Learning Objectives
• Discuss the concept of Liability of Foreignness
• Managing SA
• Impact on Performance
Overcoming the Liability of Foreignness
• The Liability of Foreignness - the inherent disadvantage foreign
firms experience in host countries because of their non-native
status
• Thus the MNE has to have stronger FSA than the domestic
firms in the host country
History of Emerging Country MNEs
(EMNEs)
• The phenomenon of enterprises originating from
developing countries investing abroad is not a recent
development with examples of Argentinean firms going
multinational at the end of the nineteenth century (Lall,
1983).
Mergers
Market and
Transactions Acquisitions
The Variety of Strategic Alliances (M&A)
Structuring of Alliance
Benefits of SA
• Share risk and costs, especially where
investments are high but outcome is uncertain
– E.g. innovation activity where R&D is an input
• Quicker development of capabilities to deliver
products and services
• Access to complementary resources, which
then allows focus on core competence
development rather than spread investments
ADVANTAGES DISADVANTAGES
Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international cooperative venture formation
(p. 101), Journal of International Business Studies, 25 (1): 91–113.
Stage One: To Cooperate or Not?
Can the firm enter the new market and DO IT
ALONE?
That is, compete and survive on pure market
transactions?
– Consider:
Competitors,
Market costs and liabilities,
Liability of foreignness
Stage One: To Cooperate or Not?
Can the firm enter the new market and DO IT ALONE?
That is, compete and survive on pure market
transactions?
– Considerations:
Competitors, reduce competition by joining with them
Market costs and liabilities, share costs and risks
Liability of foreignness - joining with a reputable local company
removes the liability of foreignness
An alliance can
SA in emerging markets
• Becomes necessity due to entry barriers in
emerging markets
Termination