From home country to home base: A dynamic approach to the liability of foreignness

Authors

  • Nan Zhou,

    1. E&Y - SKOLKOVO Institute for Emerging Market Studies, Moscow School of Management Skolkovo, Beijing, China
    2. Developement Planning Department, China Minsheng Banking Corporation, Beijing, China
    Search for more papers by this author
  • Mauro F. Guillén

    Corresponding author
    1. Lauder Institute, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania, U.S.A.
    • Correspondence to: Mauro F. Guillén, 212 Lauder-Fischer Hall, 256 South 37th Street, Philadelphia, PA 19104, U.S.A. E-mail: guillen@wharton.upenn.edu

    Search for more papers by this author

Abstract

We argue that the influence of the home country wanes as the firm increases its geographic reach. We introduce the concept of the “home base” to capture the effect of the set of countries in which the firm operates. We expect the dynamic liability of foreignness defined relative to the home base to be a better predictor than the static liability of foreignness defined relative to the home country. We also expect the diversity of foreign experience to increase foreign market entry. We find support for these hypotheses with data on Chinese listed firms investing abroad between 1991 and 2007. Copyright © 2014 John Wiley & Sons, Ltd.

Ancillary