Peng Chapter 10: Entering Foreign Markets PDF

CHAPTER 10: Entering Foreign Markets Wade C. Roberts, Ph.D. C211 GLOBAL BUSINESS INTRODUCTION… Course Mentor: Wade Roberts Education: PhD in Economics – University of Utah Expert Fields: Development, Labor, Public...

CHAPTER 10: Entering Foreign Markets Wade C. Roberts, Ph.D. C211 GLOBAL BUSINESS INTRODUCTION… Course Mentor: Wade Roberts Education: PhD in Economics – University of Utah Expert Fields: Development, Labor, Public, Health, Gender Current Research (Cambodia): Microfinance, Poverty, Inequality, Socioeconomics  LEARNING OBJECTIVES After studying this chapter, you should be able to: 10-1 Understand how institutions and resources affect the liability of foreignness. 10-2 Match the quest for location-specific advantages with strategic goals (where to enter). 10-3 Compare and contrast first-mover and late-mover advantages (when to enter). 10-4 Follow the comprehensive model of foreign market entries (how to enter). 10-5 Participate in three leading debates concerning foreign market entries. 10-6 Draw implications for action.  OVERCOMING THE LIABILITY OF FOREIGNNESS Liability of foreignness Inherent disadvantage foreign firms experience in host countries because of their nonnative status QUESTION: Thinking of a foreign firm that has recently started doing business in your home country, what are some of the assets and liabilities of foreignness it is facing? OVERCOMING THE LIABILITY OF FOREIGNNESS Resource-based view argues that foreign firms need to deploy overwhelming resources and capabilities to offset the liability of foreignness WHERE TO ENTER? Location-Specific Advantages and Strategic Goals Location-specific advantages Benefits a firm reaps from the features specific to a place Agglomeration Location-specific advantages that arise from the clustering of economic activities in certain locations CULTURAL/INSTITUTIONAL DISTANCES AND FOREIGN ENTRY LOCATIONS Cultural distance Difference between two cultures along identifiable dimensions such as individualism Institutional distance Extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries CULTURAL/INSTITUTIONAL DISTANCES AND FOREIGN ENTRY LOCATIONS Stage model Model of internationalization portraying slow step- by-step (stage-by-stage) process a firm must go through to internationalize its business WHEN TO ENTER? First-mover advantages Benefits that accrue to firms that enter the market first and that later entrants do not enjoy Late-mover advantages Benefits that accrue to firms that enter the market later and that early entrants do not enjoy HOW TO ENTER? Scale of entry Amount of resources committed to entering a foreign market Modes of entry Method used to enter a foreign market EQUITY VS NONEQUITY MODES Nonequity mode Mode of entering foreign markets through exports and contractual agreements that tends to reflect relatively smaller commitments to overseas Markets Equity mode Mode of entering foreign markets through JVs and wholly owned subsidiaries that indicates a relatively larger, harder-to-reverse commitment MAKING ACTUAL SELECTIONS Turnkey project Project in which clients pay contractors to design and construct new facilities and train personnel Build-operate-transfer (BOT) agreement Nonequity mode used to build a longer term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm MAKING ACTUAL SELECTIONS Co-marketing Efforts among a number of firms to jointly market their products and services Joint venture (JV) New corporate entity created and jointly owned by two or more parent companies Wholly owned subsidiary (WOS) Subsidiary located in a foreign country that is entirely owned by the parent multinational MAKING ACTUAL SELECTIONS Green-field operation Building factories and offices from scratch (on a proverbial piece of “green field” formerly used for agricultural purposes QUESTION: Which of these options would you select if you were entering a foreign market? LIABILITY VS ASSET OF FOREIGNNESS Country-of-origin effect Positive or negative perception of firms and products from a certain country