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CHAPTER 10

GLOBAL2 PENG

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CHAPTER 10 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify ways in which institutions and resources affect the liability of foreignness.

2. Match the quest for location-specific advantages with strategic goals.

3. Compare and contrast first-mover and late-mover advantages.

4. List the steps in the comprehensive model of foreign market entries.

5. Explain what you should do to make your firm’s entry into a foreign market successful.

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LO1: LIABILITY OF FOREIGNNESS

The inherent disadvantage foreign firms experience in host countries because

of their nonnative status.

Differences in formal and informal institutions. Discrimination against foreign firms.

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LO1: OVERCOMING LIABILITY OF FOREIGNNESS

Firms need to take actions deemed legitimate by formal and informal institutions.

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LO1: OVERCOMING LIABILITY OF FOREIGNNESS

Firms offset liability by deploying overwhelming resources.

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LO2: LOCATION-SPECIFIC ADVANTAGES

Location-specific advantages – benefits a firm reaps from features specific to a place.

Agglomeration is location-specific advantages that come about from clustering of economic activities.

Given that different locations offer different benefits, it is imperative that a firm match its

strategic goals with potential locations.

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LO2: LOCATION-SPECIFIC ADVANTAGES AND STRATEGIC GOALS

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LO2: STRATEGIC GOALS

Natural resource seeking Firms have to go to a specific location

where particular resources are found.

Market seeking Firms go to countries that have strong

demand for their products and services.

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LO2: LOCATION-SPECIFIC ADVANTAGES AND STRATEGIC GOALS

Efficiency seeking Firms single out the most

efficient locations featuring combination of scale economies and low cost-factors.

Innovation seeking Firms target countries and regions

renowned for generating world-class innovations.

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LO2: CULTURAL/INSTITUTIONAL DISTANCES

Entry location depends on

Cultural distance - difference

between two cultures along

identifiable dimensions. Ex: individualism.

Institutional distance –similarity or dissimilarity

between regulatory,

normative, and cognitive

institutions.

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LO3: FIRST- AND LATE-MOVER ADVANTAGES

Location is only one aspect of entry decisions; entry timing and entry

modes are also critical.

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LO3: FIRST- AND LATE-MOVER ADVANTAGES

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LO3: FIRST-MOVER ADVANTAGES Proprietary technology Preemptive investments Establish entry barriers for late entrants Avoidance of clash with dominant firms at home Relationships and connections with key stakeholders (customers, governments)

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LO3: LATE-MOVER ADVANTAGES

Free ride on pioneering investment of first movers First movers face greater technological and market uncertainties. First movers may be inflexible.

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LO4: HOW TO ENTER?Scale of entry – amount of resources committed to

entering a foreign market. Large-scale entries:

Demonstrate strategic commitment to certain markets, assuring local customers and suppliers for the long haul

Deter potential entrants Hard-to-reverse strategic commitments Limit strategic flexibility elsewhere and incur

huge losses if these large-scale “bets” turn out wrong

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LO4: HOW TO ENTER?

Scale of entry – amount of resources committed to entering a foreign market.

Small-scale entries: Less costly Focus on organization learning Limit downside risk Lack of strong commitment may lead to

difficulties in building market share and capturing first mover advantages

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LO4: THE COMPREHENSIVE MODEL OF FOREIGN MARKET ENTRIES

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LO4: FIRST STEP – EQUITY VS. NON-EQUITY MODES

Equity mode – include JVs and WSOs; larger, hard-to-reverse commitments. Calls for the establishment of independent organizations overseas. Non-equity mode – includes exports and contracts; tend to be smaller commitments.

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: SECOND STEP – MAKING ACTUAL SELECTION

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LO4: MODES OF ENTRY

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LO4: MODES OF ENTRY

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LO5: MAKING ENTRY INTO FOREIGN MARKET SUCCESSFUL

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DEBATE: DUMPING AND ANTIDUMPING

Dumping is defined as an exporter (1) selling abroad below cost and (2) planning to raise prices after eliminating local rivals.

Some would argue that antidumping laws are simply protectionist measures.Others might suggest that foreign firms might use dumping to drive out local competition then raise prices again.