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Minimizing effects of 'liability of foreignness': Response strategies of foreign firms in the United States

By B. Elango

Abstract

While anecdotal and research evidence exists supporting the difficulties faced by foreign firms in host nation environments due to liability of foreignness, it is clear that many foreign firms have been successfully operating in the U.S. over the years. This study seeks to understand the strategies foreign firms use to cope with liabilities of foreignness in an alien environment and compete successfully with domestic firms, specifically through boundary spanning. Using a sample of 3861 firms in the U.S., we find that foreign firms on the average underperform compared to domestic firms. We also find these firms take a differing strategic posture to cope with the disadvantages of being a foreign firm compared to domestic rivals. Multiple mediation models indicate that once this strategic posture of foreign firms is controlled for, performance differentials do not exist between foreign and domestic firms.Liability of foreignness Response strategies Foreign firms Boundary spanning

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