Foreignness as both a global asset and a local liability: How host country idiosyncrasies and business activities matter

While international business research traditionally portrays foreignness as a liability for dealing with local market idiosyncrasies, this paper argues that it can regularly shift back and forth between being an asset and a liability. Key to this argument is the fact that the performance of a firm in a particular host country can be importantly shaped not only by activities aimed at accessing key external resources in local markets, but also by those targeting resources in global markets. When the focus is tapping into local resource markets, foreignness can be a liability that grows in size with the idiosyncrasies of those markets. But when the same firm in the same host country turns to global markets for external resources, foreignness can become an asset that also increases in value with the significance of local idiosyncrasies. I test this argument by looking at the performance effect of being foreign for private equity (PE) firms when investing in, and when subsequently exiting from, portfolio companies in emerging economies. The analysis capitalizes on a novel dataset tracking 546 PE deals, managed by 45 foreign and local PE firms, and across 49 emerging economies at varying levels of institutional development.