Foreign Market Entries: An Overview Flashcards
Liability of Foreignness
“The inherent disadvantage foreign firms experience in host countries because of their nonnative status” (Peng, 2014).
(1) Numerous differences in formal and informal institutions govern the rules of the game in different countries. of which, local firms are already familiar with.
(2) Foreign firms are still discriminated against both informally and formerly. Coca Cola & Pepsi, were accused of containing pesticides in the water by Indian authorities. No indian firms were tested despite pesticides running in the water.
How to overcome?
Reply overwhelming R&C’s to offset the LOF and maintain a significant competitive advantage.
A model of foreign market entries
When set on internationalising, strategists must make decisions regarding the location, timing and mode of entry i.e the where, when and how aspects (2WIC).
Industry-based considerations
How an industry is structured and how its 5 forces can significantly affect foreign entry decisions:
(1) Firms in oligopolistic industries tend to match each other in foreign entries.
(2) The higher the entry barriers, the more intensely firms will compete abroad. Competing overseas is an entry barrier in itself and it is a good way to tap into overseas markets and increase sales.
(3) The bargaining power of suppliers may prompt certain foreign market entries often called backward vertical integration because they involve multiple stages of the value chain. Since natural resources are not always found in politically stable countries, many firms have no choice but to enter politically uncertain countries.
(4) The bargaining power of buyers may lead to certain foreign market entries often called vertical integration. For example, instead of working with retail chains, Apple has established a series of Apple store in major cities worldwide.
(5) The market potential for substitute goods may encourage firms to bring them abroad.
Resource-Based Considerations
(1) Value: It is often the superb value of firm-specify assets that allows foreign entrants to overcome the LOF e.g. StageCoach
(2) Rarity: The rarity of firm-specific bassets encourages firms that possess them to leverage such assets overseas, patents, brands etc. all protect the rarity of certain product features.
(3) Imitability: Dissemination risks are the risks associated with the unauthorised diffusion of firm-specific assets.
(4) The organisation of firm-specific resources and capabilities as a bundle, favours firms with strong complimentary assets integrated as a system and encourages them to utilise these assets overseas.
Institution-Based Considerations
(1) Regulatory risks: risks associated with unfavourable government regulations
(2) Obsolescing bargain: A deal struck by an MNE and a host government, which change the requirements after the entry of the MNE.
(3) Expropriation: Confiscation of foreign assets invested in one country.
(4) Sunk costs
(5) Trade barriers
