The Pulse of Liability of Foreignness: Dynamic Legitimacy and Experience Effects in the German Car Market

31 Pages Posted: 31 Oct 2006 Last revised: 26 Aug 2008

See all articles by Ulrich Kaiser

Ulrich Kaiser

University of Southern Denmark - Faculty of Social Sciences; Center for Economic and Business Research (CEBR); Centre for European Economic Research

Wolfgang Sofka

Tilburg University; CentER; CIR

Date Written: October 2006

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.

Keywords: Liability of foreignness, internationalization strategy, globalization

JEL Classification: F23, L62, M10

Suggested Citation

Kaiser, Ulrich and Sofka, Wolfgang, The Pulse of Liability of Foreignness: Dynamic Legitimacy and Experience Effects in the German Car Market (October 2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-070. Available at SSRN: https://ssrn.com/abstract=941371 or http://dx.doi.org/10.2139/ssrn.941371

Ulrich Kaiser (Contact Author)

University of Southern Denmark - Faculty of Social Sciences ( email )

Campusvej 55
DK-5230 Odense M
Denmark

HOME PAGE: http://www.sam.sdu.dk/staff/uka

Center for Economic and Business Research (CEBR) ( email )

Porcelaenshaven, Bldg 65
DK-2000 Frederiksberg
Denmark

HOME PAGE: http://www.cebr.dk/uk

Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

HOME PAGE: http://www.zew.de/de/mitarbeiter/mitarbeiter.php3?action=mita&kurz=uka

Wolfgang Sofka

Tilburg University ( email )

Netherlands

CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

CIR ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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