How local stakeholder stereotypes impact liability of foreignness and asset of foreignness

Abstract

While it is well known that there are liabilities of foreignness (LOFs) that impact firms as they enter foreign markets, it is less well known how stereotypes held by local stakeholders impact LOFs of foreign firms. Recent research has demonstrated that foreignness can offer benefits, or assets of foreignness (AOFs), for firms as they enter foreign markets. While research is growing in this area, there remains a gap in our understanding of how local stakeholders evaluate foreign firms. We leverage the stereotype content model, which measures dimensions of warmth and competence, to demonstrate that a foreign firm can enjoy an AOF, suffer from a LOF, or contend with both, depending on stereotypes held by local stakeholders. We associate four different combinations of warmth and competence stereotypes with AOFs and LOFs to reveal that the strategies of foreign firms for managing foreignness should attend to stereotypes held by local stakeholders. Finally, we propose several strategies that foreign firms can employ as they manage unfavorable stereotypes.