© 2010 Cengage Learning. All rights reserved. CHAPTER 10 GLOBAL t PENG © 2010 Cengage Learning. All rights reserved.

Chapter 10 LEARNING OBJECTIVES After studying this chapter, you should be able to: Identify ways in which institutions and resources affect the liability of foreignness. Match the quest for location-specific advantages with strategic goals. Compare and contrast first- and late-mover advantages. List the steps in the comprehensive model of foreign market entries. Explain what you should do to make your entry into a foreign market successful. © 2010 Cengage Learning. All rights reserved.

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. © 2010 Cengage Learning. All rights reserved.

LO1: OVERCOMING LIABILITY OF FOREIGNNESS According to the Institution-based view, firms need to take actions deemed legitimate by formal and informal institutions. Differences in formal institutions may result in regulatory risks, or trade and investment barriers. Numerous differences in cultures, norms and values create another major source of liability of foreignness. According to the Resource-based view, a firm offsets the liability by deploying overwhelming resources and capabilities. © 2010 Cengage Learning. All rights reserved.

LO2: LOCATION SPECIFIC ADVANTAGES AND STRATEGIC GOALS Location-specific advantages are the benefits a firm reaps from features specific to a particular place. Given that different locations offer different benefits, it is imperative that a firm match its strategic goals with potential locations. There are four strategic goals: Natural resource seeking: Firms seeking natural resources have to go to particular foreign locations where those resources are found. 2. Market seeking: Firms go to countries that have a strong demand for their products and services. 3. Efficiency seeking: Firms single out the most efficient locations for a combination of scale economies and low cost factors. 4. Innovation seeking: Firms target countries and regions renowned for generating world-class innovations. © 2010 Cengage Learning. All rights reserved.

LO2: CULTURAL/INSTITUTIONAL DISTANCES AND FOREIGN ENTRY LOCATIONS Cultural distance - difference between two cultures along identifiable dimensions. Ex: individualism. Institutional distance – the extent of similarity or dissimilarity between regulatory, normative and cognitive institutions of two countries. Stage model – suggests that firms enter culturally similar countries first. Alternative model – highlights importance of strategic goals rather than culture and institutions. © 2010 Cengage Learning. All rights reserved.

LO3: FIRST- AND LATE-MOVER ADVANTAGES © 2010 Cengage Learning. All rights reserved.

LO4: STEPS IN THE COMPREHENSIVE MODEL OF FOREIGN MARKET ENTRIES The first step: considerations for large-scale vs. small-scale entries usually boil down to the issue of equity (ownership). Non-equity modes tend to reflect relatively smaller overseas commitments, while equity modes are indicative of larger, harder-to-reverse commitments. The distinction between equity and non-equity modes is what defines an MNE: An MNE enters foreign markets via equity modes through foreign direct investment. The second step: managers consider variables within each group of non-equity and equity modes. © 2010 Cengage Learning. All rights reserved.

DEBATE: GLOBAL vs. REGIONAL GEOGRAPHICAL DIVERSIFICATION The majority of the largest MNEs are not global in their geographical scope. Should most MNEs further globalize? © 2010 Cengage Learning. All rights reserved.

LO5: MAKING ENTRY INTO FOREIGN MARKET SUCCESSFUL © 2010 Cengage Learning. All rights reserved.