NONMARKET SOURCES OF LIABILITY OF FOREIGNNESS IN EMERGING MARKETS

Abstract

I examine how nonmarket forces can serve as a source of liability of foreignness for multinational corporations in practices from market entry to post-entry operation. I use a context of Japanese foreign direct investments in China. My analysis shows that a city policymaker tends to block FDI entries of Japanese firms to the city on her watch if her hometown is a former major battlefield during the Second Sino-Japanese War, and that the introduction of the State-owned Assets Supervision and Administration Commission of the State Council leads to instability of international joint ventures in China. Theoretically, my dissertation advances our understanding of liability of foreignness by specifying two prominent but covert sources and revealing the dynamics of manifestations of the liabilities. Practically, my studies help foreign firm managers improve their strategic calculus and stress the importance of a systemic perspective in decision making regarding international expansion.