Companies Face Double-Edged Reality of Immersive Tech in Foreign Markets

Global businesses are embracing augmented reality (AR) and virtual reality (VR) to give potential customers a feel for their products before buying, whether virtually trying on a lipstick shade, exploring a brand’s world in Roblox or seeing how a new couch might look in your living room.

But getting it right in the virtual world doesn’t mean the same thing in every global market, a University of Maryland marketing professor found in new research.

It’s well established that multinational companies often struggle to compete against local businesses in overseas markets—a concept known as Liability of Foreignness (LOF)—and it turns out that the same disadvantages can apply to immersive technologies intended to break down traditional barriers, according to a University of Maryland-led study published last month in the Journal of International Business Studies.

Culture influences how people interact with so-called extended reality (XR) technologies, which makes it tough for multinational companies to have an XR approach that works well in every country, said lead researcher P.K. Kannan, Dean's Chair in Marketing Science at the Robert H. Smith School of Business.

“If you’re a firm coming into a local market, you have the liability of being a foreigner because you really don’t understand the cultural nuances and you might not be able to clearly communicate your value proposition in the way that the local culture will understand,” he said. “Basically what we are saying is don’t just take XR that has been developed for one market and just immediately assume it will work the same way in another market.”

Kannan and co-authors Hyoryung Nam Ph.D. ’12, now at Syracuse University, and Yiling Li and Jeonghye Choi at Yonsei University in Seoul, Korea, investigated XR marketing strategy in tech-savvy South Korea. “They are at the cutting edge of these applications in retail,” Kannan said. “They have many locally based companies, as well as foreign companies coming into market products.”

They teamed up with a market research company to study 257 beauty brands in South Korea over a three-year period from 2019-22, particularly how XR innovations affected brand engagement with foreign brands versus local brands.

They focused on “brand buzz”—how often a brand gets mentioned on social media, a key indicator of brand engagement. The team confirmed that LOF does exist in the virtual world for foreign firms, due to cultural mismatches in how people process information.

“If your XR is not really resonating with consumers, there won’t generate much brand engagement,” Kannan said.

The problems were especially apparent in cases where the XR applications created highly interactive, extremely vivid but less realistic experiences. For example, there’s a greater risk of cultural mismatch interacting with products in a fully imaginary, stylized virtual world than with a straightforward application that uses a person’s own image to try on makeup shades or fashion accessories.

But a very new brand or one introducing a new product is less likely to face LOF, Kannan said. “The uncertainty about something new takes over, making people more focused on experiencing the new brand or product rather than noticing cultural mismatches.”

The researchers also found that companies can avoid cultural mismatch problems through strategic marketing investments in local markets. Brands that have their own platforms that allow direct connections with local customers are far less likely to experience LOF.

Kannan offered the following recommendations for companies seeking to use XR to connect with customers in foreign markets:

1. Know the culture. “Understand the cultural norms and nuances of a new market before you enter it. Tailor your XR strategy to fit the local culture, ensuring it feels relevant and engaging for local consumers.”

2. Choose XR technology wisely: “Some XR technologies can be more challenging for foreign businesses. Highly interactive and imaginative XR, which often use more advanced technology, may increase the risk of cultural mismatches. If you’re not very familiar with the local market, start with simpler XR features and gradually introduce more advanced ones.”

3. Leverage newness: “For multinational companies, when you’re a new brand or introducing a new product, that comes with a unique advantage—people are more focused on experiencing something new. This gives you some room to introduce more advanced XR in foreign markets.”

4. Build a community: “Ensure that you get onto your own platform and start building brand communities around your product. That will help you in the long run to reduce the impact of the liability of foreignness.”

In general, having XR is better than not having it, said Kannan. But adopting it comes with risks. If you come up with the wrong technology and the wrong approach, it can harm your brand — sometimes even worse than not having XR at all.

“We find that companies that use XR generally perform better than companies that don’t use these technologies. But if you use it in the wrong way, it can harm your brand,” he said.