Title
Mitigating liabilities of foreignness : defensive versus offensive approaches
Document Type
Journal article
Source Publication
Journal of International Management
Publication Date
7-1-2002
Volume
8
Issue
3
First Page
283
Last Page
300
Keywords
Contract, Liability of foreignness, Networking
Abstract
Finding effective mechanisms that can overcome liabilities of foreignness (LOFs) is the central issue in the study of LOFs. This study proposes that such mechanisms comprise defensive options and offensive options. Defensive mechanisms include contract protection, parental control, parental service, and output standardization. Offensive mechanisms include local networking, resource commitment, legitimacy improvement, and input localization. Using China as an analytical setting, this study emphasizes two prominent yet distinct mechanisms: contract protection and local networking ("guanxi" in Chinese). Contracts and guanxi mitigate the LOF via different paths: Contracts negate LOFs by safeguarding invested resources, curtailing operational uncertainty, and reducing coordination costs, whereas guanxi neutralizes LOFs through increasing indigenous adaptability, improving organizational legitimacy, and heightening cooperation with the local business community. Our analysis of 92 sample MNEs in China suggests that contracts and guanxi exert different influences on the consequences of LOFs. Contracts reduce production and marketing costs but do not stimulate sales revenues. Guanxi, however, enhances sales revenues but does not reduce production and marketing costs. This study also documents that contracts and guanxi operate as complements in overcoming LOFs.
DOI
10.1016/S1075-4253(02)00073-X
Print ISSN
10754253
E-ISSN
18730620
Publisher Statement
Copyright © 2002 Elsevier Science Inc
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Luo, Y., Shenkar, O., & Nyaw, M.-K. (2002). Mitigating liabilities of foreignness: Defensive versus offensive approaches. Journal of International Management, 8(3), 283-300. doi: 10.1016/S1075-4253(02)00073-X
