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Journal of International Business Studies

, Volume 44, Issue 6, pp 635–647 | Cite as

Liability of country foreignness and liability of regional foreignness: Their effects on geographic diversification and firm performance

  • Gongming Qian
  • Lee Li
  • Alan M Rugman
Research Note

Abstract

The costs of inter- and intra-regional diversification have been widely discussed in the existing international business literature, but the findings are mixed. Explanations for the mixed findings have important managerial implications, because business managers have to estimate accurately the costs of doing business within and across regions before they make their internationalization decisions. To explain the existing mixed findings, this study differentiates between liabilities of foreignness at the country and regional levels, and explores the joint effects of liability of country foreignness (LCF) and liability of regional foreignness (LRF) on the performance of internationalizing firms. Using data from 167 Canadian firms, we find that LCF may not necessarily be negatively correlated with intra-regional diversification, but LRF is positively correlated with inter-regional diversification. LCF moderates the relationship between LRF and inter-regional diversification, and also mediates the relationship between intra-regional diversification and firm performance. LRF mediates the relationship between inter-regional diversification and firm performance. Missing one or more of these variables may result in different cost estimates. Identification of the relationships between these variables helps to improve the accuracy of estimating the costs of doing business aboard.

Keywords

liability of country foreignness liability of regional foreignness intra- and inter-regional diversification firm performance 

Notes

Acknowledgements

This study is supported by the International Opportunities Fund of the Social Sciences and Humanities Research Council of Canada. The authors thank Professor Ulf Andersson and three anonymous referees for their insightful and constructive comments.

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Copyright information

© Academy of International Business 2013

Authors and Affiliations

  1. 1.Department of ManagementFaculty of Business Administration, The Chinese University of Hong Kong
  2. 2.York UniversityTorontoCanada
  3. 3.Henley Business School, University of ReadingUK

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