Do Foreign Firms in China Incur a Liability of Foreignness? The Local Chinese Firms' Perspective

Liability of foreignness (LOF) has been one of the building blocks of multinational enterprise theory development, but we have limited knowledge about the liability of foreignness in the context of multinationals operating in developing countries. This study suggests that in a developing country lik...

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Bibliographic Details
Published in:Thunderbird international business review 2014-11, Vol.56 (6), p.501-518
Main Authors: Jiang, Fuming, Liu, Lixian, Stening, Bruce W.
Format: Article
Language:English
Subjects:
Competitive advantage
Developing countries
Foreign business
LDCs
Liability
Location of industry
Multinational corporations
Organization development
Studies
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Summary:Liability of foreignness (LOF) has been one of the building blocks of multinational enterprise theory development, but we have limited knowledge about the liability of foreignness in the context of multinationals operating in developing countries. This study suggests that in a developing country like China, foreignness may still exist, but its negative impact on foreign firms’ performance may have become insignificant. Local Chinese firms were found to enjoy significant location‐based advantages over their foreign counterparts, contributing to liability of foreignness. However, the adverse effects of liability of foreignness on foreign firms appear to be offset by the foreign firms’ superior firm‐specific and multinationality advantages over local Chinese firms. Further, the location‐based advantages that foreign firms have built up over time further serve to strengthen their overall competitive position in China. © 2014 Wiley Periodicals, Inc.
ISSN:1096-4762
1520-6874
DOI:10.1002/tie.21649