(Zaheer, 1995) sources of LOF:
Main sources of LOF a company needs to take in toaccount before entering a market are spatial distance between mother company and subsidiaries, unfamiliarity with host-country environments, economic nationalism & lack of legitimacy in host countries,sales restriction imposed by home countries and exchange rates fluctuations.
From our point of view, we would recommend the Joint venture, as you keep the firm specific advantages and you benefitfrom the local firms knowledge of the host country and you minimize advertising cost and can use the suppliers and consumers network that is already in place. Sources of LOF as unfamiliarity withhost-country environments, economic nationalism & lack of legitimacy in host countries can then be minimized and easier to overcome as partnerships with local gives you more insight and you do not sufferfrom foreign ownerships restrictions. It can still lead to some conflicts and the risk is that your knowledge technology can be stolen.
Whereas Wholly owned enterprise through Acquisitions andGreenfields investments tend to be much more cost full and time consuming, not having as much impact on the LOF
15. The authors evoke the fact that companies can use their foreignness as acompetitive advantage. What would be the competitive advantages of foreign companies over local firms? (how can they use their own capabilities and resources as competitive advantage?)
LOF are bydefinition considered as disadvantages when entering a new market, turning them into advantages therefore seems more complicated. International experience and understanding of the adaptation necessity may helpthe intra firm processes and skills to attenuate LOF. Take into account these aspects in adequacy with IBE can be source of a competitive advantage as competitors may have neglected those aspects....