Question

The informational, political, and cultural disadvantages that foreign firms face when trying to compete against local firms in the host country market are referred to as ________.
a. opportunity costs

b. liability of foreignness

c. internalization disadvantages

d. the burden of internationalization

Answer 1

Answer:

B) Liability of foreignness

Explanation:

Liability of foreignness refers to the extra costs that a firm might incurr when operating in a foreign country.

This can results from a lack of knowledge of the host country's laws, regulations, culture, customs, etc.

For example, if an American company starts operations in for example, France, it will have to hire legal advisors, because the French legal system not only is different from Common Law in principle, but also because it is very complicated, with thousands of regulations. This represents a loss of competitiveness, and a handicap when competing against French companies.