Liability of Foreigness

LIABILITY OF FOREIGNNESS AND INTERNATIONALIZATION OF EMERGING MARKET FIRMS

AJAI S. GAUR Department of Management and Global Business Rutgers Business School, Newark and New Brunswick 1 Washington Park, Newark, NJ 07102, USA Tel: 1 757-401-5962 Fax: 1 973-353-1664 Email: ajai@business.rutgers.edu

VIKAS KUMAR Discipline of International Business University of Sydney H03 Institute Building Sydney, NSW 2006, Australia Ph: 61 2 9351 6438 Fax: 61 2 9036 5378 Email: V.Kumar@econ.usyd.edu.au

RAVI SARATHY Department of Strategy and International Business College of Business Northeastern University Boston, MA 02115 Tel: 1 617-373-4806 E-Mail: r.sarathy@neu.edu

Reference:

Gaur, A. S., Sarathy, R., & Kumar, V. 2011. Liability of foreignness and internationalization of emerging market firms. In Devinney, T. M., Pedersen, T. & Tihanyi, L. (eds.), Advances in International Management: The Past, Present and Future of International Business and Management, Volume 24, New York, NY: Emerald.

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Electronic copy available at: http://ssrn.com/abstract=1763328

LIABILITY OF FOREIGNNESS AND INTERNATIONALIZATION OF EMERGING MARKET FIRMS

ABSTRACT Liability of foreignness (LOF) is a well known concept in international business domain. At the core of LOF is the insight that firms face social and economic costs when they operate in foreign markets. Extant literature acknowledges that the ability of firms to overcome LOF in host locations vary, however, it does not discuss the possibility that the LOF itself could vary for different firms at the same location. We extend this literature by examining how a firm’s interaction with the host and home country environments affect the LOF that it faces in foreign markets? We argue that there are two sources of LOF – environmentally-derived LOF and firmbased LOF. The environmentally-derived LOF has its source in home and host country environments. Firm-based LOF, on the other hand, derives from firm-specific characteristics...