NTB 280: International Business Environment
Q1. Please read the article, “Switzerland Luxury Timepieces.” After reading it, answer the following
How does Michael Porter’s Competitive Advantage of Nations (also called Porter’s Diamond) explain
how Switzerland has become a powerhouse in the manufacturer of luxury timepieces? Please use
specific items in the mini-case to demonstrate a complete understanding of Porter’s Diamond and
national competitiveness. As part of your answer, explain why Porter’s Diamond provides a “better”
understanding of trade than do absolute or comparative advantage.
Q2. Read the case, “Pierre LaPlace in China.” After reading it, answer the following questions:
2a. From a cross-cultural perspective where did Pierre go wrong? What are the sources of his cultural
conflict? Please be specific in your answer. The strongest answers will make connections to crosscultural theory and not just repeat statements from the case.
2b. Now make some recommendations to Pierre as to how he can better manage cross- cultural
differences in the future. The strongest answers will include insights from Chapter 8: Managing CrossCultural Differences.
Q3. Please watch this video on child labor in Bolivia from the New York Times. Note: You will need to
click the speaker icon on the New York Times website.
After watching the video answer these two questions:
3a. Explain how this video illustrates both the essence of an ethical/moral dilemma and the limitations
of cultural relativism.
3b. Now, explain how the Sustainable Development Goals can be solution to the ethical issues raised in
this video. As part of your answer, explain what the Sustainable Development Goals are and why the
eradication of poverty is goal #1.
Q4. This question is about the liability of foreignness.
Please explain why liability of foreignness is such an important concept for every manager in an
international business (including the CEO) to understand. Include in your answer a discussion of how the
liability of foreignness relates to the value chain as illustrated in our textbook Figure 13. 1. At this point
in the assignment, you know I am not interested in just having you give me a definition of either the
liability of foreignness or the value chain. You need to do more.
Once a company decides it wants to begin international operations, it must choose the
foreign markets it will enter and how it will do so. An external analysis is an important
first step in determining the attractiveness of foreign markets, and any such analysis
likely includes a full PEST (political, economic, sociocultural, and technological)
analysis. However, not all decisions are based solely on an opportunity. Sometimes
other forces and resources at the company level may keep firms out of or pull firms into
specific countries. These forces include the liability of foreignness, first-mover
advantages, and the need to follow customers into specific markets.
The Liability of Foreignness
The liability of foreignness describes the challenges multinational companies face when
entering and competing in foreign markets. This liability increases as the geographic, economic,
cultural, or administrative differences between the foreign market and the domestic market
increase.1 Companies doing business in countries that are geographically proximate, are
economically similar, share a common cultural base, and have few administrative differences—
such as Thailand and Laos, or the United States and Canada—face a small liability of
foreignness. Those doing business in the presence of large differences—such as Brazil and Saudi
Arabia, or Mexico and Turkey—are likely to face a large liability of foreignness.
As these differences grow, and particularly when working across very different languages and
cultures, global companies are more likely to face novel challenges in the foreign market, may
make poorer decisions, and face increased costs to coordinate activities with the foreign
division.2 Some common ways to measure different kinds of distance are found in Table 13.1.
The liability of foreignness is not just a challenge a company faces as it learns how to act and
react to the market. Customers, the media, and government officials in the new environment are
also more likely to be biased against firms perceived as foreign. For instance, recent research
founds that when firms such as BP engage in activities like reducing emissions in foreign
markets, locals are more likely to focus on the harm the foreign firm causes rather than on
actions the firm takes to reduce that harm.3 Moreover, customers often exhibit an ethnocentrism
bias, meaning they prefer and are willing to pay more for local brands even when the quality is
inferior,4 particularly when buying high-priced, infrequently purchased items like cars and
In addition to customer bias, foreign firms often face a bias in the media. Local media outlets
often are more negative in their coverage of foreign firms. A recent study in Germany
demonstrated that foreign firms receive twice the press of domestic firms when downsizing staff,
and the press coverage of foreign firms has a more negative tone than the coverage of local
firms.6 This media slant against foreign firms is another part of the liability of foreignness.
Finally, government officials are also likely to discriminate against foreign firms. A study of
corporate mergers in the European Union found that governments prefer that companies remain
domestically owned rather than foreign-owned, and officials can take actions that deter foreign
firms from attempting to acquire local firms, such as increasing regulations and proactively
looking for suitable domestic acquirers.7
Research suggests that minimizing the geographic, economic, cultural, or administrative
distances between a firm and a foreign market can help foreign firms succeed in new markets. In
other words, companies that pick foreign markets similar to their home markets are more likely
to succeed.8 Hence companies may enter countries that aren't ideal according to a traditional
PEST analysis but are similar to their own domestic environment, reducing the number of
adaptations they must make.
As an example, AJE Group is a multinational company based in Peru that sells alcoholic and
nonalcoholic beverages. Its flagship product is Kola Real, a cola beverage. The company was
founded in the late 1980s, when military and terrorist conflicts in Peru made it impossible for
established beverage companies like Coca-Cola and PepsiCo to distribute their products. For
instance, their delivery trucks and drivers were often seized and held for ransom. In the absence
of other cola products, the Añaños family began producing cola in their kitchen and distributing
it with an old pickup truck. The terrorists ignored them because of their small size and lack of
resources, which enabled them to maintain low costs and low prices. Their company quickly
grew and expanded into nearby countries such as Venezuela and Ecuador, where similar
distribution challenges and similarly price-sensitive customers existed. AJE then expanded to
distant markets but continued to seek those with similar infrastructure and customer challenges,
like Thailand, Nigeria, Indonesia, and Vietnam9 (see Figure 13.1).
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