The hidden costs of going global: insights from firms' entry into foreign markets

Recent literature on strategic decision-making highlights the role of hidden costs, i.e. costs that firms are not able to predict ex-ante (Larsen et al., 2012). This paper analyses the hidden costs of going global, i.e. unanticipated costs that emerge in the implementation of market entry strategies. Foreign market entry requires firms to assess the potential attractiveness of different locations, select an appropriate entry mode, and organize their international value chain. When taking such decisions, firms can make evaluation mistakes. We propose that cultural distance is one factor that generates “blind spots” in a firm’s strategic analysis, thus affecting its ability to evaluate the actual challenges of entering foreign markets. Firms can offset distance-driven hidden costs by building international experience and relational capability.