When foreignness becomes a liability: the effects of flawed institutional environments on foreign versus domestic firm performance in emerging markets

Causal mechanisms of COVID-19 disruptive effects on liability of foreignness and the emergence of new firm-specific advantages

“…Our study contributes, through an institutional entrepreneurship lens ( Cao and Alon, 2021 , Narula, 2020 , Newenham-Kahindi and Stevens, 2018 ), to the growing debates on the intersecting studies on LOF and FSAs ( Halaszovich, 2020 , Luo et al, 2002 , Mezias, 2002 , Rickley and Karim, 2018 , Kostova and Zaheer, 1999 , Zaheer, 1995 , Zaheer, 2002 , Wan et al, 2020 ) through in two distinct ways. First, we present a holistic conceptual process model of the phenomenon's causal mechanisms of COVID-19, institutional distances, LOF and limitations of traditional FSAs, and the emergence of new FSAs.…”

“…Simultaneously, there is growing discussion on the intersection of LOF and firm-specific advantages (FSAs) ( Halaszovich, 2020 , Luo et al, 2002 , Mezias, 2002 , Rickley and Karim, 2018 , Kostova and Zaheer, 1999 , Zaheer, 1995 , Zaheer, 2002 , Wan et al, 2020 ) through the lens of institutional entrepreneurship ( Cao and Alon, 2021 , Narula, 2020 , Newenham-Kahindi and Stevens, 2018 ). Furthermore, recent discussions are shifting to “how” and “when” multinational companies (MNCs) attempt to develop new FSAs to manage LOF ( Adarkwah and Malonæs, 2020 , Halaszovich, 2020 , Wan et al, 2020 ). Additionally, scholars discuss differentiated FSAs of advanced economy multinational corporations (AMNCs) and emerging market corporations (EMNCs).…”

“…Nevertheless, it is handled as a black box that demonstrates the process of causal mechanisms whereby FSAs can be effective for whatever source of LOF and how firms try to deal with these issues by applying institutional entrepreneurship. Further, there is room for growing discussion on the limitations of authentic FSAs and the emergence of new FSAs as it is still nascent in IB ( Adarkwah and Malonæs, 2020 , Halaszovich, 2020 , Wan et al, 2020 ). Moreover, LOF and FSAs are tightly linked to each other since FSAs can be one of the solutions to mitigate LOF for MNCs ( Rickley & Karim, 2018 ).…”

“…Therefore, this study attempts, through an institutional entrepreneurship lens ( Cao and Alon, 2021 , Narula, 2020 , Newenham-Kahindi and Stevens, 2018 ), to open up this black box by exploring the complex mechanisms of the disruptive effects that AMNCs in emerging markets encountered and struggled with and how to offset this, firms used FSAs. More concretely, we investigate whether the traditional FSAs of an AMNC in emerging markets can help firms overcome the LOF based on a framework of sources of LOF and the causal mechanisms of emerging new FSAs ( Adarkwah and Malonæs, 2020 , Halaszovich, 2020 , Wan et al, 2020 ) shedding light on the uncertainty based LOF among other LOF’s sources such as unfamiliarity and complexity (e.g., Luo et al, 2002 ; Mezias, 2002 ; Kostova & Zaheer, 1999 ; Wan et al, 2020 ; Zaheer, 1995 , Zaheer, 2002 ; Zaheer & Mosakowski, 1997 ). To do so, a single firm case study of a Japanese automotive MNC in Russia provides an empirically appropriate context and methodological relevance by exploring deep insights into the phenomenon (e.g., Ikegami, Maznevski & Ota, 2017 ; Oliveira & Lumineau, 2019 ; Outila, Piekkari, Mihailova & Angouri, 2021 ).…”

“…Second, we suggest “new” FSAs may help mitigate LOF in the toughest conditions with higher institutional distances ( Rugman & Verbeke, 2005 ) and propose novel constructs of newly developed FSAs as alternative options under certain conditions in transitional economies. Accordingly, the resulting patterns may not be limited to the Russian institutional context, but can also apply to other emerging countries, particularly transitional economies such as Central and Eastern Europe (CEE) countries (e.g., Aray et al, 2021 ; Beletskiy & Fey, 2021 ; Fey & Shekshnia, 2011 ; Halaszovich, 2020 ; Puffer & McCarthy, 2017 ; Ralston et al, 2008 ; Rickley & Karim, 2018 ; Spillan et al, 2021 ; Steger et al, 2011 ). The paper comprises the following parts as we begin the discussion with: 1) Theoretical foundations; 2) Methodology; 3) Findings; 4) Discussion; and 5) Conclusion.…”