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Dealing With Liability Of Foreignness: The Case Of Philips In Australia, 1945-1980

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  • Pierre Van Der Eng

Abstract

How do multinational enterprises (MNE) respond to the ‘liability of foreignness’ (LoF) they experience in foreign markets? The case study in this paper demonstrates that firms develop dynamic, interactive strategies to minimise the LoF risks they perceive. The Australian subsidiary of Dutch MNE Philips Electronics experienced a significant LoF during 1939-1943, when it came close to being nationalised. In response, Philips Australia set out to build ‘FDI legitimacy’ after 1945 in order to maximise both its ‘national embeddedness’ in the host country and its influence on government policy that guided the rapid development of Australia’s postwar electronics industry. This strategy aimed to minimise risk and maximise commercial opportunities for the firm. Philips Australia localised senior management, maximised local procurement and local manufacturing, took a leading role in industry associations, engaged politically influential board members and used marketing tools to build a strong brand and a positive public profile in Australia. The firm became aware of the limitations of this strategy in 1973, when a new Labor government reduced trade protection. Increasing competition from Japanese electronics firms forced Philips Australia to restructure and downsize its production operations. Despite increasing reliance on imports from the parent company’s regional supply centres and efforts to specialise production on high- value added products, the firm saw its profitability and market share in Australia decrease. The case demonstrates that the success of strategic responses to minimise LoF and maximise ‘FDI legitimacy’ is highly context-dependent.

Suggested Citation

  • Pierre Van Der Eng, 2017. "Dealing With Liability Of Foreignness: The Case Of Philips In Australia, 1945-1980," CEH Discussion Papers 06, Centre for Economic History, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:hpaper:057
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    File URL: https://cbe.anu.edu.au/researchpapers/CEH/WP201706.pdf
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    More about this item

    Keywords

    liability of foreignness; FDI legitimacy; Philips; Australia; electronics industry;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • N87 - Economic History - - Micro-Business History - - - Africa; Oceania

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