Question

International Business:

Question 2.

Describe the “first mover advantage” in new foreign or domestic expansion and/or investment.

Answer 1

There can be several ways in which international or domestic expansion provides a first-mover advantage. Consider two firms looking to set up a factory in Country X. Now there are two types of land, one very close to the market and the other in an isolated area. The first mover can take advantage of the land located close to the market and reduce its transportation costs. In international expansion, the first more can also attract a lot of tax breaks from the governments of those countries. The first mover also has more time to generate a brand name in international markets which can especially useful if people don't switch easily. If the first mover generates enough profits, it may even be in a position to restrict the entry of the second firm by aggressive cost-cutting - incurring short term losses but maximizing the profits in the long run. Overall, first move advantage can often be the difference between a successful and an unsuccessful expansion.