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Regional Dimensions of Liability of Foreignness: Between a Rock and a Hard Place?

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  • Wolfgang Sofka
  • Jörg Zimmermann

    ()

Abstract

In this paper we develop optimized localization strategies for multinational firms to overcome their liability of foreignness by adding a regional dimension. We explore conceptually whether economic stress in a region has a mitigating or reinforcing effect. We test this analytical framework empirically on the highly internationalized German car market and find that economically depressed regions are promising stepping stones into foreign markets.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group in its series Papers on Entrepreneurship, Growth and Public Policy with number 2007-12.

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Length: 28 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:esi:egpdis:2007-12

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Keywords: Liability of foreignness; multinational strategy; automotive market;

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References

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  1. Pinelopi Koujianou Goldberg & Frank Verboven, 2004. "Cross-country price dispersion in the euro era: a case study of the European car market," Economic Policy, CEPR & CES & MSH, vol. 19(40), pages 483-521, October.
  2. Berkovec, James & Rust, John, 1985. "A nested logit model of automobile holdings for one vehicle households," Transportation Research Part B: Methodological, Elsevier, vol. 19(4), pages 275-285, August.
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  5. Verboven, Frank, 2002. "Testing for 'Monopoly' Market Power When Products Are Differentiated in Quality," Manchester School, University of Manchester, vol. 70(1), pages 115-33, January.
  6. Pinelopi Koujianou Goldberg & Frank Verboven, 1998. "The Evolution of Price Dispersion in the European Car Market," NBER Working Papers 6818, National Bureau of Economic Research, Inc.
  7. Michael D Lord & Annette L Ranft, 2000. "Organizational Learning About New International Markets: Exploring the Internal Transfer of Local Market Knowledge," Journal of International Business Studies, Palgrave Macmillan, vol. 31(4), pages 573-589, December.
  8. Srilata Zaheer & Akbar Zaheer, 1997. "Country Effects on Information Seeking in Global Electronic Networks," Journal of International Business Studies, Palgrave Macmillan, vol. 28(1), pages 77-100, March.
  9. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  10. Petersen, Bent & Pedersen, Torben, 2002. "Coping with liability of foreignness: Different learning engagements of entrant firms," Journal of International Management, Elsevier, vol. 8(3), pages 339-350.
  11. Luo, Yadong & Shenkar, Oded & Nyaw, Mee-Kau, 2002. "Mitigating liabilities of foreignness: Defensive versus offensive approaches," Journal of International Management, Elsevier, vol. 8(3), pages 283-300.
  12. Miller, Stewart R. & Richards, Malika, 2002. "Liability of foreignness and membership in a regional economic group: Analysis of the European Union," Journal of International Management, Elsevier, vol. 8(3), pages 323-337.
  13. Brownstone, David & Bunch, David S & Train, Kenneth, 1999. "Joint mixed logit models of stated and revealed preferences for alternative-fuel vehicles," University of California Transportation Center, Working Papers qt45f996hh, University of California Transportation Center.
  14. Mezias, John M., 2002. "How to identify liabilities of foreignness and assess their effects on multinational corporations," Journal of International Management, Elsevier, vol. 8(3), pages 265-282.
  15. Frank Verboven, 2002. "Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 275-297, Summer.
  16. Guang Wan, 1998. "Nonparametric measurement of preference changes: the case of food demand in rural China," Applied Economics Letters, Taylor and Francis Journals, vol. 5(7), pages 433-436.
  17. Sofka, Wolfgang, 2006. "Innovation Activities Abroad and the Effects of Liability of Foreignness: Where it Hurts," ZEW Discussion Papers 06-29, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  18. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
  19. DeYoung, Robert & Nolle, Daniel E, 1996. "Foreign-Owned Banks in the United States: Earning Market Share or Buying It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 622-36, November.
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