Evolving existence of assets and liabilities of foreignness

Abstract

PurposeThe purpose of this paper is to explore the simultaneous evolution of LOF and AOF in the context of environmental protection (EP) companies from Europe in the Chinese market.Design/methodology/approachThe authors adopt a qualitative, case study approach, using interview data to explore the extent of liability of foreignness and how the FSAs of firms have changed from the time on market entry. The authors undertook 15 in-depth interviews with decision makers in six companies addressing their experience of foreignness during their long tenure in China. To control for sector-level effects, the authors focus on companies in the EP sector.FindingsThe authors found the evolving AOF of the firms were challenged to a significant extent that caused difficulties in reducing their LOF over time. The EP sector is dominated by state-owned enterprises that have unique organized structure preventing localized foreign firms from gaining access into the institutionalized network. This deeply quilted institutionalized network had a corrosive effect in the gradual erosion of the LOF manifested from unfair price strategy practice, forced collaborations, ostracization of project participations, operational barriers, prohibited and restricted market access. The research also uncovered the rebirth nature of LOF that caused AOF to lose its significance across bureaucracy and ownership changed.Research limitations/implicationsThe relatively small number of cases (six) limits the generalizability of the findings by the authors. However, the authors are convinced that, given that the case companies are generally large and have long experience in China, the conclusions made are well grounded. In addition, there was the high level of coherence in the reported experiences of the interviewees, providing further support for the findings.Practical implicationsThe experiences of these case study companies highlight that MNEs need to be vigilant and creative in constantly improving their FSAs so that the competitive distance between them and the local competitors remains substantial.Originality/valueVery few studies have explored both assets and liabilities of foreignness in the host country regulatory context using a case study-based qualitative approach, especially in emerging markets.