INTERNATIONAL BUSINESS-LEARNING JOURNAL

International Business- Learning Journal

International Business- Learning Journal

Introduction

This learning journal examines the transfer of local market knowledge within the diversified firm as its divisions expand into a new host country. Within the U.S.-based corporations in my sample, both the nature of local market knowledge itself and differences in organizational structures significantly influence the extent of internal knowledge transfer among divisions. The results suggest that as firms expand into new international markets, their organizational learning processes differ significantly.

When firms venture outside their home markets, they confront a number of obstacles to success. These "liabilities of foreignness" (Furuya, Stevens, Michael, Bird, Oddou, Mendenhall, 2009, 200-215) include high levels of uncertainty that impede effective decision-making, difficulties in dealing with local governments and local partners, and the myriad challenges of adapting products and processes to different cultural and national requirements. Diverse local tastes and preferences, languages and cultures, and business systems and practices increase the odds that foreign firms will make costly errors, encounter substantial delays, or otherwise struggle with their attempts to establish operations abroad. Many attempts to enter new host countries consequently result in prolonged poor performance or even eventual withdrawal. At the root of many of these difficulties is a foreign firm's lack of local market knowledge regarding the new country context. Local market knowledge is knowledge that is specific to a host country regarding its language, culture, politics, society, and economy (Furuya, Stevens, Michael, Bird, Oddou, Mendenhall, 2009, 200-215). Acquisition of local market knowledge is critical for the successful planning and implementation of almost all aspects of entry into a new host country.

Case Details

Because of the theoretical importance of acquiring local market knowledge during international expansion, a number of authors have described internationalization as a rich and complex process of organizational learning (Furuya, Stevens, Michael, Bird, Oddou, Mendenhall, 2009, 200-215). In this literature, however, the organizational learning process is typically discussed in broad, illustrative terms and is usually inferred rather than directly and empirically examined. Learning processes that are described as being complicated and arduous in theory most often are operationalized and measured using simple proxies - firms are treated as singular, homogeneous entities that 'learn' about a new international market as a function of the overall elapsed time or resources spent in a new country context. (Furuya, Stevens, Michael, Bird, Oddou, Mendenhall, 2009, 200-215)

As a result, local market knowledge that is described as extremely difficult and costly for a foreign firm to acquire initially is implied to be costlessly and effortlessly utilized throughout the firm once it is internalized by one of its divisions. As Furuya et al. (2009, pp.200-215) note, firms have incentives to internalize valuable intangible assets, such as local market knowledge, such that they, once internalized, have the characteristics of a public good and can be internally transferred at zero marginal cost to the firm. However, Furuya et al. also suggest that only a portion of local market knowledge can be treated as a public good that is readily transferable across divisions within a ...