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CHAPTER 10
ENTERING FOREIGN MARKETS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. understand how institutions and resources affect the liability of foreignness.
2. match the quest for location-specific advantages with strategic goals (where to enter).
3. compare and contrast first-mover and late-mover advantages (when to enter).
4. follow the comprehensive model of foreign market entries (how to enter).
5. participate in three leading debates concerning foreign market entries.
6. draw implications for action.
GENERAL TEACHING SUGGESTIONS
As will be brought out in this chapter, answers to the When, Where, and How questions are vital
to successful entry into foreign markets. It may be useful for students to recognize that they do
not have to go overseas to see first hand how companies have successfully entered foreign
markets. After all, the U.S. is a foreign market to companies based in Europe and Asia but some
have been very successful in the U.S. Ask students to identify such companies and have them
relate chapter contents to those companies.
OPENING CASE DISCUSSION GUIDE
Emerging Markets: Wal-Mart’s Challenges in Brazil
Wal-Mart operates more than 6,000 stores in 26 countries outside the United States, including
Brazil. In Brazil, shoppers are buying only promotional items and purchasing all other items
elsewhere. Although other foreign businesses have thrived in Brazil, Wal-Mart continues to
struggle. Brazil is not the only country where Wal-Mart faces challenges. Regardless of its
expertise and many successes, Wal-Mart has withdrawn from several countries where it was not
able to succeed.
CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through VI of Chapter 10
I. OVERCOMING LIABILITY OF FOREIGNNESS
1. Key Concept
When entering foreign markets, firms confront liability of foreignness. Both institution-
and resource-based views cover how to overcome such liability.
2. Key Terms
None
II. WHERE TO ENTER?
1. Key Concept
Two sets of considerations drive the location of foreign entries: (1) strategic goals and
(2) cultural and institutional distances. Favorable locations provide location-specific
advantages. Firms’ strategic goals include seeking (1) natural resources, (2) market, (3)
efficiency, and (4) innovation.
2. Key Terms
Cultural distance is the difference between two cultures along identifiable
dimensions such as individualism.
Institutional distance is the extent of similarity or dissimilarity between the
regulatory, normative, and cognitive institutions of two countries.
Location-specific advantage is the benefits a firm reaps from the features specific to
a place.
III. WHEN TO ENTER?
1. Key Concepts
In regards to first- and late-mover advantages (when to enter), each has pros and cons,
and there is no conclusive evidence pointing in one direction.
2. Key Terms
First-mover advantage is benefits that accrue to firms that enter the market first and
that late entrants do not enjoy.
Late-mover advantage is benefits that accrue to firms that enter the market later and
that early entrants do not enjoy.
IV. HOW TO ENTER
1. Key Concept
How to enter depends on the scale of entry: large-scale versus small-scale entries. A
comprehensive model of foreign market entries first focuses on the equity (ownership)
issue. The second step focuses on making the actual selection, such as exports,
contractual agreements, JVs, or wholly owned subsidiaries.
Key Terms
Build-operate-transfer (BOT) agreement is a non-equity mode of entry 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.
Co-marketing is efforts among a number of firms to jointly market their products
and services.
Equity mode is a mode of entry (JVs and WOS) that indicates a relatively larger,
harder to reverse commitment.
Greenfield operation is building factories and offices from scratch (on a proverbial
piece of “green field” formerly used for agricultural purposes).
Joint venture (JV) is a new corporate entity created and jointly owned by two or
more parent companies.
Mode of entry is the method used to enter a foreign market.
Non-equity mode is a mode of entry (exports and contractual agreements) that
reflects relatively smaller commitments to overseas markets.
Research and development (R&D) contract is an outsourcing agreement in R&D
between firms.
Scale of entry is the amount of resources committed to entering a foreign market.
Turnkey project is a project in which clients pay contractors to design and construct
new facilities and train personnel.
Wholly owned subsidiary (WOS) is a subsidiary located in a foreign country that is
entirely owned by the parent multinational.
V. DEBATES AND EXTENSIONS
1. Key Concepts
The three leading debates are (1) liability versus asset of foreignness, (2) global versus
regional geographic diversification, and (3) old-line versus emerging multinationals.
2. Key Terms
Country-of-origin effect is the positive or negative perception of firms and products
from a certain country.
LLL advantages is a firm’s quest of linkage (L) advantages, leverage (L)
advantages, and learning (L) advantages. These advantages are typically associated
with multinationals from emerging economies.
VI. MANAGEMENT SAVVY
1. Key Concepts
From an institution-based view, managers need to understand the rules of the game, both
formal and informal, governing competition in foreign markets. From a resource-based
view, managers need to develop overwhelming capabilities to offset the liability of
foreignness.
Managers must learn to match market entry and geographic diversification with strategic
goals.
