Liability of foreignness in global competition? Financial service affiliates in the city of London

This study was inspired by the observation that foreign financial service firms operating in the City of London do not suffer the liability of foreignness to the extent suggested by theory. To examine the reasons for this departure from theory, the study advances a theoretical framework that distinguishes between three types of advantages that together account for the competitive performance of MNEs relative to that of indigenous firms. Empirical analyses of a sample of 296 foreign financial service firms in the City of London show that in this particular context major sources of competitive performance are the firm‐specific advantages and the advantages of multinationality, where British firms may not necessarily possess an advantage over foreign firms. An examination of the validity of the findings, in order to assess the extent to which this situation is unique to the City of London or rather signifies a more general trend that requires theoretical modifications and extensions, is emphasized as a major task for future research. Copyright © 2003 John Wiley & Sons, Ltd.     

Multinationality and downside risk: The roles of option portfolio and organization

Multinational operations confer firms a portfolio of switching options that offer potential operating flexibility in the context of input cost variability, helping firms reduce downside risk. We suggest that two conditions may shape the relationship between multinationality and downside risk. When subadditivity is present in a firm's option portfolio, such as when the firm operates affiliates in host countries with similar labor cost developments, multinationality is less likely to reduce downside risk since less valuable opportunities exist for shifting operations. Multinationality is more likely to reduce downside risk if a firm's organization facilitates the coordination of cross‐border activities, enabling the exploitation of the shifting opportunities. Analysis of a comprehensive panel dataset of Japanese manufacturing firms and their foreign manufacturing affiliates provides support for these conjectures. Copyright © 2013 John Wiley & Sons, Ltd.     

The Internationalization Process of Singapore Government-Linked Companies: A Contextual View

Western management theories on internationalization do not fully explain the evolution of Asian MNCs. In East Asia, state policy has been an important intervening variable in the growth and development of the local MNCs. However, the patterns of firm growth differ from country to country and the strategic frames are embedded in the local political and cultural context. The internationalization strategies adopted by firms in East Asia are best understood if viewed from a contextual perspective.Singapore has been held as model of economic development for developing countries. This paper attempts to capture the dynamics of the internationalization process from a contextual perspective. It describes the evolution of two government-linked companies in Singapore and reviews their internationalization strategy. The cases are set within the framework of Singapore's political economy and its development policy. We identify the themes in the internationalization process of these firms and contrast their experiences with traditional theories.     

Internationalization Theory and Korean Multinationals

Is the internationalization theory, which has been employed to explain the international expansion patterns of Western firms, equally good for Asian MNCs? Employing South Korean foreign direct investment data from 1973 through 1990, the paper tests two central tenets of the internationalization theory. Results show that physical distance plays a critical role in market selection during the early waves of investment, but economic factors become more important in subsequent waves of investment. Furthermore, the use of majority ownership modes increases over time, but firms appear to ‘leapfrog’ when the market potential is good. The paper concludes that the internalization theory could be very useful even in an Asian context, particularly when employed in conjunction with strategic and economic models.     

Choice of ownership mode in joint ventures: An event history analysis from the automotive industry

Inter-firm partnerships continue to be a major trend in the B2B context. Firms seek collaborative ventures to enter foreign markets, combine resources, share costs and risks, and build synergies in an increasingly competitive environment. Accordingly, the impacts of firm and host country characteristics on the selection of entry mode have been extensively studied in the literature. Nevertheless, most of these studies regard all entry modes as feasible alternatives for firms, which is rarely the case in practice. Instead, the number of entry modes available to a firm is more likely to be limited by the firm's assets and the context of the host country. As such, these contingencies, coupled with the idiosyncrasies of each entry mode, necessitate more focalized inquiry in the entry mode literature. Drawing from the OLI framework, this study zeroes in on international joint ventures (IJVs) and analyses the impact of ownership and location advantages on firm's decision about the level of control (i.e., internalization level) in an IJV in a given country. Results indicate a positive relationship between the ownership advantages and the level of control. It is also found that firms tend to favor higher control mode where the host country provides better locational advantages.     

