Question

__________ is the set of costs associated with various issues firms face when entering foreign markets, including unfamiliar operating environments; economic, administrative, and cultural differences; and the challenges of coordination over distances. a. Regionalization b. International risk c. Liability of foreignness d. Transnational risk

Answer 1

Option c. Liability of foreignness is the correct answer.

What is Liability of Foreignness?

(LOF) specifies the disadvantages that a corporation faces in a foreign country as a result of its foreign status. Because of differences between cultures, languages, conventions, rules, and market conditions, they are at a disadvantage. Foreignness liability introduces new issues for firms to comply with, costing them more fees and effort to run. Zaheer, S., created the phrase "Liability of Foreignness" in her foundational paper "Overcoming the Liability of Foreignness," published in the Academy of Management Journal in 1995.

Examples of LOF

Consider a foreign corporation starting a business in a host nation with a different culture, language, and legislation. In such a case, they must train their employees to acquire the fundamentals of the foreign language, tailor their products to meet local needs, and adjust their marketing techniques. All of them need additional fees for the company.

Therefore, Liability of Foreignness is the set of costs associated with various issues firms face when entering foreign markets, including unfamiliar operating environments; economic, administrative, and cultural differences; and the challenges of coordination over distances.

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