The pulse of liability of foreignness: dynamic legitimacy and experiences effects in the German car market

Globalization has provided many companies with new opportunities for growth and efficiency. This requires them to operate successfully across cultural and social borders. These can be stumbling blocks to internationalization and have been found to cause frequent errors and delays for multinational companies. Such liabilities of foreignness are persistent in nature. We investigate the causes behind these detrimental effects. We identify two major factors conceptually: a lack of legitimacy in the host country on the demand side and a lack of responsiveness on the side of the multinational corporation. We test these hypotheses empirically using a comprehensive sample of the German car market, which is especially suitable due to its established domestic producers and international competitors. Our results suggest that the two factors interact. For less experienced customer groups, we find that legitimacy is the dominant factor behind the effects of liability of foreignness. As customer experience increases, liability of foreignness caused by a lack of responsiveness becomes more of an issue. --Liability of foreignness,internationalization strategy,globalization

Private Incentives to Innovate: Interplay of New Products and Brand-Name Reputation

This paper studies the introduction of new products (increase in product variety) in the automobile industry. The focus is on the two sources of market power that may allow the firms to get higher profits (and, thus, recoup investments): new products and brand-name reputation. The effects of new products on the private incentives to innovate are investigated on the basis of the dataset for the German car industry for 2003. The dataset is rather unique in the sense that it contains detailed information on the technical characteristics of cars, prices and sales as well as information on the introduction of new car models (including new variants and versions) into the German car market at a very disaggregate level. It has been found that both a new model and brand-name reputation may allow the innovative firms to get some market power and recoup their investments. Competition is, however, not localized within a market segment and the class of new or old models, i.e., products from different market segments, new and old products compete with each other (coexisting and not eliminating each other) and do not constitute separate market niches. On the other hand, new (old) models are perceived to be closer substitutes than old (new) models. Consumer preferences towards brand and new products vary depending on their age. --discrete choice models,automobile industry,new products,innovations,brandname reputation

Shattering the Myth of Costless Price Changes: Emerging Perspectives on Dynamic Pricing

In this paper we argue that pricing is all about price changes, and that the costs of price changes are often simultaneously subtle and substantial. We discuss a framework to deal with the dynamics of changing prices. This framework incorporates customer interpretations of price changes, an awareness of the organizational costs of price changes, investments in future pricing processes, and an understanding of the role that supply chains play in price change strategy. The framework can be used at the tactical level to improve the specific price changes chosen and made, at the managerial level to decide whether or not to make a particular price change at all, and at the strategic level to determine what price adjustment processes should be invested in to improve pricing effectiveness in the future.Menu Cost, Myth, Costly Price Change, Cost of Price Adjustment, Dynamic Pricing, Customer Cost of Price Adjustment, Organizational Cost of Price Adjustment, Managerial Cost of Price Adjustment, Supply Chain, Investment in Pricing Processes, Price Change Tactic, Price Change Strategy, Pricing Tactics, Pricing Strategy, Pricing Effectiveness

Increasing global competition and labor productivity: lessons from the U.S. automotive industry

Increasing global competition is changing the environment facing most companies today. As trade barriers fall and transaction costs decline, new global competitors are entering previously more isolated domestic markets. In response to this intensified competitive pressure, local companies are pushed to enhance performance by innovating and adopting process and product improvements. This domestic sector dynamic leads to higher productivity, which, in turn, can create sustainable competitive advantages for companies, as well as being the most important driver of job creation and per-capita income growth for the economy. This link has been established in McKinsey Global Institute’s extensive country productivity research. ; Our new study goes further than previous research by focusing on how increasing global competition leads to productivity growth, using the U.S. automotive manufacturing sector as a case example. More specifically, we have focused on the production of new vehicles in the U.S., including parts assembly. We have chosen this example because of the globally competitive nature of the automotive market and the size of the U.S. in this market over our period of analysis. As we shall see, some of the non-US original equipment manufacturers (OEMs) had clear productivity advantages which enabled them to create significant competitive pressure in the U.S. market.

Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers

State franchise laws prohibit auto manufacturers from making sales directly to consumers. This paper advocates eliminating state bans on direct manufacturer sales in order to provide automakers with an opportunity to reduce inventories and distribution costs by better matching production with consumer preferences.

