Liability of foreignness and internationalisation of emerging market firms

Ajai S. Gaur, Vikas Kumar, Ravi Sarathy

Research output: Chapter in Book/Report/Conference proceedingConference contribution

46 Scopus citations


Liability of foreignness (LOF) is a well-known concept in international business domain. At the core of LOF is the insight that firms face social and economic costs when they operate in foreign markets. Extant literature acknowledges that the ability of firms to overcome LOF in host locations varies; however, it does not discuss the possibility that the LOF itself could vary for different firms at the same location. We extend this literature by examining how a firm's interaction with the host and the home country environments affect the LOF that it faces in foreign markets. We argue that there are two sources of LOF - environmentally derived LOF and firm-based LOF. The environmentally derived LOF has its source in home and host country environments. Firm-based LOF, on the contrary, derives from firm-specific characteristics including ownership structure, firm-specific resources, learning and network-based linkages such as affiliation to a business group. Furthermore, we argue that both the environmentally derived and the firm-based LOF are different for emerging market (EM) firms as compared to developed market (DM) firms. We develop testable propositions about how environment-specific and firm-specific factors affect LOF and suggest directions for future research.

Original languageEnglish (US)
Title of host publicationDynamics of Globalization
Subtitle of host publicationLocation-Specific Advantages or Liabilities of Foreignness
EditorsChristian Asmussen, Torben Pedersen, Timothy Devinney, Laszlo Tihanyi
Number of pages23
StatePublished - Dec 1 2011

Publication series

NameAdvances in International Management
ISSN (Print)1571-5027

All Science Journal Classification (ASJC) codes

  • Business and International Management

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