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Unpacking liability of foreignness: identifying culturally driven external and internal sources of liability for the foreign subsidiary

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  • Calhoun, Mikelle A.
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    Abstract

    Unpacking the box of liability of foreignness, we are forced to realize that there are some costs that can be ascertained and there are other costs that are not subject to objective quantification. Country and cultural differences manifest both in readily discernable and in more tacit societal practices and individual variation. This paper links well-established streams of literature concerning foreign direct investment (FDI), corruption, and cross-cultural differences in an effort to provide a basis for explanation and future testing of certain cultural sources of liability of foreignness. Foreign firms are disadvantaged in comparison to native firms by gaps in understanding caused by cultural variation that impacts both the firm's external and internal environments. In the environment external to the firm, cultural differences are reflected in varying levels of transparency related to the state's institutional practices and procedures. Less transparent markets are associated with higher levels of tacitness, and increased corruption is a significant indicator of the resulting institutional inefficiency. In the internal firm environment, cultural differences manifest in observable behavior differences and less observable values differences of individuals. The degree of the external and internal cultural understanding gap will be determined through comparison of the cultural orientation of the parent firm in its native country with the culture of the host country of the subsidiary. Finally, given that transparency/corruption is the societal embodiment of individual cultural differences, a correlation is expected between corruption levels and value orientations in each subsidiary.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Management.

    Volume (Year): 8 (2002)
    Issue (Month): 3 ()
    Pages: 301-321

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    Handle: RePEc:eee:intman:v:8:y:2002:i:3:p:301-321

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    Related research

    Keywords: Liability of foreignness Corruption Values;

    References

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    Citations

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    Cited by:
    1. Buckley, Peter J. & Clegg, Jeremy & Tan, Hui, 2006. "Cultural awareness in knowledge transfer to China--The role of guanxi and mianzi," Journal of World Business, Elsevier, vol. 41(3), pages 275-288, September.
    2. repec:emp:wpaper:ec8-126-i is not listed on IDEAS
    3. Barnard, Helena, 2010. "Overcoming the liability of foreignness without strong firm capabilities -- the value of market-based resources," Journal of International Management, Elsevier, vol. 16(2), pages 165-176, June.
    4. Moeller, Miriam & Harvey, Michael & Griffith, David & Richey, Glenn, 2013. "The impact of country-of-origin on the acceptance of foreign subsidiaries in host countries: An examination of the ‘liability-of-foreignness’," International Business Review, Elsevier, vol. 22(1), pages 89-99.
    5. Bangara, Athena & Freeman, Susan & Schroder, William, 2012. "Legitimacy and accelerated internationalisation: An Indian perspective," Journal of World Business, Elsevier, vol. 47(4), pages 623-634.
    6. Wilkinson, Timothy J. & Peng, George Z. & Brouthers, Lance Eliot & Beamish, Paul W., 2008. "The diminishing effect of cultural distance on subsidiary control," Journal of International Management, Elsevier, vol. 14(2), pages 93-107, June.
    7. Denk, Nikola & Kaufmann, Lutz & Roesch, Jan-Frederik, 2012. "Liabilities of Foreignness Revisited: A Review of Contemporary Studies and Recommendations for Future Research," Journal of International Management, Elsevier, vol. 18(4), pages 322-334.
    8. Jisun Yu & Sung Kim, 2013. "Understanding liability of foreignness in an Asian business context: A study of the Korean asset management industry," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1191-1217, December.
    9. Lee, In Hyeock & Rugman, Alan M., 2012. "Firm-specific advantages, inward FDI origins, and performance of multinational enterprises," Journal of International Management, Elsevier, vol. 18(2), pages 132-146.
    10. repec:emp:wpaper:ec8-127-i is not listed on IDEAS
    11. de Jong, Gjalt & van Houten, Jerry, 2014. "The impact of MNE cultural diversity on the internationalization-performance relationship," International Business Review, Elsevier, vol. 23(1), pages 313-326.
    12. Harvey, Michael & Novicevic, Milorad M. & Buckley, M. Ronald & Fung, Helen, 2005. "Reducing inpatriate managers' 'Liability of Foreignness' by addressing stigmatization and stereotype threats," Journal of World Business, Elsevier, vol. 40(3), pages 267-280, August.
    13. Eberhard, Manuel & Craig, Justin, 2013. "The evolving role of organisational and personal networks in international market venturing," Journal of World Business, Elsevier, vol. 48(3), pages 385-397.
    14. Elango, B., 2009. "Minimizing effects of 'liability of foreignness': Response strategies of foreign firms in the United States," Journal of World Business, Elsevier, vol. 44(1), pages 51-62, January.

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