There's no Place Like Home: A Strategic Framework to Overcome Liability of Foreignness in the German Car Market

Globalization has led to exciting new business opportunities around the globe. Still, national and cultural boundaries have not evaporated into a "borderless world". Several studies have identified so-called liabilities of foreignness that arise from a lack of embeddedness and roots in the host market and subsequent competitive disadvantages. Countervailing strategies for these effects have remained scarce so far. We suggest that this is due to the lack of a viable approach to identify and quantify these effects and develop a conceptual framework to empirically estimate the individual degree of liability of foreignness of a firm from a market perspective. We suggest that disruptive changes in a society change the dynamics of liability of foreignness and generate opportunities for foreign companies to optimize their localization strategies. We apply our approach to a large mature market with established international competition : the German new car market. For a comprehensive sample of roughly 1,400 car models from 2003 we estimate the relative turnover disadvantage for all major foreign manufacturers. We find that most foreign producers have managed to overcome liabilities of foreignness in Germany through firm-specific advantages. Still, some face significant challenges. A submarket analysis shows that home market advantages are more deeply rooted in the Western part of Germany and that foreign competitors find a more accessible competitive environment in Eastern Germany. Therefore, East Germany is a superior platform for deploying effective and efficient countervailing strategies. Moreover, we identify a broader rationale to engage early and decisively in untapped but promising markets like China. --Liability of foreignness,automotive market,multinational strategy,seemingly unrelated regressions

There is no Place Like Home: A Strategic Framework to Overcome Liability of Foreignness in the German Car Market

Globalization has led to exciting new business opportunities around the globe. Still, national and cultural boundaries have not evaporated into a borderless world. Several studies have identified so-called liabilities of foreignness that arise from a lack of embeddedness and roots in the host market and subsequent competitive disadvantages. Countervailing strategies for these effects have remained scarce so far. We suggest that this is due to the lack of a viable approach to identify and quantify these effects and develop a conceptual framework to empirically estimate the individual degree of liability of foreignness of a firm from a market perspective. We suggest that disruptive changes in a society change the dynamics of liability of foreignness and generate opportunities for foreign companies to optimize their localization strategies. We apply our approach to a large mature market with established international competition: the German new car market. For a comprehensive sample of roughly 1,400 car models from 2003 we estimate the relative turnover disadvantage for all major foreign manufacturers. We find that most foreign producers have managed to overcome liabilities of foreignness in Germany through firm-specific advantages. Still, some face significant challenges. A submarket analysis shows that home market advantages are more deeply rooted in the Western part of Germany and that foreign competitors find a more accessible competitive environment in Eastern Germany. Therefore, East Germany is a superior platform for deploying effective and efficient countervailing strategies. Moreover, we identify a broader rationale to engage early and decisively in untapped but promising markets like China.Liability of foreignness, automotive market, multinational strategy, seemingly unrelated regressions

Surge pricing on a service platform under spatial spillovers: evidence from Uber

Ride-sharing platforms employ surge pricing to match anticipated capacity spillover with demand. We develop an optimization model to characterize the relationship between surge price and spillover. We test predicted relationships using a spatial panel model on a dataset from Ubers operation. Results reveal that Ubers pricing accounts for both capacity and price spillover. There is a debate in the management community on the ecacy of labor welfare mechanisms associated with shared capacity. We conduct counterfactual analysis to provide guidance in regards to the debate, for managing congestion, while accounting for consumer and labor welfare through this online platform.First author draf

Artificial Intelligence (AI) and Business Innovation in Insurance: A Comparison of Incumbent Firms versus New Entrants

Artificial Intelligence (AI) systems evolve in response to new data by using adaptive algorithms. The insurance industry is data intensive, and dynamic. It is therefore particularly suitable for AI implementation. An innovation triangle framework is proposed that consists of product, process and value chain innovation. A comparison of leading incumbent insurance firms with new entrants illustrates significant competitive differences. The incumbents apply AI to defend their market positions by enhancing existing strengths and capabilities across the three innovation types. The new entrants exploit AI technology to build new products with innovative features that emphasise customer value and user experience. The innovation triangle is a useful managerial tool to analyse the nature and extent of innovation in insurance and can be used to evaluate and plan AI strategies by mapping existing AI initiatives to specific types of innovation and identifying innovation objectives and opportunities. Future trends and research opportunities are outlined

Revenue Management and Demand Fulfillment: Matching Applications, Models, and Software

Recent years have seen great successes of revenue management, notably in the airline, hotel, and car rental business. Currently, an increasing number of industries, including manufacturers and retailers, are exploring ways to adopt similar concepts. Software companies are taking an active role in promoting the broadening range of applications. Also technological advances, including smart shelves and radio frequency identification (RFID), are removing many of the barriers to extended revenue management. The rapid developments in Supply Chain Planning and Revenue Management software solutions, scientific models, and industry applications have created a complex picture, which appears not yet to be well understood. It is not evident which scientific models fit which industry applications and which aspects are still missing. The relation between available software solutions and applications as well as scientific models appears equally unclear. The goal of this paper is to help overcome this confusion. To this end, we structure and review three dimensions, namely applications, models, and software. Subsequently, we relate these dimensions to each other and highlight commonalities and discrepancies. This comparison also provides a basis for identifying future research needs.Manufacturing;Revenue Management;Software;Advanced Planning Systems;Demand Fulfillment