Multinational Firms, Labor Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide

70 Pages Posted: 5 Aug 2010 Last revised: 13 Feb 2014

Jordan I. Siegel

University of Michigan

Lynn Pyun

Harvard Business School; Massachusetts Institute of Technology (MIT)

B.Y. Cheon

Korea Labor Institute

Date Written: February 10, 2014

Abstract

The organizational theory of the multinational firm holds that foreignness is a liability, and specifically that lack of embeddedness in host-country social networks is a source of competitive disadvantage; meanwhile the literature on labor market discrimination suggests that exploiting the bigotry of others can be a source of competitive advantage. We seek to turn the former literature somewhat on its head by building on insights from the latter. Specifically, we argue that multinationals wield a particularly significant competitive weapon: as outsiders, they can identify social schisms in host labor markets and exploit them for their own competitive advantage. Using two unique data sets from South Korea, we show that in the 2000s multinationals have derived significant advantage in the form of improved profitability by aggressively hiring an excluded group, women, in the local managerial labor market. Our results are economically meaningful, realistic in size, and robust to the inclusion of firm fixed effects. Multinationals, even those whose home markets discriminate against women, often show signs of having seen the strategic opportunity. Though the host market is moving toward a new equilibrium freer of discrimination, that movement is relatively slow, presenting a multiyear competitive opportunity for multinationals.

Suggested Citation

Siegel, Jordan I. and Pyun, Lynn and Cheon, B.Y., Multinational Firms, Labor Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide (February 10, 2014). Harvard Business School Strategy Unit Working Paper No. 11-011. Available at SSRN: https://ssrn.com/abstract=1653087 or http://dx.doi.org/10.2139/ssrn.1653087

Jordan I. Siegel (Contact Author)

University of Michigan ( email )

Ann Arbor, MI
United States

Lynn Pyun

Harvard Business School ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

B.Y. Cheon

Korea Labor Institute ( email )

9th Flr., Korea Federation of Small Business Bldg
16-2 Youido-dong, Yongdungpo-gu
Seoul 150-010
Korea

Paper statistics

Downloads
398
Rank
59,066
Abstract Views
1,764