A Guide For Using VR, AR Technology in Foreign Markets

Global businesses are embracing augmented reality (AR) and virtual reality (VR) to connect with consumers around the world. The technologies offer new ways to get a feel for products before buying — for everything from 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, finds Smith marketing professor P.K. Kannan in new research.

Culture influences how people use these innovative extended reality (XR) technologies, so the way consumers interact with the technology can vary by country. That makes it tough for multinational companies to have an XR approach that works well everywhere, says Kannan.

In new research published in the Journal of International Business Studies, Kannan and his co-authors (Hyoryung Nam, PhD ’12, now at Syracuse University; and Yiling Li and Jeonghye Choi at Yonsei University in Seoul, Korea) investigate XR marketing strategy in tech-savvy South Korea. “They are at the cutting edge of these applications in retail,” Kannan says. “They have many locally based companies, as well as foreign companies coming into market products.”

“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. Or the way you present it may not align well with what they are expecting.”

Those challenges are what is known as liability of foreignness (LOF), says Kannan. It’s a well-established concept that explains why multinational companies often struggle and face disadvantages against local businesses in foreign markets. But do these disadvantages still exist in a world where immersive technologies are breaking down traditional barriers? Kannan and his co-authors break new ground to find the answer.

They teamed up with a market research company to study 257 beauty brands in South Korea over a three-year period from 2019-2022. Kannan says they looked at how XR innovations impact brand engagement, especially comparing foreign brands against local brands.

They focused on “brand buzz” — how often a brand gets mentioned on social media, a key indicator of brand engagement. “If your XR is not really resonating with consumers, there won’t generate much brand engagement,” Kannan says. “Then we tried to figure out to determine if foreign brands’ XR innovations are less effective at improving brand engagement compared to local brands.’”

Kannan and his co-authors confirm that LOF does exist in the virtual world for foreign firms.

Why? “It has to do with cultural mismatches in how people process information,” says Kannan.

The problems are especially apparent in cases where the XR applications create highly interactive, less realistic, and highly vivid experiences. For example, there’s a greater risk of cultural mismatch in a fully imaginary virtual world that doesn’t closely mirror real life, compared to an application that uses a person’s own image to try on makeup shades or fashion accessories.

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

He says the researchers also found that companies can avoid cultural mismatch problems by leveraging their marketing investments in local markets. Brands that have their own platforms — which allow direct connections with local customers — are far less likely to experience LOF. While all brand platforms help reduce LOF, some work better than others. Communications-based platforms, where you build your own community by sharing brand news, tips and inspiration, do a better job of overcoming LOF than transaction-based platforms, which primarily focus on sales and promotions.

Kannan has recommendations for companies who want 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, says 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,” says Kannan.

“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.”

Read the research, “Liability of Foreignness in Immersive Technologies: Evidence from Extended Reality Innovations,” published in the Journal of International Business Studies.