Foreign identity and organizational crises: Evidence in the U.S. automobile industry

Abstract

Multinational corporations (MNCs) adeptly manage Liabilities of Foreignness (LOF) and Assets of Foreignness (AOF) to their advantage, and central to this endeavor is the strategic management of their foreign identity. Our research identifies a critical context where foreign identity remains a liability: organizational crises. Drawing on organizational identity and legitimation process theories, we contend that foreign firms face greater legitimacy losses compared to domestic firms during crises due to magnified foreign identity and differences in legitimacy standards. Furthermore, a crisis in one foreign firm can trigger stronger negative spillover effects on other foreign firms than on domestic firms. We test our theory through an analysis of US automobile recall events, demonstrating significant legitimacy impacts for foreign firms. Our findings illuminate the complex dynamics of foreign identity management, offering new insights into the persistent challenges of LOF during times of crisis.