IDEAS home Printed from https://ideas.repec.org/a/eee/intman/v8y2002i3p283-300.html
   My bibliography  Save this article

Mitigating liabilities of foreignness: Defensive versus offensive approaches

Author

Listed:
  • Luo, Yadong
  • Shenkar, Oded
  • Nyaw, Mee-Kau

Abstract

Finding effective mechanisms that can overcome liabilities of foreignness (LOFs) is the central issue in the study of LOFs. This study proposes that such mechanisms comprise defensive options and offensive options. Defensive mechanisms include contract protection, parental control, parental service, and output standardization. Offensive mechanisms include local networking, resource commitment, legitimacy improvement, and input localization. Using China as an analytical setting, this study emphasizes two prominent yet distinct mechanisms: contract protection and local networking ("guanxi" in Chinese). Contracts and guanxi mitigate the LOF via different paths: Contracts negate LOFs by safeguarding invested resources, curtailing operational uncertainty, and reducing coordination costs, whereas guanxi neutralizes LOFs through increasing indigenous adaptability, improving organizational legitimacy, and heightening cooperation with the local business community. Our analysis of 92 sample MNEs in China suggests that contracts and guanxi exert different influences on the consequences of LOFs. Contracts reduce production and marketing costs but do not stimulate sales revenues. Guanxi, however, enhances sales revenues but does not reduce production and marketing costs. This study also documents that contracts and guanxi operate as complements in overcoming LOFs.

Suggested Citation

  • Luo, Yadong & Shenkar, Oded & Nyaw, Mee-Kau, 2002. "Mitigating liabilities of foreignness: Defensive versus offensive approaches," Journal of International Management, Elsevier, vol. 8(3), pages 283-300.
    • Handle: RePEc:eee:intman:v:8:y:2002:i:3:p:283-300
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S107542530200073X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    2. Nathan Fagre & Louis T Wells, 1982. "Bargaining Power of Multinationals and Host Governments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(2), pages 9-24, June.
    3. Luca Anderlini & Leonardo Felli, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1085-1124.
    4. Oded Shenkar & Yoram Zeira, 1992. "Role Conflict and Role Ambiguity of Chief Executive Officers in International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(1), pages 55-75, March.
    5. Kendall Roth & David M Schweiger & Allen J Morrison, 1991. "Global Strategy Implementation at the Business Unit Level: Operational Capabilities and Administrative Mechanisms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(3), pages 369-402, September.
    6. J Michael Geringer & Louis Hebert, 1989. "Control and Performance of International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 20(2), pages 235-254, June.
    7. Al-Najjar, Nabil I, 1995. "Incomplete Contracts and the Governance of Complex Contractual Relationships," American Economic Review, American Economic Association, vol. 85(2), pages 432-436, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paik, Yongsun & Sohn, Junghoon Derick, 2004. "Expatriate managers and MNC's ability to control international subsidiaries: the case of Japanese MNCs," Journal of World Business, Elsevier, vol. 39(1), pages 61-71, February.
    2. Buckley, Peter J. & Cross, Adam & De Mattos, Claudio, 2015. "The principle of congruity in the analysis of international business cooperation," International Business Review, Elsevier, vol. 24(6), pages 1048-1060.
    3. Hu, Michael Y. & Chen, Haiyang, 1996. "An empirical analysis of factors explaining foreign joint venture performance in China," Journal of Business Research, Elsevier, vol. 35(2), pages 165-173, February.
    4. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
    5. Yadong Luo, 2007. "Private control and collective control in international joint ventures," Management International Review, Springer, vol. 47(4), pages 531-566, October.
    6. John Child & Yanni Yan, 2003. "Predicting the Performance of International Joint Ventures: An Investigation in China," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 283-320, March.
    7. Cuypers, I.R.P., 2009. "Essays on equity joint ventures, uncertainty and experience," Other publications TiSEM 8dc79e86-c625-467f-a450-8, Tilburg University, School of Economics and Management.
    8. Ramaswamy, Kannan & Gomes, Lenn & Veliyath, Rajaram, 1998. "The performance correlates of ownership control: a study of U.S. and European MNE joint ventures in India," International Business Review, Elsevier, vol. 7(4), pages 423-441, August.
    9. Daniel Danau, 2019. "Contract law and Contract theory. A survey and some considerations," Economics Working Paper Archive (University of Rennes & University of Caen) 2019-04, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    10. Peng, George Z., 2012. "FDI legitimacy and MNC subsidiary control: From legitimation to competition," Journal of International Management, Elsevier, vol. 18(2), pages 115-131.
    11. José M. Alonso & Rhys Andrews, 2019. "Governance by targets and the performance of cross‐sector partnerships: Do partner diversity and partnership capabilities matter?," Strategic Management Journal, Wiley Blackwell, vol. 40(4), pages 556-579, April.
    12. Zhao, Hongxin & Zhu, Gangti, 1998. "Determinants of ownership preference of international joint ventures: new evidence from Chinese manufacturing industries," International Business Review, Elsevier, vol. 7(6), pages 569-589, November.
    13. Yan, Aimin & Gray, Barbara, 2001. "Negotiating control and achieving performance in international joint ventures: A conceptual model," Journal of International Management, Elsevier, vol. 7(4), pages 295-315.
    14. Piano, Ennio Emanuele & Piano, Clara E., 2021. "Bargaining over beauty: The economics of contracts in Renaissance art markets," SocArXiv 9b6c5, Center for Open Science.
    15. Tsamenyi, Mathew & Qureshi, Ahmad Z. & Yazdifar, Hassan, 2013. "The contract, accounting and trust: A case study of an international joint venture (IJV) in the United Arab Emirates (UAE)," Accounting forum, Elsevier, vol. 37(3), pages 182-195.
    16. Lee, Ji-Ren & Chen, Wei-Ru & Kao, Charng, 1998. "Bargaining power and the trade-off between the ownership and control of international joint ventures in China," Journal of International Management, Elsevier, vol. 4(4), pages 353-385, December.
    17. Luo, Yadong & Shenkar, Oded, 2011. "Toward a perspective of cultural friction in international business," Journal of International Management, Elsevier, vol. 17(1), pages 1-14, March.
    18. Alfredo Jimenez & Jonas Holmqvist & Diego Jimenez, 2019. "Cross-Border Communication and Private Participation Projects: The Role of Genealogical Language Distance," Management International Review, Springer, vol. 59(6), pages 1009-1033, December.
    19. Michael Nippa & Jeffrey J Reuer, 2019. "On the future of international joint venture research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 555-597, June.
    20. Schwartz, Alan & Watson, Joel, 2001. "The Law and Economics of Costly Contracting," University of California at San Diego, Economics Working Paper Series qt2wh8m7bv, Department of Economics, UC San Diego.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intman:v:8:y:2002:i:3:p:283-300. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/601266/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.