Liability Of Foreignness And Its Coping Strategies

With the development of economic globalization, doing business abroad has become an important economic phenomenon. But due to differences in regions, system, culture and other aspects, the multinational companies operating in host countries, need to take additional costs, which has been referred to as liability of foreignness(LOF)by international business scholars. This concept is defined as:all additional costs a firm operating in a market overseas incurs that a local firm would not incur". The additional costs includes not only economic costs related to spatial distance(e.g., travel, transportation, coordination and monitoring over larger distances and different time zones) but social costs related to the difference in institutions, culture and so on. This concept caused a large number of scholars to conduct in-depth research, laid the theoretical foundation of LOF, making it become one of the basic assumptions of Multinational Corporations research.Since the economic recession of United States and European countries and the rise of China’s economy, more and more Chinese enterprises to seize the opportunity to implement the strategy of international operations with the form of across-border mergers and acquisitions. However, due to a series of special background of Chinese enterprises and the reason that China’s economy is in a transition period, Chinese multinational enterprises face more prominent liability of foreignness, which hinder the success of international operations. Therefore, in order to achieve successful multinational operations, some steps should be considered to overcome the LOF.This paper uses the grounded theory, which is a method of qualitative research. Based on the case of "Lenovo Group merged with the personal computer department of IBM", with the use of Nvivo8.0, through opening coding, axial coding and modeling, we get 39 concepts and 12 categories, two main categories of "information internalization" and "favorably external representation" as well as the core category of "boundary spanning". Through the continuous analysis and comparison between the raw date and the codings, we finally get the conclusions of the grounded theory:(1) Chinese multinational enterprises faced with unfamiliar hazards, relational hazards and discrimination hazards. And the discrimination hazard is the main source of LOF which is reflected by political prejudice and discrimination, lack of understanding of the foreign environment and cross-cultural management dilemma. What more, we develop a model of LOF of Chinese enterprises. (2) According to the model, we propose that by implementing the strategy of "boundary spanning", Chinese enterprises are able to internalize the information of external environment and transmit the favorably information to external environment at the same time, which can help overcome LOF successfully. (3) Based on the conclusions of the grounded theory and combined the specific characteristics of Chinese multinational enterprises, we proposed some practical approach of "boundary spanning" strategy and give some advice on how to reduce the LOF successfully for Chinese enterprises.