Is Foreignness an Asset or a Liability? Explaining the Performance Differential between Foreign and Local Firms
41 Pages Posted: 9 Sep 2008
Date Written: July 23, 2008
I seek to make sense of the variety of performance differentials between foreign and local firms observed in international competition, so that the competitive consequences of foreignness can be better understood. I develop a theoretical framework in which the costs and advantages that foreign firms have are context-specific and relative, and their range broader than that recognized by the theory of the MNE. This approach implies that foreignness carries different meanings and has different strategic implications in different competitive settings. Application of the theoretical framework to foreign financial service affiliates in London illustrates its merit in enabling one to distinguish between the impact of the additional costs that foreign firms are maintained to have and their superior advantages on their performance. Since different causes of performance differential have different theoretical implications, and also require different strategic responses, it is important to be able to identify them. I stress the importance of these findings in deepening the understanding of the conditions under which foreignness is an asset or a liability.
Keywords: Performance of foreign affiliates, costs and advantages of foreignness, comparative study, foreign and local firms, financial services, global cities
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