New Horizons in International Business series
Edited by Masaaki Kotabe and Preet S. Aulakh
Chapter 8: Industrial Endowments in International Business: An Analytical Framework
8. Industrial endowments in international business: an analytical framework Yadong Luo INTRODUCTION Globalization has become a permanent and irreversible part of economic life. It provides ﬁrms with both tremendous opportunities and daunting challenges. International expansion has become a pervasive and prominent strategic response to global economic dynamics for a large array of companies. The need to simultaneously balance the dynamic tension between multiple forces (geographic, product, market, technological) has resulted in ﬁrms extending their presence all over the globe for a multitude of purposes and through a multitude of forms. Correspondingly, international expansion decisions and strategies have acquired increasing strategic signiﬁcance. International expansion is the process by which a multinational enterprise (MNE) enters and invests in a target foreign country in the pursuit of strategic objectives. Firms often expand internationally because of both ‘pull’ and ‘push’ factors. Firms are ‘pulled’ or attracted by the cost-side and/or revenueside beneﬁts derived from host country dynamics. Cost-side beneﬁts are generated from low-cost production factors and operational expenses. Revenue-side beneﬁts result from market demand growth in a foreign country. Although facing liabilities of foreignness, an MNE’s competitive advantages, manifested in strong technological and organizational skills, may enable the ﬁrm to pre-empt emerging investment opportunities and explore market potential. Other revenue-related beneﬁts include accessibility to scarce resources, preferential treatment for foreign direct investment (FDI), and learning or experience accumulation. Unlike ‘pull’ factors, which are related to the host country, ‘push’ factors are associated with the home, or source country, environment....
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