© 2013 Cengage Learning. All rights reserved. CHAPTER 10 GLOBAL2  PENG © Li Huang/ColorChinaPhoto/Li Huang/Newscom

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 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.

© 2013 Cengage Learning. All rights reserved. LO1: OVERCOMING LIABILITY OF FOREIGNNESS Firms need to take actions deemed legitimate by formal and informal institutions.

© 2013 Cengage Learning. All rights reserved. LO1: OVERCOMING LIABILITY OF FOREIGNNESS Firms offset liability by deploying overwhelming resources.

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. LO2: LOCATION-SPECIFIC ADVANTAGES AND STRATEGIC GOALS

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. LO3: FIRST- AND LATE-MOVER ADVANTAGES Location is only one aspect of entry decisions; entry timing and entry modes are also critical.

© 2013 Cengage Learning. All rights reserved. LO3: FIRST- AND LATE-MOVER ADVANTAGES

© 2013 Cengage Learning. All rights reserved. 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)

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. 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

© 2013 Cengage Learning. All rights reserved. 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

© 2013 Cengage Learning. All rights reserved. LO4: THE COMPREHENSIVE MODEL OF FOREIGN MARKET ENTRIES

© 2013 Cengage Learning. All rights reserved. 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.

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: SECOND STEP – MAKING ACTUAL SELECTION

© 2013 Cengage Learning. All rights reserved. LO4: MODES OF ENTRY

© 2013 Cengage Learning. All rights reserved. LO4: MODES OF ENTRY

© 2013 Cengage Learning. All rights reserved. LO5: MAKING ENTRY INTO FOREIGN MARKET SUCCESSFUL

© 2013 Cengage Learning. All rights reserved. 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.