The liability of foreignness reconsidered: New insights from the alternative research context of transforming economies

Institutional theory has been increasingly used to decipher implications of the liability of being a foreign firm. Earlier studies have argued that multinational corporations bear social costs arising from lack of legitimacy and thus need to engage in isomorphism to increase their likelihood of survival. Drawing on insights gained from transforming economies, this study reconsiders the espoused relationships among legitimacy, local isomorphism, and overcoming the liability of foreignness. We argue that idiosyncrasies of transforming economies could engender (1) varying levels of need for gaining legitimacy of local constituents and (2) alternative ways other than local isomorphism for gaining legitimacy from local institutional actors.

► Contextualized within transforming economies, this study reconsiders LOF hypothesis.
► We argue LOF hypothesis requires calibration to be applicable in these economies.
► Dependence on local resources is theorized to moderate need for legitimacy.
► Routes to obtain legitimacy by circumventing local isomorphism are identified.
► A testable propositional inventory summarizing proposed framework is developed.