There is no Place Like Home: A Strategic Framework to Overcome Liability of Foreignness in the German Car Market
AbstractGlobalization 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.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0512003.
Length: 38 pages
Date of creation: 05 Dec 2005
Date of revision:
Note: Type of Document - pdf; pages: 38
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Liability of foreignness; automotive market; multinational strategy; seemingly unrelated regressions;
Other versions of this item:
- Sofka, Wolfgang & Zimmermann, Jörg, 2005. "There's no Place Like Home: A Strategic Framework to Overcome Liability of Foreignness in the German Car Market," ZEW Discussion Papers 05-84, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-BEC-2005-12-14 (Business Economics)
- NEP-EEC-2005-12-14 (European Economics)
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