Sources of and Responses to the Liability of Foreignness: The Case of Korean Companies in the Netherlands

Abstract

This study aims to investigate the liability of foreignness, or the additional difficulties of foreign companies compared to their local competitors. Past studies have found fair amount of empirical evidences for the liability of foreignness. The present study attempts to take one step further by addressing two questions: what are the sources of such disadvantages and what are the solutions sought by the companies? To do this, we conducted a field study exploring the on-going dynamics of foreign multinationals. Specifically, we collected primary data through interviews with Dutch and Korean managers of Korean multinational companies. Through the interviews, we found evidence for the existence of such disadvantages. We identified four sources of the liability of foreignness—cross-border transfer, interaction with the local government, local discrimination, and interaction within the multinational—and two ways in which these companies actively reduced their exposure to the problem—localization and unfamiliarity reduction. This study should be useful to both practitioners and theorists in international business with an interest in disadvantages connected to the foreign status of a company.