250 Part 2: Strategic Actions: Strategy Formulation
with Google for online and social media advertising, Mondelēz has to decide “if a brand
is a local, regional, or global priority and adjust spend accordingly.”^47
Next we discuss trends in the global environment that are affecting the choices firms
make when deciding which international corporate-level strategies to use and in which
international markets to compete.8-3 Environmental Trends
Although the transnational strategy is difficult to implement, an emphasis on global
efficiency is increasing as more industries, and the companies competing within them,
encounter intensified global competition. Magnifying the scope of this issue is the fact
that, simultaneously, firms are experiencing demands for local adaptations of their prod-
ucts. These demands can be from customers (for products to satisfy their tastes and
preferences) and from governing bodies (for products to satisfy a country’s regulations).
In addition, most multinational firms desire coordination and sharing of resources across
country markets to hold down costs, as demonstrated in the Opening Case on Netflix.^48
Because of these conditions, some large multinational firms with diverse products use
a multidomestic strategy with certain product lines and a global strategy with others when
diversifying geographically. Many multinational firms may require this type of flexibility
if they are to be strategically competitive, in part due to trends that change over time.
Liability of foreignness and regionalization are two important trends influencing a
firm’s choice and use of international strategies, particularly international corporate-level
strategies. We discuss these trends next.8-3a Liability of Foreignness
The dramatic success of Japanese firms such as Toyota and Sony in the United States and
other international markets in the 1980s was a powerful jolt to U.S. managers. This suc-
cess awakened U.S. managers to the importance of international competition and the fact
that many markets were rapidly becoming globalized. In the twenty-first century, Brazil,
Russia, India, and China (BRIC) represent major international market opportunities
for firms from many countries, including the United States, Japan, Korea, and members
of the European Union. In addition, emerging economies such as Indonesia, Malaysia,
Mexico, Colombia, Kenya, and Poland have shown rapid growth, internet penetration,
and improving rule of law.^49 However, even if foreign markets seem attractive, as appears
to be the case with the BRIC countries and other growing economies, there are legitimate
concerns for firms considering entering these markets. This is the liability of foreignness,^50
a 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.^51 Four types of distances
commonly associated with liability of foreignness are cultural, administrative, geographic,
and economic.^52
Walt Disney Company’s experience while opening theme parks in foreign coun-
tries demonstrates the liability of foreignness. For example, Disney suffered “lawsuits in
France, at Disneyland Paris, because of the lack of fit between its transferred personnel
policies and the French employees charged to enact them.”^53 Disney executives learned
from this experience and from building the firm’s theme park in Hong Kong, and the
company “went out of its way to tailor the park to local tastes.”^54 Thus, as with Walt
Disney Company, firms thinking about using an international strategy to enter foreign
markets must be aware of the four types of distances they’ll encounter when doing so
and determine actions to take to reduce the potentially negative effects associated with
those distances.