Why Your Favorite App May Fail Abroad

As an active social media user, I often see content created by people on the other side of the world. For example, when I browse Instagram and TikTok, I regularly interact with posts from European influencers promoting products and services. Ultimately, mobile apps and platforms place the world directly into our hands as consumers.

On the other hand, this global reach can also cause trepidation in foreign markets, ringing true in real-time with the on-going battle between Capitol Hill and TikTok. Citing fears of unprotected user data, the U.S. is making efforts to force the app from the American market.

Many successful mobile apps that we utilize regularly are available in over a hundred countries. Complementors, or app developers, distribute their apps to users around the world to access international markets, even without a physical presence in the foreign country itself. Apple complementors, for example, have wide access as their mobile apps reach users in 175 countries.

Mobile platforms provide benefits to mobile app startups – accessibility to other countries, cultures, and perspectives – by helping them reach wider audiences and accelerate growth. However, this internationalization comes with a catch, as surviving in foreign markets is incredibly challenging. Local knowledge still matters. For instance, an American (domestic) complementor competing in the Canadian (foreign) market would be at a great disadvantage without experience in or knowledge of the market. This disadvantage is referred to as foreignness liability.

In “Foreignness Liability of Mobile App Startups: Examining Performance in the Context of Consumer and Investor Cultural Distance,” Varun Grover (University of Arkansas) and Franck Soh (University of North Carolina at Greensboro), a Walton College alumnus, uncover the joint effects of environmental characteristics, and startup- and investor-consumer cultural distance on mobile app startups performance in foreign countries.

Subjective Success

Concerning foreignness liability, internationalization has varying rates of success. Perhaps it is because that greater performance in foreign countries requires a combination of cultural distance and a dynamic and generous environment. A beneficial cultural distance calls for both the startup’s complementor and investors cultural proximity to the foreign country. While researchers believe this tactic increases confidence in supporting and developing app features, it does not always work.

Despite its uncertain future in the United States, TikTok’s success in America is likely due to its cultural proximity through financial backing by U.S. investors. TikTok’s success is also partially thanks to both its American and Chinese versions, as well, two of the many countries in which it is consistently ranked among the top free entertainment apps.

On the other hand, some popular apps don’t see the same kind of international success that TikTok has had. Despite great efforts to increase consumers in foreign countries, the Chinese multimedia group Tencent’s internationalization of WeChat failed in many countries, including the U.S., due to opposing needs and preferences. U.S. users tend to dislike super apps (apps that provide multiple services on a single platform) like WeChat, and it lacked a localization investment at the time of internationalization. 

Moreover, mobile platform markets are extremely competitive. There were almost two million apps in the Apple Store in 2020 alone. This huge number makes consumer awareness of new or available foreign apps challenging. What’s more, anti-globalization movements like digital protectionism, digital nationalism and data privacy violations affect success  in foreign countries.

Foreign Distance and Performance

Many factors explain the differences in app performance, such as editorial recommendations and release timing, but they lack relevancy to the cultural distance between the domestic and foreign countries of startups – what Grover and Soh believe to be the greatest impact. Therefore, to uncover the effect of foreignness liability on startups, this study unpacks how firm internationalization, mobile platform internationalization, and cultural distance impact performance in foreign markets.

Firm internationalization is when a mobile app platform extends its operations to foreign countries, occurring primarily through FDI (foreign direct investments) tactics, like recruiting employees or acquiring assets in that specific country. Internationalization is positively related to performance in developed and factor-driven, high-growth emerging economies, but has a negative relation in developing and institution-driven, high-growth emerging economies.

TikTok performs well in the U.S. because of its developed and high-growth economy. Moreover, it underperforms – or is completely banned – in developing and institution-driven countries like Afghanistan and India. Digital performance in international markets similarly depends on the foreign country’s development level.

Despite the ease and lack of geographical divides, app developers must be aware of the economic and environmental states of foreign countries to understand their performance in their markets. For example, some countries have tariff or subsidy policies to protect the market from foreign competition. Some countries are more welcoming to foreign app developers from a developing country or share the same language with consumers. And, finally differences in social values, norms, preferences, religions, languages, and ethnicities between a startup’s domestic and foreign countries may also affect performance.

To perform well in a foreign market requires that developers understand how this culture and market differ from their domestic market. Some argue that firms with minimal distance (proximity) experience fewer barriers in foreign markets. Others believe performance benefits from the creativity and innovation that cultural distance provides. However, these findings are conditioned upon the physical presence of a complementor in the foreign country itself.

For example, there are many American-based app startups supported by Chinese investors, like Snap and Airbnb. As WeChat expanded beyond messaging features to include games to appeal to China’s market, Snap did the same. By doing so, Snap hopes to stand out from its domestic and international competition.

Entering the Playing Fields

Grover and Soh’s research guides mobile app startups to maximize app performance in foreign countries by seeking the right investors based on the culture of the investors’ home country and the environmental characteristics of the target foreign country. They found that, when the environment in the foreign country is stable, mobile app startups with cultural proximity to the foreign country should diversify their investor portfolio, including at least one investor that is culturally close to the foreign country. Conversely, in dynamic, complex, and munificent environments abroad, mobile app startups should pursue a combination of cultural proximity and distance when selecting investors.

“Explaining app performance heterogeneity in foreign countries is crucial for ensuring the financial success of the mobile app startup,” Grover says. “We provide platform-wide evidence of the impact of cross-country cultural distance on app performance in foreign countries.” Mobile app startups can better understand the fairness of the internationalization playing fields when competing in foreign countries, as well as the implications beyond the world of mobile apps.

Ironically, whether studying the performance of mobile app startups or any other industry, the same recommendations can hold for selling any product: know the audience, identify the cultural background, gain the attention of consumers, understand the demand of consumers, and acknowledge the environmental characteristics.