What is the main reason why formal institutions limit alliances and acquisitions in the areas of formal market entry modes?
A) Many governments discourage acquisitions in order to establish local-only subsidiaries.
B) The liability of foreignness is guaranteed to make the alliances or acquisitions fail.
C) The governments are unable to tax acquisitions by foreign firms.
D) The institutions do not limit the firms in regards to entry modes.

Question

Quizplus · Accepted Answer

Many governments may require foreign firms to establish local-only subsidiaries in order to protect local businesses and markets. This can limit the ability of foreign firms to engage in acquisitions or alliances as a means of entering the market. Many governments may discourage acquisitions by foreign firms in order to establish local-only subsidiaries, as they believe this helps to build up their own domestic industries and protect local firms from foreign competition. Formal institutions may limit alliances and acquisitions as a result of these government policies. Option B is incorrect because the liability of foreignness is a challenge that foreign firms face when entering new markets, but it is not a reason why formal institutions limit alliances and acquisitions. Option C is incorrect as governments are usually able to tax acquisitions by foreign firms. Option D is also incorrect, as institutions do have an impact on the entry modes that firms choose, and therefore may limit them in certain ways.

What Is the Main Reason Why Formal Institutions Limit Alliances