Ownership Advantages, Foreign Production and Productivity: Evidence from Austrian Manufacturing Firms

Multi-plant economies of scale generated by firm-specific assets form a constituent feature of multinational firms. This paper uses a panel of Austrian manufacturing firms to test for multi-plant economies of scale by examining the dependence of labor productivity in plants of the home country on the volume of foreign production. As there is an inherent causality problem in testing this proposition, the econometric estimates use a simultaneous equation framework. The estimation results indeed indicate that firms which operate plants abroad achieve productivity advantages in domestic plants. The same holds true for affiliates of foreign multinationals.     

International Diversification, Industrial Diversification and Firm Performance of Hong Kong MNCs

Although multinational corporations (MNCs) are not new to business research, Asian MNCs and their performance have yet to be widely studied. This study investigates the relationship between international diversification, industrial diversification and firm performance of MNCs from Hong Kong. In contrast to previous findings, the results show that Hong Kong MNCs are more internationally diversified, but not performed better, than domestic firms. Also, among Hong Kong MNCs, international diversification has a positive impact on profitability and sales growth, but not on the profitability. Industrial diversification also enhances profitability stability but reduces profitability significantly. Neither the hypothesized inverted U-shaped relationship between international diversification and performance nor the interaction effect from both international and industrial diversification strategies on performance can be validated. Implications are discussed with reference to the local context.     

The advantage of foreignness in innovation

I argue that subsidiaries of foreign multinational enterprises (MNEs) enjoy an advantage of foreignness in innovation, that is, they are more innovative than domestic firms. To explain this, I present the subsidy and the incentive arguments. The subsidy argument proposes that subsidiaries are subsidized in their innovation effort by the MNE, which results in subsidiaries having more innovations than domestic firms, because they belong to a foreign MNE. The incentive argument posits that subsidiaries are subject to two sets of unique and converging pressures, one at the MNE level in the corporate factor market and another at the host country level in the consumer market. These pressures drive subsidiaries to become more successful at transforming their research and development investments into innovations. Copyright © 2011 John Wiley & Sons, Ltd.     

From home country to home base: A dynamic approach to the liability of foreignness

We argue that the influence of the home country wanes as the firm increases its geographic reach. We introduce the concept of the “home base” to capture the effect of the set of countries in which the firm operates. We expect the dynamic liability of foreignness defined relative to the home base to be a better predictor than the static liability of foreignness defined relative to the home country. We also expect the diversity of foreign experience to increase foreign market entry. We find support for these hypotheses with data on Chinese listed firms investing abroad between 1991 and 2007. Copyright © 2014 John Wiley & Sons, Ltd.     

The effect of host country long term orientation on subsidiary ownership and survival

This paper examines the role which the long term orientation (LTO) dimension of host country culture plays in transforming multinational corporations’ (MNCs’) focus from transaction cost to transaction value in the context of MNC subsidiary ownership and survival. We used a sample of 10,236 overseas subsidiaries established by 1,291 Japanese MNCs in 29 host countries with varying levels of LTO to test our hypotheses. Results first showed that LTO has a direct positive effect on ownership levels. Second, we observed that there were positive interactions between LTO and cultural distance, and between LTO and geographic distance, on ownership levels. Third, we found that there were positive interactions between LTO and subsidiary ownership level, and between LTO and cultural distance, on subsidiary survival. The theoretical and practical implications of these findings are discussed in terms of the vital role LTO plays in determining whether transaction value or transaction cost considerations prevail in MNCs’ ownership strategies, and how MNCs can better take advantage of host country LTO and improve the survival likelihood of their subsidiaries.     

Technological catch-up by east Asian firms: Trends,issues, and future research agenda

This paper reviews extant research on technological catch-up of East Asian firms, which has recently emerged as an important issue. We review 76 articles on technological catch-up in the East Asian context published in 17 journals over 23 years (1995–2017), covering the academic disciplines of strategic management, international business, entrepreneurship, technology and innovation management, and economics. Based on a systematic analysis of this literature, we develop an overarching framework to this topic. We then identify the major gaps in the literature and suggest areas for future research on technological catch-up of Asian firms.     

