MNE liability of foreignness versus local firm-specific advantages: The case of the Chinese management software industry |
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| Institution: | 1. Norwich Business School, University of East Anglia, Norwich, NR4 7TJ, United Kingdom;2. Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, United Kingdom;1. Vienna University of Economics and Business, Welthandelsplatz 1, Building D1, 1020 Vienna, Austria;2. University of Sussex Business School, University of Sussex, Falmer, Brighton, BN1 9RH, United Kingdom;3. University of Liverpool, Management School, Chatham Street, Liverpool L697ZH, United Kingdom;1. School of Management & Marketing, Waikato Management School, University of Waikato, Private Bag 3105, Waikato Mail Centre, Hamilton 3240, New Zealand;2. Aalto University School of Business, P.O. Box 21210, FI-00076 Aalto, Finland;1. University of Aberdeen Business School, King''s College, Aberdeen, AB24 5UA, United Kingdom;2. Western University, London, ON N6A 3K7, Canada;1. University of the West of England, UK;2. Universitat de València, Spain;1. Faculty of Economics, University of Porto, OBEGEF and cef.up, Portugal;2. Faculty of Economics, University of Porto and LIAAD INESCTEC, Portugal;3. Yasar University, Turkey;1. Department of Marketing and Management, University of Southern Denmark, Campusvej 55, 5230 Odense M, Denmark;2. School of Marketing and Communication, University of Vaasa, Wolffintie 34, 65200 Vaasa, PL BOX 700, 65101 Vaasa, Finland |
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| Abstract: | The theory of the multinational enterprise (MNE) suggests that the subsidiaries of MNEs possess firm-specific advantages (FSAs) that can overcome their liability of foreignness (LOF). It also suggests that subsidiaries can gradually decrease their LOF over time as they learn more about the host country environment and develop better connections to local business networks. Accordingly, subsidiaries should outperform local firms not only at point of entry but also (and increasingly so) in the long run as LOF decreases. This paper challenges this received wisdom by using case-study methodology to argue that LOF may not decrease over time and, meanwhile, the FSA gap between local firms and subsidiaries may narrow. We focus on two types of FSAs (asset and transaction ownership) and three sources of LOF (complexity, uncertainty, and discrimination) to develop a theoretical framework for analysing the dynamic relationships between LOF and FSAs and show how local firms can outperform foreign subsidiaries over time. We use the case of the Chinese management software industry to illustrate the framework. Our findings have important implications for MNEs competing abroad as well as helping to explain the emergence of strong competition from local firms. |
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| Keywords: | MNE Liability of foreignness Firm-specific advantages China Management software industry |
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