Benischke, Mirko; Rietveld, Gerben; Slangen, Arjen; (2022) Within-Firm Variation in the Liability of Foreignness: A Demand-Based Perspective. Journal of Management 10.1177/01492063221094261. (In press).

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Abstract

The literature on the liability of foreignness focuses on explaining why foreign firms operating in a given country underperform relative to their domestic rivals. We provide a complementary perspective that allows for within-firm variation in the liability of foreignness, at the level of a firm's products. Specifically, we explore how consumers’ willingness-to-pay for foreign products is affected by a firm's sourcing strategy for product inputs and by heterogeneity in demand characteristics across the markets where the product is sold. We hypothesize that sourcing inputs from a regional product developer as well as cultural diversity in regional consumer markets will have a stronger positive impact on the regional sales performance of products sold by foreign firms than on those by domestic firms. Our hypotheses are supported in a product-level analysis of 2,144 console video games sold in the 11 subnational regions of the United Kingdom over the period 2005–2008. Our findings suggest that firm-level explanations of the liability of foreignness need to be supplemented by a product-level perspective that considers heterogeneity in both supply- and demand-side factors as important determinants of consumers’ willingness-to-pay for foreign products.

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