Location,governance, and strategic determinants of japanese manufacturing investment in the united states

A firm's decision to manufacture abroad depends on location, governance, and strategic factors. Governance factors are firm-specific. In spite of this, most empirical studies of foreign direct investment (FDI) have been conducted at the industry level (making it impossible to look at firm-specific determinants), and only a handful have considered governance, location, and strategic factors simultaneously. This paper is the first large sample study of the determinants of foreign direct investment at the product and firm-level. It examines the impact of location and governance factors, and of four types of strategic interactions, on a Japanese firm's propensity to manufacture in the U.S. The results support the view that foreign direct investment is explained by location, governance, and strategic variables. Economies of scale and trade barriers encourage Japanese FDI in the U.S. The larger a Japanese firm's R & D expenditures, the greater the probability it will manufacture in the U.S., but this is not the case for advertising expenditures. Some strategic factors are also important: Japanese firms with medium domestic market shares have the highest propensity to invest in the U.S. There is evidence of follow-the-leader behavior between firms of rival enterprise groups, but none of ‘exchange-of-threat’ between American and Japanese firms. Japanese investors are also attracted by concentrated and high-growth U.S. industries.     

On-The-Job Training Under Firm-Specific Innovations and Worker Heterogeneity

In this article I present a general equilibrium adverse selection model of the labor market in which workers differ in their ability to learn and implement new technologies. Exogenous firm-specific process innovations require firms to teach workers the new firm-specific skills introduced by the new technology. As firms' training costs negatively depend on the expected ability of their labor force and positively on their technological level, firms seek to hire workers able to learn at least cost. I show how firm-specific human capital can explain employer- and plant-specific wage differentials caused by skilled-labor-biased technological shocks.     

The survival of new domestic and foreign‐owned firms

We compare the survival of new domestic and foreign‐owned firms. We analyze the determinants of the survival of new firms and investigate whether foreignness accounts for significant differences in the survival of new foreign and new domestic firms. We find survival to be determined by ownership advantages, size and growth strategies, the internal organization of firms, and by industry characteristics such as economies of scale, and industry entry and growth. After controlling for these characteristics, we find that domestic and foreign firms do not exhibit different chances of survival, that they respond in similar fashions to the determinants of survival and display identical time patterns of exit. Copyright © 2002 John Wiley & Sons, Ltd.     

An examination of the foreign market knowledge of exporting firms based in the People's Republic of China: Its determinants and effect on export intensity

Although the critical role of knowledge in generating organizational advantage has been increasingly recognized in the strategic management field, there is little research examining firm-specific foreign knowledge, the construct itself, its determinants, and impact on export performance. This study seeks to extend the foreign market knowledge literature in three ways. First, the current study develops a conceptual model of determinants of foreign market knowledge, based on the social capital theory. It explains how structural and relational social capital affects the creation of foreign market knowledge. Second, this study substantiates the theoretical link between foreign market knowledge and export intensity, which has been put forward by the internationalization process model with empirical evidence. Third, to expand the generalizability of the present foreign market knowledge model, this study tests the model using firms from different industrial types and product categories in a newly developing country, that is, the People's Republic of China.     

Do‐no‐harm versus do‐good social responsibility: Attributional thinking and the liability of foreignness

