Country selection & entry modes Flashcards
liability of foreignness:
liability of foreignness: a liability foreign firms face as the geographic, economic, cultural, or administrative differences between the foreign market and the domestic market increase
ethnocentrism bias:
ethnocentrism bias: a bias indicating that customers prefer local brands over foreign brands and are willing to pay more for local brands even when the quality is inferior
A German study on foreign firms
foreign firms receive twice the press of domestic firms when downsizing staff, and the press coverage of foreign firms has a more negative tone than the coverage of local firms.
First-Mover Advantage:
First-Mover Advantage: The competitive edge gained by a company that is the first to enter a new market, allowing it to establish a leadership position, control critical resources, and create buyer-switching costs.
Market Leadership:
Market Leadership: The dominant position achieved by a first entrant, often by securing key assets like distribution channels or by building a strong brand presence.
Buyer-Switching Costs:
Buyer-Switching Costs: The costs (monetary or non-monetary) incurred by consumers when switching from one brand or product to another, often higher when the first-mover has established loyalty and network effects.
Network Effects:
Network Effects: The phenomenon where the value of a product or service increases as more people use it.
Equity modes:
Equity modes require a larger investment and engage the foreign firm in local operations. This increases the risk of the activity but also allows the firm to get close to customers and thus build better products. Equity modes include joint ventures and wholly owned subsidiaries, either greenfield projects or acquisition
Non-Equity modes
Non-equity modes typically carry less risk but also bring fewer rewards. They include the entry modes of exporting, turnkey operations, licensing, and franchising
Turnkey Operations:
Turnkey Operations: A project where a firm designs, constructs, and hands over a fully operational facility to a client.
Turnkey operations are common in industries deemed critical to national security or economy, such as nuclear power, oil refining, or chemical production.
Greenfield Projects:
Greenfield Projects: Establishing a new, from-scratch operation in a foreign market.
Advantages of exporting:
Low cost of market entry, Ease of Reaching Global Markets, Flexibility, Economies of Scale
Disadvantages of exporting:
Import tariffs, limited control, transportation costs, time and money required to transport goods, different wages/countries
Turnkey Operations advantages
Entry into Complex Markets, Access to High-Tech Industries
Turnkey Operation disadvantage
Lack of Long-Term Financial Interest, Creation of Competitors
