Advantage and Disadvantage of Foreignness and Foreign Direct Investment

41 Pages Posted: 3 Apr 2017

See all articles by Alvaro Cuervo-Cazurra

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy

C. Annique Un

Northeastern University - International Business & Strategy

Date Written: April 2, 2017

Abstract

We analyze how a firm’s country of origin affects its investments in a host country. Viewing the country of origin as a resource, we explain the advantage (disadvantage) of foreignness, i.e., the relative benefit (liability) a subsidiary of a foreign firm enjoys over domestic firms when its country of origin is liked (disliked) by individuals in the host country. We find that separating government-based from consumer-based advantage and disadvantage results in diverging predictions: whereas the government-based advantage induces the firm to invest more to benefit from incentives, the consumer-based advantage induces the firm to invest less to maintain foreignness; whereas the government-based disadvantage induces the firm to invest less to reduce risks, the consumer-based disadvantage induces the firm to invest more to localize.

Keywords: advantage of foreignness, disadvantage of foreignness, country-of-origin, resource-based view

JEL Classification: F23

Suggested Citation

Cuervo-Cazurra, Alvaro and Un, C. Annique, Advantage and Disadvantage of Foreignness and Foreign Direct Investment (April 2, 2017). Available at SSRN: https://ssrn.com/abstract=2944956 or http://dx.doi.org/10.2139/ssrn.2944956

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy ( email )

D'Amore-McKim School of Business
313 Hayden Hall, 360 Huntington Avenue
Boston, MA 02115
United States
16173736568 (Phone)
16173738628 (Fax)

HOME PAGE: http://cuervo-cazurra.com

C. Annique Un (Contact Author)

Northeastern University - International Business & Strategy ( email )

Boston, MA 02115
United States

HOME PAGE: http://anniqueun.com/

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