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The Pulse of Liability of Foreignness: Dynamic Legitimacy and Experience Effects in the German Car Market

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Author Info
Ulrich Kaiser (University of Southern Denmark)
Wolfgang Sofka (Centre for European Economic Research)

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Abstract

Cultural and social borders can be stumbling blocks to internationalization (frequent errors, delays). We investigate the persistent roots of liability of foreignness and identify two major factors conceptually: a lack of host country legitimacy (demand side) and a lack of responsiveness on the side of the multinational corporation. Empirical testing for the German car market reveals an interaction between the two factors. For less experienced customer groups, we find that legitimacy is the dominant factor behind the effects of liability of foreignness. As customer experience increases, liability of foreignness caused by a lack of responsiveness becomes more of an issue.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2007-01.

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Length: 26 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:kud:kuieci:2007-01

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Related research
Keywords: liability of foreignness; internationalization strategy; globalization;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General

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This item is featured on the following reading lists:
  1. Studies on the automobile industry
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  6. Tobias Schmidt & Wolfgang Sofka, 2005. "Lost in Translation - Empirical Evidence for Liability of Foreignness as Barriers to Knowledge Spillovers," Industrial Organization 0512012, EconWPA. [Downloadable!]
  7. Brownstone, David & Bunch, David S. & Train, Kenneth, 2000. "Joint mixed logit models of stated and revealed preferences for alternative-fuel vehicles," Transportation Research Part B: Methodological, Elsevier, vol. 34(5), pages 315-338, June. [Downloadable!] (restricted)
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    Other versions:
  13. Gurhan-Canli, Zeynep & Maheswaran, Durairaj, 2000. " Determinants of Country-of-Origin Evaluations," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 27(1), pages 96-108, June.
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  16. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February. [Downloadable!] (restricted)
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    Other versions:
  19. Douglas Dow, 2006. "Adaptation and performance in foreign markets: evidence of systematic under-adaptation," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 37(2), pages 212-226, March. [Downloadable!] (restricted)
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