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The pulse of liability of foreignness : dynamic legitimacy and experiences effects in the German car market

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Author Info
Kaiser, Ulrich
Sofka, Wolfgang

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Abstract

Globalization has provided many companies with new opportunities for growth and efficiency. This requires them to operate successfully across cultural and social borders. These can be stumbling blocks to internationalization and have been found to cause frequent errors and delays for multinational companies. Such liabilities of foreignness are persistent in nature. We investigate the causes behind these detrimental effects. We identify two major factors conceptually: a lack of legitimacy in the host country on the demand side and a lack of responsiveness on the side of the multinational corporation. We test these hypotheses empirically using a comprehensive sample of the German car market, which is especially suitable due to its established domestic producers and international competitors. Our results suggest that the two factors interact. 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 ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-70.

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Date of creation: 2006
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Handle: RePEc:zbw:zewdip:5464

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

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

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  1. Studies on the automobile industry
References listed on IDEAS
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  1. 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.
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    Other versions:
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    Other versions:
  7. 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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  10. 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. [Downloadable!]
  11. 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 Journals, vol. 31(4), pages 573-589, December. [Downloadable!] (restricted)
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  13. Yves Doz & C K Prahalad, 1984. "Patterns of Strategic Control Within Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 15(2), pages 55-72, June. [Downloadable!] (restricted)
  14. William Newburry & Naomi A Gardberg & Liuba Y Belkin, 2006. "Organizational attractiveness is in the eye of the beholder: the interaction of demographic characteristics with foreignness," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 37(5), pages 666-686, September. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. Srilata Zaheer & Akbar Zaheer, 1997. "Country Effects on Information Seeking in Global Electronic Networks," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 28(1), pages 77-100, March. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
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  19. 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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