The influence of liability of foreignness on market entry strategies

Abstract

PurposeThe purpose of this study is to examine how liability of foreignness (LOF) influences multinational enterprises (MNEs) market entry strategy.Design/methodology/approachBuilding on the extant literature, this paper examines the influence of LOF on four MNE market entry strategies (i.e. market‐seeking, resource‐seeking, competitive advantage and control‐orientation) in a sample of 3,085 Sino‐foreign joint ventures formed in manufacturing sectors in China.FindingsThe findings indicate that LOF influences market entry strategies selected by MNEs. Specifically, MNEs from low LOF countries adopt resource‐seeking strategies and strategies to utilize their competitive advantages in labor‐intensive industries more than MNEs from high LOF countries, while investors from high LOF countries adopt market‐seeking and control‐oriented strategies to a greater degree than MNEs from low LOF countries.Originality/valueThis study provides new theoretical insights into LOF for academics as well as suggests the need for managers to explicitly incorporate LOF into market entry strategy decisions.