, ignoring cultural distance can hinder effective market entry strategies and negatively impact the firm’s reputation.
Four strategic goals, such as market expansion, diversification, cost reduction, and technological leadership, can significantly influence the decision of where to enter. For instance, if a firm aims for cost reduction, it may consider entering markets with lower labor and production costs. Conversely, firms pursuing technological leadership may prioritize countries with advanced research and development capabilities.
Being a first mover in a foreign market provides several advantages. It allows the firm to establish brand recognition, build customer loyalty, and capture a significant market share before competitors enter. Additionally, first movers can shape the market’s evolution, making it easier to adapt to changes and maintain leadership.
Large-scale entry involves making substantial investments and establishing extensive operations in the foreign market. This approach can lead to higher risks but offers the potential for greater rewards. On the other hand, small-scale entry involves a more cautious approach, allowing the firm to test the waters before committing significant resources.
Consider a tech company from an emerging economy planning to enter the European market. The firm possesses a unique capability in AI-driven data analytics. To offset the liability of foreignness, the company could collaborate with local research institutions or universities in Europe, thus gaining access to local talent and expertise. Additionally, forming strategic partnerships with European firms would help in building trust and understanding local market dynamics.
As of my last knowledge update in September 2021, the top five favorite foreign markets for USA-based technology firms were China, Japan, Germany, the United Kingdom, and Canada. These markets are attractive due to their large customer base, strong economic growth, technological advancements, and relatively favorable regulatory environments.
MNEs from emerging economies face institutional and resource-based challenges when expanding overseas. They may encounter regulatory complexities, cultural differences, and a lack of brand recognition. To overcome these liabilities, these firms should invest in understanding the local culture, establish strategic partnerships with local businesses, and emphasize their unique capabilities that can bring value to the foreign market.
Entering foreign markets can lead to ethical dilemmas for firms as they make decisions that affect their home country’s workforce and economy. Closure of domestic factories may result in job losses and economic hardships for local communities. Additionally, firms must consider the ethical implications of their actions on the environment, labor rights, and fair competition in the foreign market.
Foreign market entry offers promising growth prospects for firms, but it also brings challenges such as the liability of foreignness and ethical considerations. By adopting institution-based and resource-based strategies, understanding cultural differences, and aligning their market entry goals, firms can navigate these challenges successfully. Furthermore, strategic decision-making and ethical considerations are crucial in establishing a sustainable and responsible international presence.
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