978-1305500891 Chapter 10 Lecture Note

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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expertise and many successes, Wal-Mart has withdrawn from several countries where it was not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.