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Chapter 10: Entering Foreign Markets
Chapter 10
Entering Foreign Markets
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
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.
Chapter Overview
Chapter 10, Entering Foreign Markets, begins by introducing the biggest hurdle firms
must overcome to go global—the liability of foreignness. This liability is manifested in at
least two ways. First, the rules of the game are different in different countries, and foreign
firms have to invest significant resources to learn these rules. Second, foreign firms are
often discriminated against—sometimes formally and other times informally. The
remainder of the chapter explores issues and strategies for clearing these hurdles. First,
the issue of where to enter a foreign market is discussed with respect to location-specific
advantages and issues of cultural and institutional distances. Second, the issue of when to
enter is explored, and the advantages and disadvantages of being a first-mover or late-
mover are discussed. Finally, the issue of how to enter is explored, focusing particularly
on scale and multi-step mode of entry decisions.
Opening Case Discussion Guide
Coca-Cola Pours into Africa
Founded in 1892, Coca-Cola first entered Africa in 1929. While Africa had always been
viewed as “backwater,” it has recently emerged as a major growth market commanding
strategic attention. Why does Coca-Cola show such strong commitments to Africa? Both
the push and pull effects are at work. The push comes from the necessity to find new
sources of growth for this mature firm, which has promised investors 7–9 percent
earnings growth. In 1998, its stock reached a high-water mark at $88. Can Coca-Cola’s
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Chapter 10: Entering Foreign Markets
stock reach higher? Its home markets are unlikely to help. Between 2006 and 2011, U.S.
sales declined for five consecutive years. In contrast, Coca-Cola is pulled by Africa,
where it has a commanding 29 percent market share.
In Africa, U.S.-style accusations of Coca-Cola’s alleged contribution to the obesity
problem are unlikely. After all, the primary concern in many communities is too few
available calories of any kind. However, this does not mean that Coca-Cola faces no
criticisms in Africa. It has to defend itself from critics who accuse it of depleting fresh
water, encouraging expensive and environmentally harmful refrigeration, and hurting
local competitors who hawk beverages. In response, Coca-Cola often points out the
benefits it has brought. In addition to the 65,000 jobs created directly, one million local
jobs are indirectly created by its vast system of distribution.
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2: Learning Objectives
LO1
Identify ways in which institutions and
resources affect the liability of foreignness.
3: Liability of Foreignness
4: Overcoming the Liability of Foreignness
5: Exhibit 10.1: Institutions, Resources, and
Foreign Market Entries
LO2
Match the quest for location-specific
advantages with strategic goals.
6: Factors for Choosing Foreign Entry
Locations
7: Exhibit 10.2: Matching Strategic Goals
with Locations
8: Ways to Overcome Cultural and
Institutional Distances
9: Entry Timings
LO3
Compare and contrast first-mover and late-
mover advantages.
10: Exhibit 10.3: First-Mover Advantages
and Late-Mover Advantages
LO4
List the steps in the comprehensive model
of foreign market entries.
11–12: Scale of Entry
13–14: Modes of Entry
15: Exhibit 10.4: Choice of Entry Modes:
Comprehensive Model
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Chapter 10: Entering Foreign Markets
16: Non-Equity Modes – Types of Exports
17–18: Non-Equity Modes – Types of
Contractual Agreements
19: Equity Modes
20: Exhibit 10.5: Modes of Entry:
Advantages and Disadvantages
LO5
Explain what you should do to make your
firm’s entry into a foreign market
successful.
21: Exhibit 10.6: Implications for Action
Key Terms 22–23: Key Terms
Summary 24–25: Summary