Country-of-Origin effect
Consumers’ attitudes, perceptions and purchasing decision are influenced by the country-of-origin of a product.
Key factors: brand image, cultural stereotypes
Strategic implications: can be leveraged by companies through branding and positioning.
Example: perceived quality of Swiss watchmakers → not necessarily better than dutch.
Liability of foreignness
Foreign firms face challenges and risks when operating in a new markets.
Key factors: cultural differences, lack of knowledge about local market and need for international coordination.
Implications: reduced performance, increased costs, decreased market share for foreign firms.
-> Can be mitigated through foreign market analysis.
5.1
Foreign Market Analysis — what is it and which factors determine foreign market selection?
Foreign Market Analysis helps firms select individual markets
factors for entry market selection:
(1) Market potential
market growth, market size, success factors, future market changes
(2) Levels of competition number of competitors, their capabilities, entry barriers, strengths/weaknesses of competitors
(3) Institutional environment
trade barriers, political conflicts, corruption, property protection
(4) Sociocultural influences (compatibility with home culture, demographics, country-of-origin effects, education; often difficult to quantify).
what should foreign market analysis consider?
Foreign market analysis should consider:
Costs Direct (costs to establish), Opportunity (could have earned …),
Benefits sales/profit, lower costs, economies of scale
Risks exchange rate fluctuations, operating complexity, direct financial losses
5.2
Timing of entry
Timing of entry depends on
(1) uncertainty & learning potential about a new market and
(2) the trade-off between cost of pioneering and risk of being too late.
Chronological order is affected by market size, competition, regulatory environment, and cultural differences.
Chronological sequences of foreign market entry — Waterfall vs. Sprinkler vs. Hybrid
Waterfall (gradual market entry): enter new markets one at a time in a sequential order.
Sprinkler (simultaneous market entry): enter multiple foreign markets at the same time.
Hybrid: enter one or a few key markets using waterfall and use experience to enter additional markets simultaneously.
Waterfall strategy — key idea, when appropriate, pros/cons
Sequential accumulation of market knowledge / reducing uncertainty.
Most appropriate for products with extended lifecycles (or maturity phase)
Extended period for establishing and growing a customer base
extensive market research / more room for adaptation.
Advantages: minimized risk, accumulating knowledge
Disadvantages: time-consuming, little room for failure.
Sprinkler strategy — key idea, considerations, pros/cons
Spread risk across multiple markets / create economies of scale.
Harnessing potentials by having greater risks (high risk–high reward).
Consider factors like cultural differences, regulations, competition.
Risk of poor performance in all markets because resources are spread too thin.
Advantages: get market share quickly, spread risk, opportunity to learn from multiple sources.
Disadvantages: need of many resources, increased complexity, lack of focus
Hybrid strategy — key idea, how to implement, pros/cons
Benefit from waterfall and sprinkler.
Choose first waterfall countries carefully (bridgehead countries) as they are the foundation.
Effective way to balance risk and reward.
Advantages: gain deep understanding of markets and build foundation, flexibility.
Disadvantages: complexity, increased risk if waterfall unsuccessful.
5.3
Timing Strategies (Relative) — overview
Timing can significantly impact success in a new market (e.g., ability to gain market share).
There is no one-size-fits-all timing strategy.
It’s important to understand pros/cons
Pioneer entry — definition, advantages, disadvantages (+ example)
Being first company to enter a new market.
Advantages: first-mover advantages: establish strong market power, brand presence, create entry barriers; head start on experience curve; establishment of customer contacts.
Disadvantages:significant costs; higher risks due to market uncertainty; operational risks; market development costs; cost of attracting customers.
Example: Starbucks in Japan.
Early follower entry — definition, advantages, disadvantages (+ example)
Entering new market after a pioneer has already established themselves.
Advantages: lower risk & lower costs, learn from pioneer’s experience and mistakes
Disadvantages: weaker brand recognition; fewer available resources; need for differentiation; entry barriers of pioneer;
Example: booking.com.
Late follower entry — definition, benefits, subtypes, pros/cons (+ example)
Entering a market after it has been established by a pioneer and one or more early followers.
Benefits from experiences and resources → can result in lower risks and costs.
Main subtypes:
Me-too strategy similar product/service;
advantages: lower R&D costs, less uncertainty
disadvantages: established competitors, price wars
Niche strategy specialized/unique offering filling a specific gap
advantages: opportunity in highly competitive markets, free price structuring,
disadvantages: entry barriers of established providers, risk of attracting larger competitors.
example: Ryanair.
internationalisation process
Uppsala Model (Internationalization)
Firms enter foreign markets in small steps to reduce uncertainty/risk.
Why step-by-step?
Learning by doing
Start with low commitment, then increase investment as knowledge grows
Typical stages: Export → Agent/distributor → Sales subsidiary → Production/foreign subsidiary
Idea: Some firms internationalize very fast, instead of slowly step-by-step (like in the Uppsala model).
They go abroad early
They can enter many foreign markets quickly
Criticism
It can ignore institutional/cultural factors (laws, norms, culture differences) that can slow firms down.
A Born Global is a company that is international from the start (or very early).
Typical Born Global characteristics:
Usually small, entrepreneurial
Often in knowledge-intensive industries (tech, specialized B2B, digital products)
INV theory = the explanation/framework
Born Global = an example/type of firm the theory describes
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