Discussion Questions

Within a company’s strategy for entering a foreign market, a major hurdle to be overcome by the multinational enterprise (MNE) in making a foreign market entry across Asia is the liability of foreignness. What is this and how can it be handled?

  • This is the disadvantage suffered by the MNE in the host country due to its non-native status. A major cause of the liability of foreignness is the differences in the business environments between home and host countries. The business environment has three major dimensions – economic, political-legal and social-cultural – which create a unique background in which business firms operate. Differences in the economic, political and legal systems in the host country as compared to the home country environment give rise to regulatory and operational risks arising out of trade and investment barriers between countries. The host country also has a different cultural environment and MNEs must adapt to these differences as well in order to survive and grow in the host country. Both case studies of this chapter provide insights into how leading firms handle this issue.

Why are some firms in Asia pushed into foreign markets if they have excess production capacity? What choices does the internationalizing firm then have to make?

  • This is not a uniquely Asian phenomenon, yet can be observed well in this region, given its extensive production focus and capabilities in most parts. This takes place when production capacity remains underutilized for domestic markets but can be used to enter a foreign market. Also, changing domestic market conditions and declining sales may propel a domestic player into foreign markets. The firm will need to make strategic choices of core competencies that allow it to enter which market, when, when and for what strategic goal. The chapter informs us, for example, that firms such as Microsoft Corporation (USA) and Infosys (India) from the software industry and Volkswagen and Toyota Motor Corporation from the automobile industry have penetrated the global market through products developed at home and marketed worldwide. Firms such as Toyota (Japan) have been able to enter the large markets of the United States by offering products that are superior and more reliable than those of their local USA rivals such as Ford Motor Company and General Motors.

The chapter informs with an example that firms investing in the information technology sector in India tend to choose two specific locations. What country- or region-specific advantages do they look for?

  • Firms investing in the information technology sector in India tend to choose two of the following locations: the northern cities of Delhi – Gurugram and Noida and the southern cities of Hyderabad, Chennai and Bengaluru. This is due to the benefits of agglomeration, which is defined as the clustering of economic activities in a particular region. These benefits are as follows:

i.    Knowledge spillovers between closely located firms as individuals move across jobs

ii.   Industry demand that creates a skilled labour force, which is mobile across the region

iii. The nature of the industry that creates a pool of specialized buyers and suppliers who also are located within the same region.