Hi, guys. Welcome back to Global Business Environment course two. This is module three part one. We're trying to understand in this module, how companies can and should adapt to foreign markets. When they enter them and as they expand to other countries around the world. And this is important for almost all companies to understand. Whether it be a small company trying to get its feet wet in a new country for the first time. Or whether it's a large existing multinational company who has experience in many countries, but making a decision to enter yet another new market. I want to try to present to you several concepts so we're all kind of have the same understanding before we get started. And the first concept I want to get out there to you to have in your minds clear is as we try to understand adaptations and why you would make them in foreign markets, is this key concept of liability of foreignness. When you hear the word liability, you might think of accounting term. Liabilities and assets. And a liability is a cost. And so in we, in international business we talk about the liability of foreignness, which is the cost of being foreign. And when you are a company that's headquartered in one country that decides to enter in another country, there are some inherent, or automatic costs that exist, that domestic or local firms are not going to have to face. You face costs at being foreign related to language, to politics, other institutions, to culture, to norms and values in the local market. As a foreigner, you don't have access to the knowledge and experience automatically that local firms would have. Think about a student who enters a university or college. Or other types of school in a foreign country. They enter and all the other local students have the advantage of being local. Of knowing the language, knowing the, the unwritten rules of the game that a foreign student may not know. And I see that with lots of students who take my classes. And maybe some of you listening are experiencing some of that just listening to me with some of my language that I use. and, so we all can probably relate to that in one way or another. That there are costs to being foreign. So the point is, companies have to have some advantage when entering a foreign market to overcome that cost. So for example, Ed, with the basket business, Rain Forest Baskets, has to have some reason, some advantage that allows him to take the, the baskets out of Panama into the united states. Some, perhaps it's having money. Capital, financial capital. That might be an advantage. It might be a brand name. It might be access to suppliers. And so any company that's entering a foreign country needs to have some advantage to help them overcome the cost of being foreign. And so now I'm going to move to another slide and talk to you a little bit more about this adaptation. Keeping in mind the idea of liability or cost of being foreign. I think if you thought about it for a minute. Why should companies adapt to foreign markets? Why shouldn't they just offer one product to the whole world? If you had a company and you created a, a great unique product, wouldn't you like to just offer that one product the same exact way to everyone in the world? Wouldn't that be a lot less expensive? A lot easier on you as a company? it's, it's clearly less expensive to standardize products to keep them the same all around the world. To run your company the same all around the world. That's the lowest cost way of doing business. And so companies who are trying to make a profit are clearly facing cost pressures. They want to achieve economies of scale in production. Adapting to an individual markets. Changing your product some requires reducing economies of scale. And even though companies would love to do that, we recognize that there are also pressures going in the opposite directions. And these are kind of opposing pressures to adapt. They need to adapt whether it be labeling in a foreign language, then you adapt to local regulations laws, about how they organize their company, how the product is sold, how it's advertised and marketed. The portion sizes for example, it needs to adapt the company, its product perhaps to religious norms and values depending on the product. So there are all types of reasons that a company would need to adapt. But the point you want to take is, the company is already facing costs from being foreign, and now it needs to try to fit in by spending even more money to overcome the cost of being foreign by adapting to local markets. It's not free to do that. Running a new advertising campaign, translating all the labeling to another language, all of that has costs. And so companies are constantly trying to figure out how to manage these opposing pressures while at the same time recognizing that they're operating in a foreign market. And so these are, are unique challenges to any company, and so we're going to talk a little bit more in this module about how companies deal with these opposing pressures, and give you some more examples about how they actually do it. So, this has been a great part one I hope for you, in Module III of Global Business Environment Course II. Thank you very much. See you back next time.
