ENTERING FOREIGN MARKETS

LIABILITY OF FOREIGNNESS

the inherent disadvantage foreign firms experience in host countries because of their nonnative status differences in formal and informal institutions governing the rules of the game in different countries local firms are already well versed in these rules, but foreign firms have to learn the rules quickly foreign firms are often still discriminated against, sometimes formally and other times informally

WHERE TO ENTER?

location-specific advantages - favorable locations in certain countries may give firms operating there an advantage

agglomeration - beyond geographic advantages, location-specific advantages also arise from the clustering of economic activities in certain locations

natural resource seeking - resources are tied to particular foreign locations

WHERE TO ENTER?

innovation seeking - firms target countries and regions renowned for generating world-class innovations

market seeking - firms go after countries that offer strong demand for their products and services

efficiency seeking - firms single out the most efficient locations featuring a combination of scale economies and low-cost factors

Cultural/Institutional Distancesand Foreign Entry Locations

cultural distance - difference between two cultures along some identifiable dimensions (such as individualism)

institutional distance - extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries

stage models - school of thought that believes that firms will enter culturally similar countries during their first stage of internationalization and that they may gain more confidence to enter culturally distant countries in later stages

WHEN TO ENTER?

first-mover advantages - advantages thatfirst entrants into a market obtain and that later movers do not enjoy

first-movers - may also encounter significant disadvantages, which in turn become late-moveradvantages

HOW TO ENTER ?Equity vs Nonequity Modes

nonequity mode - exports and contractual agreements that tend to reflect relatively smaller commitments to overseas markets

equity mode - JVs and wholly owned subsidiaries indicative of relatively larger, harder to reverse commitments

Making Actual Selections

direct export - most basic mode of entry capitalizes on economies of scale in production concentrated in the home country and affords better control over distribution

indirect export - exporting through domestically based export intermediaries

licensing/franchising - agreement in which the licensor/franchisor sells the rights to intellectual property such as patents and know-how to the licensee/franchisee for a royalty fee

Making Actual Selections

turnkey project - projects in which clients pay contractors to design and construct new facilities and train personnel

build-operate-transfer (BOT) agreement - nonequity mode of entry used to build a longer term presence

R&D contract - outsourcing agreements in R&D between firms

Making Actual Selections

co-marketing - efforts among a number of firms to jointly market their products and services

joint venture - corporate entity formed and jointly owned by two or more parent companies

wholly owned subsidiary - entity that is controlled through the ownership of shares in the subsidiary by the parent entity

Making Actual Selections

green-field operation - wholly owned subsidiary created by building new factories and offices from scratch

acquisition - wholly owned subsidiary created through direct foreign investment