...Liability vs. Asset of Foreignness Foreign firms face additional costs arising from distance. Of course, distance here dose not only mean the geographic distance, but also distance from different cultures, perceptions, institutions and rules. Geographic distance brings the most obvious impact. Foreign firms must undertake additional costs caused by transportation and communication. They are all about money and it’s tangible. But as the development of information and communication technology and globalization, this cost will keep reducing. Different cultures may increase the difficulty of understanding the practices in host countries. And also, it may increase the costs of internal governance. For example, Haier in America, at the beginning it was really in trouble about the reward system. In China, if an employee does a bad job, supervisor can criticize him/her in a public meeting, but in America, supervisors are not going to do this because you emphasize human rights so much. Then Haier changed its way. Instead, it began to praise ones who did good jobs. Another question comes. This made someone else to be jealous. Finally, it changed rewards to money. It took a long time to make it right. So this kind of things is always not to be educated, but to practice by yourself because we hold different philosophy. There are numerous differences in formal and informal institutions governing the rules of the game in different countries. While local firms are already well versed...
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