Such entries viewed as “an option to maintain access to innovations resident in the host country, thus generating information spillovers that may lead to opportunities for future organizational learning and growth.”oImportant Note:L-S advantages may grow, change, and/or decline, prompting a firm to relocate.If policy makers fail to maintain the institutional attractiveness (e.g. raising taxes) and if companies overcrowd and bid up factor costs such as land and talents, some firms may move out of certain locations previously considered advantageous E.g. Chinese government has raised min. wages and tightened environmental regulationsAlso due to one child policy # of low-skill youth entering labour market has declinedThese changes = eroded the L-S advantages of coastal China centred on low costsAs result many labour-intensive, cost-conscious firms moved to inland China or SE Asia countriesCultural/Institutional Distances and Foreign Entry Locations
oCultural distanceDifference between two cultures along identifiable dimensions such as individualismoInstitutional DistanceThe extent of similarity or dissimilarity between the regulatory, normative, and cognitiveinstitutions of two countriesoCultural distance is a subsetof institutional distanceoTo overcome these distances, two schools of thought:Associated with the stage modelFirms will enter culturally similar countries during their first stage of internationalization and will then gain more confidence to enter culturally distantcountries in later stagesoE.g. Belgian firms enter France first or Mexican firms enter Texas to take advantage of common cultural and language traditionsOn avg. countries that share a language is 3x greater than b/w countries w/o a common languageOverall certain performance benefits seem to exist when competing in culturally & institutionally adjacent countriesMore important to consider strategic goals such as market and efficiency rather than culture and institutionsE.g. hostile Congress and unfriendly US media, many Chinese firms are eager to do business in the USob/c US is the largest market = cultural and institutional distances b/w China and US don’t seem to matter10-3 When to Enter?Entry timing refers to whether there are compelling reasons to be an early or late entrant in a particularcountryFirst-Mover AdvantagesoBenefits that accrue to firms that enter the market first and that later entrants do not enjoyE.g. Google in internet search engines “google it”oMay gain advantage through proprietary technologyE.g. Apple’s iPod, iPad, iPhoneoMay also make pre-emptive investments# of Japanese MNEs cherry picked leading local suppliers and distributors in SE Asia as new members of expanded Japanese businesses networks, and blocked access to suppliers and distributors by late entrants from the WestoMay erect significant entry barriers for late entrantsSuch as high switching costs due to brand loyaltyo
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