Advanced Search
MyIDEAS: Login

There is no Place Like Home: A Strategic Framework to Overcome Liability of Foreignness in the German Car Market

Contents:

Author Info

  • Wolfgang Sofka

    (Centre for European Economic Research ZEW , Mannheim, Germany)

  • Joerg Zimmermann

    (Max Planck Institute of Economics, Entrepreneurship, Jena, Germany)

Abstract

Globalization has led to exciting new business opportunities around the globe. Still, national and cultural boundaries have not evaporated into a borderless world. Several studies have identified so-called liabilities of foreignness that arise from a lack of embeddedness and roots in the host market and subsequent competitive disadvantages. Countervailing strategies for these effects have remained scarce so far. We suggest that this is due to the lack of a viable approach to identify and quantify these effects and develop a conceptual framework to empirically estimate the individual degree of liability of foreignness of a firm from a market perspective. We suggest that disruptive changes in a society change the dynamics of liability of foreignness and generate opportunities for foreign companies to optimize their localization strategies. We apply our approach to a large mature market with established international competition: the German new car market. For a comprehensive sample of roughly 1,400 car models from 2003 we estimate the relative turnover disadvantage for all major foreign manufacturers. We find that most foreign producers have managed to overcome liabilities of foreignness in Germany through firm-specific advantages. Still, some face significant challenges. A submarket analysis shows that home market advantages are more deeply rooted in the Western part of Germany and that foreign competitors find a more accessible competitive environment in Eastern Germany. Therefore, East Germany is a superior platform for deploying effective and efficient countervailing strategies. Moreover, we identify a broader rationale to engage early and decisively in untapped but promising markets like China.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/io/papers/0512/0512003.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0512003.

as in new window
Length: 38 pages
Date of creation: 05 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0512003

Note: Type of Document - pdf; pages: 38
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: Liability of foreignness; automotive market; multinational strategy; seemingly unrelated regressions;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Lenn Gomes & Kannan Ramaswamy, 1999. "An Empirical Examination of the Form of the Relationship Between Multinationality and Performance," Journal of International Business Studies, Palgrave Macmillan, vol. 30(1), pages 173-187, March.
  2. 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.
  3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  4. 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.
  5. 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.
  6. Markus Diehl, 2001. "International Trade in Intermediate Inputs: The Case of the Automobile Industry," Kiel Working Papers 1027, Kiel Institute for the World Economy.
  7. Kendall Roth & Allen J Morrison, 1990. "An Empirical Analysis of the Integration-Responsiveness Framework in Global Industries," Journal of International Business Studies, Palgrave Macmillan, vol. 21(4), pages 541-564, December.
  8. Jürgens, Ulrich, 2003. "Characteristics of the European automotive system: Is there a distinctive European approach?," Discussion Papers, Research Unit: Knowledge, Production Systems and Work SP III 2003-301, Social Science Research Center Berlin (WZB).
  9. 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.
  10. Zaheer, Srilata, 2002. "The liability of foreignness, redux: a commentary," Journal of International Management, Elsevier, vol. 8(3), pages 351-358.
  11. 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.
  12. Salvador Gil Pareja, 2001. "Pricing to market in European automobile exports to OECD countries: a panel data approach," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1845-1856.
  13. 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.
  14. Goldberg, Pinelopi Koujianou & Verboven, Frank, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 811-48, October.
  15. Sofka, Wolfgang & Schmidt, Tobias, 2004. "I Like The Way You Move: An Empirical Investigation into the Mechanisms Behind First Mover and Follower Strategies," ZEW Discussion Papers 04-87, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. 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.
  17. Warren J Bilkey & Erik Nes, 1982. "Country-of-Origin Effects on Product Evaluations," Journal of International Business Studies, Palgrave Macmillan, vol. 13(1), pages 89-100, March.
  18. 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.
  19. Eden, Lorraine & Molot, Maureen Appel, 2002. "Insiders, outsiders and host country bargains," Journal of International Management, Elsevier, vol. 8(4), pages 359-388.
  20. Alan M Rugman & Alain Verbeke, 1998. "Multinational Enterprises and Public Policy," Journal of International Business Studies, Palgrave Macmillan, vol. 29(1), pages 115-136, March.
  21. 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.
  22. Yves Doz & C K Prahalad, 1984. "Patterns of Strategic Control Within Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan, vol. 15(2), pages 55-72, June.
  23. Koolen, Simon & Taminiau, Yvette & Faber, Coen, 2005. "Monti and Market Dynamics:: The Strategy of a National Car Importer," European Management Journal, Elsevier, vol. 23(4), pages 413-425, August.
  24. 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.
  25. 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.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:0512003. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.