The complexity posed by differences in the cultural, political, legal, and economic environments creates a so-called “liability of foreignness.”This idea holds that foreign companies, because of their poorer familiarity with local conditions, incur additional costs. In theory, the liability of foreignness makes IB activity too expensive.In practice, companies offset this liability by capitalizing on their unique advantages as well as selecting the mode of international business that best reflects their resource profile and risk tolerance--Always in the effort toward minimizing the intrinsic higher costs of international operations.The higher costs of international operations, executives point out, are driven by things as varied as the cost of legally establishing businesses, real estate costs, customs duties, and translation costs.Managing these costs is complicated by the report that _53_______%___ of global CEOs are concerned about the impact of __bribery and corruption_______ on their organizations.Difficulty managing that threat, given the complexity of the _________ (liability of nativeness, liability of foreigness, or liability of naturalization) poses ongoing challenges to the cost of going global. GOING GLOBAL:WHAT CORPORATIONS SHOULD CONSIDER DURING GLOBALIZATIONAs businesses begin to think globally, they will face challenges andhurdles in their efforts to increase revenue and profits. In order tosucceed, businesses must overcome these challenges and adaptto new regulatory and competitive situations.COST OF GOING GLOBAL //III|/Costs vary by country and are constantly changing based on exchange rates and regulations, including:O COSTS OF LEGALLY ESTABLISHINGBUSINESS IN EXPANDING COUNTRYO EMPLOYEE WAGE AND BENEFITREQUIREMENTSO CORPORATE INCOME TAXESO REAL ESTATE COSTSO TRANSLATION COSTSO CUSTOMS DUTIESO UNION COSTS53%EASTERN EUROPE AND CENTRAL ASIAh3 OF GLOBAL CEDSARE CONCERNED ABOUTTHE IMPACT OF BRIBERYAND CORRUPTION ONTHEIR ORGANIZATIONSWERE RANKED AS THE MOST CORRUPT GLOBALREGIONS WITH 95% OF COUNTRIES IN THEREGIONS SCORING BELOW 50 OUT OF 100ON A CORRUPTION PERCEPTIONS SURVEYOVERCOMING EXPANSION CHALLENGES IFACTORS TO CONSIDER63%HAVE EUROPEAN OPERATIONS20%TOP REGIONS FOR U.S. EXPANSIONHAVE MIDDLE EASTERN OPERATIONS16%62%48%HAVE ASIAN OPERATIONSHAVE AFRICAN OPERATIONSHAVE LATIN AMERICAN OPERATIONSGUINEA #146 (RATED LAST)CHAD #145LIBYA #144WORST COUNTRIES FORINTERNATIONAL EXPANSIONMYANMAR #143HAITI #142FORBES 2014 BEST COUNTRIESFOR BUSINESS LIST 2014

The liabilities of foreignness is nothing but an additional costs that multinational enterprises…

The complexity posed by differences in the cultural, political, legal, and economic environments creates a so-called “liability of foreignness.” This idea holds that foreign companies, because of their poorer familiarity with local conditions, incur additional costs. In theory, the liability of foreignness makes IB activity too expensive. In practice, companies offset this liability by capitalizing on their unique advantages as well as selecting the mode of international business that best reflects their resource profile and risk tolerance--Always in the effort toward minimizing the intrinsic higher costs of international operations. The higher costs of international operations, executives point out, are driven by things as varied as the cost of legally establishing businesses, real estate costs, customs duties, and translation costs. Managing these costs is complicated by the report that _53_____%_ of global CEOs are concerned about the impact of bribery and corruption_ on their organizations. Difficulty managing that threat, given the complexity of the _____ (liability of nativeness, liability of foreigness, or liability of naturalization) poses ongoing challenges to the cost of going global.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The complexity posed by differences in the cultural, political, legal, and economic environments creates a so-called “liability of foreignness.”

This idea holds that foreign companies, because of their poorer familiarity with local conditions, incur additional costs. In theory, the liability of foreignness makes IB activity too expensive.

In practice, companies offset this liability by capitalizing on their unique advantages as well as selecting the mode of international business that best reflects their resource profile and risk tolerance--Always in the effort toward minimizing the intrinsic higher costs of international operations.

The higher costs of international operations, executives point out, are driven by things as varied as the cost of legally establishing businesses, real estate costs, customs duties, and translation costs.

Managing these costs is complicated by the report that _53_______%___ of global CEOs are concerned about the impact of __bribery and corruption_______ on their organizations.

Difficulty managing that threat, given the complexity of the _________ (liability of nativeness, liability of foreigness, or liability of naturalization) poses ongoing challenges to the cost of going global.

GOING GLOBAL:
WHAT CORPORATIONS SHOULD CONSIDER DURING GLOBALIZATION
As businesses begin to think globally, they will face challenges and
hurdles in their efforts to increase revenue and profits. In order to
succeed, businesses must overcome these challenges and adapt
to new regulatory and competitive situations.
COST OF GOING GLOBAL //III|/
Costs vary by country and are constantly changing based on exchange rates and regulations, including:
O COSTS OF LEGALLY ESTABLISHING
BUSINESS IN EXPANDING COUNTRY
O EMPLOYEE WAGE AND BENEFIT
REQUIREMENTS
O CORPORATE INCOME TAXES
O REAL ESTATE COSTS
O TRANSLATION COSTS
O CUSTOMS DUTIES
O UNION COSTS
53%
EASTERN EUROPE AND CENTRAL ASIA
h3 OF GLOBAL CEDS
ARE CONCERNED ABOUT
THE IMPACT OF BRIBERY
AND CORRUPTION ON
THEIR ORGANIZATIONS
WERE RANKED AS THE MOST CORRUPT GLOBAL
REGIONS WITH 95% OF COUNTRIES IN THE
REGIONS SCORING BELOW 50 OUT OF 100
ON A CORRUPTION PERCEPTIONS SURVEY
OVERCOMING EXPANSION CHALLENGES I
FACTORS TO CONSIDER
63%
HAVE EUROPEAN OPERATIONS
20%
TOP REGIONS FOR U.S. EXPANSION
HAVE MIDDLE EASTERN OPERATIONS
16%
62%
48%
HAVE ASIAN OPERATIONS
HAVE AFRICAN OPERATIONS
HAVE LATIN AMERICAN OPERATIONS
GUINEA #146 (RATED LAST)
CHAD #145
LIBYA #144
WORST COUNTRIES FOR
INTERNATIONAL EXPANSION
MYANMAR #143
HAITI #142
FORBES 2014 BEST COUNTRIES
FOR BUSINESS LIST 2014

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