What Constitutes the Costs and Advantages of Firms Investing Overseas?

Abstract

Different theoretical perspectives offer conflicting views regarding the sources of costs and advantages of firms investing overseas. Empirical analyses of financial services affiliates in London illustrate considerable inconsistencies with the predictions of Multinational Enterprise (MNE) theory regarding the significance of these attributes and their classification as costs or advantages. These analyses suggest that the performance consequences of the costs and advantages depend on a variety of contingencies and change significantly over time, questioning the categorical assignment of these attributes as costs or advantages in MNE theory. The findings provide a basis for adequate and nuanced strategic treatment of the costs and advantages.

Multinational Firms, Labor Market Discrimination, and the Capture of Outsider’s Advantage by Exploiting the Social Divide

“…It is not something that we publicize” (interview by first author, October 21, 2010). Thus in this situation, the multinationals face costs for being foreign (Nachum, 2003, 2010, 2011).…”

Foreign and domestic multinationals’ linkages in advanced, small open economies: do foreignness, regional origin and technological capability matter?

“…By contrast, FMNEs often experience disadvantage relative to local firms (Hymer, 1976;Kindleberger, 1969). This disadvantage, conceptualised as the liability of foreignness, encompasses the idea that foreign firms encounter greater costs than, or are denied benefits available to, local firms (Zaheer, 1995;Mezias, 2002aMezias, , 2002bBarnard, 2010;Nachum, 2012). Some explanations for why FMNEs experience such liability include the distance between subsidiary and headquarters in spatially distant countries (Zaheer, 1995), as well as countrylevel factors and interactions with local business partners.…”

The foreignness effect on internationalisation depth: the perspective of multicomplexity and the duality of foreignness

“…Organisational sociologists (Mata and Freitas, 2012;Vora et al, 2007;Sethi and Guisinger, 2002) have suggested that the lack of local embeddedness may be a buffer or shield for isomorphism (Zaheer et al, 2000), which adds more attributes to foreignness from the perspective of firm-specific advantages (FSAs) for MNEs when entering a new foreign market (Johanson and Vahlne, 2009;Kostova and Roth, 2002). Furthermore, according to arguments from the organisational learning and resource-based view, MNEs can reduce LOF by adapting, learning (Petersen and Pedersen, 2002) and formulating a proper strategy after analysing the international business environment (Nachum, 2003(Nachum, , 2011. In contrast, MNEs suffer from a lack of firm competence (Sofka, 2006) or hire human resources at a higher cost (Miller and Parkhe, 2002).…”

“…The result of this is a lack of isomorphism in the local network (LOF) (Zaheer, 1995;Eden and Miller, 2004). On the other hand, some researchers have noted the existence of AOF when there is global network embeddedness (Nachum, 2011) and when MNEs learn across multiple institutional profiles, thus supporting the notion of MNEs being superior to local firms. The dual embeddedness of MNEs represents the mechanism of structure-strategy-routine, which cultivates the capability of MNEs to equip themselves with several sets of institutional profiles to respond to different local institutions and address the inconsistency of internal and external embeddedness (Kostova and Zaheer, 1999).…”

“…As newcomers, MNEs are likely to experience LOF when developing trust with local customers, suppliers and institutions. Moreover, MNE affiliates often suffer from extra costs by offering premiums over local wages or by accommodating expatriates (Nachum, 2011;Cao and Ilan, 2021). The increased liability has the effect of a LOF that discourages increased commitment in a host country.…”