Research summary: The efforts of multinational corporations to be socially responsible do not always engender positive evaluations from overseas stakeholders. Drawing on attribution theory, we argue that two heuristics guide stakeholders in evaluating firms' social performance: foreignness and the valence of firms' social responsibility. We provide evidence from a field study of secondary stakeholders and an experimental study involving 129 non‐governmental organizations. Consistent with attribution theory, the liability of foreignness is minimized when firms engage in “do‐good” social responsibility (focused on proactive engagement creating positive externalities) but is substantial when firms engage in “do‐no‐harm” social responsibility (focused on attenuating negative externalities). In online supporting information, Appendix S1, we demonstrate that these evaluations have consequences for whether stakeholders subsequently cooperate, or sow conflict, with firms. Managerial summary: There is no guarantee that efforts to be socially responsible will improve multinational corporations' relations with overseas stakeholders, such as customers, governments, and activists. In a field study and an experiment, we unpack when foreign firms suffer from harsh stakeholder evaluations. Foreign firms especially suffer from harsh evaluations when they conduct “do‐no‐harm” CSR rather than “do‐good” CSR. Stakeholders attribute the motive for foreign firms' do‐no‐harm CSR to managerial interests and shareholder pressures, perceiving a wedge between managers and owners (who may be unmotivated to reduce the negative impacts of their business activities) and local stakeholders (who bear the social costs). A practical implication is that foreign firms gain more from highlighting do‐good rather than do‐(no)‐harm CSR initiatives. Copyright © 2015 John Wiley & Sons, Ltd.     

Once bitten twice shy? Experience managing violent conflict risk and MNC subsidiary‐level investment and expansion

Research summary : Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate‐level experience can be leveraged across borders and when experience needs to be country‐specific to be valuable. We test our hypotheses using a unique multi‐source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10‐year period, 1999–2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country‐specific experience appears to yield measureable benefits for conflicts involving the host country government . Managerial summary : Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or who wish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly “unmanageable” problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country‐specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict . Copyright © 2016 John Wiley & Sons, Ltd.     

Is there a liability of foreignness in global banking? An empirical test of banks' X‐efficiency

When a company operates outside of its home country, it may suffer a ‘liability of foreignness.’ Does this a priori theoretical expectation hold in the global banking industry? Banks increasingly compete outside of their home countries, and operating environments often differ sharply across countries, both in terms of financial markets and credit risk. In this paper, we report the results of an empirical test of the liability of foreignness in the global banking industry, using Fitch–IBCA BankScope data for the period 1989–96. Our findings strongly support the liability of foreignness hypothesis. Further, the data show some evidence that the X‐efficiency of a foreign‐owned bank is strongly influenced by the competitiveness of its home country and the host country in which it operates. Lastly, we find that in some environments U.S.‐owned banks are more X‐efficient than other foreign‐owned banks in some environments, but less X‐efficient in others. Copyright © 2002 John Wiley & Sons, Ltd.     

THE DYNAMICS OF THE LIABILITY OF FOREIGNNESS: A GLOBAL STUDY OF SURVIVAL IN FINANCIAL SERVICES

We study the impact of ‘foreignness’ on survival in interbank currency trading worldwide over the period 1974–93. In particular, we develop hypotheses on the behavior of the liability of foreignness over time, and on the consequences of evolving sources of firm-level competitive advantage on this liability. We test these hypotheses on the population of 2667 market-making trading rooms located in 47 countries worldwide that either existed in 1974 or entered the industry between 1974 and 1993. The results show that there is a liability of foreignness, and that it changes over time. Further, strategic and organizational factors such as the adoption of technology by these firms and their mode of internal control significantly influenced survival, as did location-related factors such as the intensity of local and foreign competition. © 1997 by John Wiley & Sons, Ltd.     

Behind ownership decision of Chinese outward FDI: Resources and institutions

This paper examines ownership decision of Chinese outward foreign direct investment (FDI) with a focus on the choice between a wholly owned subsidiary and a joint venture entry mode. Based on literature review and findings from our case study of ten Chinese outward investing firms, we develop a conceptual framework that integrates the resource-based and institution-based views of international business strategy. The framework reflects special characteristics of Chinese outward FDI. On the resource side, Chinese outward FDI is both asset exploiting and asset augmenting, and accordingly, both transaction costs and strategic intents have an impact on the FDI ownership decision of Chinese firms. On the institution side, when investing overseas, Chinese firms adjust their entry strategies to attain regulative and normative institutional legitimacy in host countries. Meanwhile, they also need to comply with the rules set by the Chinese government, which provide incentives to and impose restrictions on Chinese firms’ FDI ownership decisions.