Assets or Liabilities of Foreignness? On the Role of TNCs in International Business

Abstract

Cross‐border activities of firms are said to be risky and complicated due to so‐called ‘liabilities of foreignness’ (LOF) (Zaheer & Mosakowski 1997; Zaheer 1995). These LOF are difficulties firms in general have to face when acting in environments they are not familiar with. The existence of LOF seems to delimit the scope of action of firms by triggering a need to adapt to the foreign business environment. Focusing on transnational companies (TNCs) – a specific firm type in international business that is a kind of ‘footloose’ and not deeply embedded in its country of origin (Bartlett & Ghoshal 1989) – it is necessary to understand the influence LOF have on business operations in detail as TNCs face LOF in every business environment they enter. Although we acknowledge the existence of LOF and their influence on TNC business operations, we argue that TNCs are by owning ‘assets of foreignness’ (AOF) (Nachum, 2010) able to overcome the barriers set by LOF. We rely on the competence‐based theory of the firm (CbTF) (Freiling et al. 2008; Foss & Ishikawa 2007) as frame of reference and ask: What kinds of AOF do TNCs own and how far do these assets enable TNCs to overcome LOF? Against this background we identify first causalities that determine the TNC scope of action. Our paper contributes to research by challenging the adaption logic that is very often broadcasted in discussions on reasonable ways companies should react to LOF. It advances research by giving reasons why TNCs may be able to outperform local companies in their local home markets.