Skip to main content
SpringerLink
Log in

Foreignness and exit over the life cycle of firms

  • Article
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

Received wisdom indicates that, owing to a liability of foreignness, foreign firms exit with greater likelihood than do comparable domestic firms, and that the difference attenuates as firms age and overcome the liability. We posit that foreign firms are also intrinsically more volatile and footloose than domestic ones, and that this leads to an increasing divergence between the exit rates of foreign and domestic firms. Empirically, we find that the difference between exit rates of foreign firms and domestic firms increases with age, as exit of foreign firms increases with age while that of purely domestic firms decreases. Exit rates of domestic-based multinationals do not change significantly with age; they are between those of foreign and purely domestic firms, but are closer to the latter. This suggests that the footlooseness observed for foreign firms is due to foreignness more than to multinationality.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2

Similar content being viewed by others

References

  • Agmon, T. 2003. Who gets what: The MNE, the national state and the distributional effects of globalization. Journal of International Business Studies, 34 (5): 416–427.

    Article  Google Scholar 

  • Baden-Fuller, C. W. F. 1989. Exit from declining industries and the case of steel castings. The Economic Journal, 99 (398): 949–961.

    Article  Google Scholar 

  • Bane, W. T., & Neubauer, F.-F. 1981. Diversification and the failure of new foreign activities. Strategic Management Journal, 2 (3): 219–233.

    Article  Google Scholar 

  • Belderbos, R., & Zou, J. 2007. On the growth of foreign affiliates: Multinational plant networks, joint ventures, and flexibility. Journal of International Business Studies, 38 (7): 1095–1112.

    Article  Google Scholar 

  • Belderbos, R., & Zou, J. 2009. Real options and foreign affiliate divestments: A portfolio perspective. Journal of International Business Studies, 40 (4): 600–620.

    Article  Google Scholar 

  • Benito, G. R. G. 1997. Divestment of foreign production operations. Applied Economics, 29 (10): 1365–1378.

    Article  Google Scholar 

  • Bernard, A. B., & Sjöholm, F. 2003. Foreign owners and plant survival, Working Paper 10039, National Bureau of Economic Research.

  • Berry, H. 2010. Why do firms divest? Organization Science, 21 (2): 380–396.

    Article  Google Scholar 

  • Birkinshaw, J., Braunerhjelm, P., Holm, U., & Terjesen, S. 2006. Why do some multinational corporations relocate their headquarters overseas? Strategic Management Journal, 27 (7): 681–700.

    Article  Google Scholar 

  • Blomström, M., & Kokko, A. 2003. The economics of foreign direct investment incentives, Working Paper 9489, National Bureau of Economic Research.

  • Boddewyn, J. 1979. Foreign divestment: Magnitude and factors. Journal of International Business Studies, 10 (1): 21–27.

    Article  Google Scholar 

  • Boddewyn, J. 1983. Foreign and domestic divestment and investment decisions: Like or unlike? Journal of International Business Studies, 14 (3): 23–35.

    Article  Google Scholar 

  • Colombo, M. G., & Delmastro, M. 2000. A note on the relation between size, ownership status and plant’s closure: Sunk costs vs. strategic size liability. Economics Letters, 69 (3): 421–427.

    Article  Google Scholar 

  • Conyon, M. J., Girma, S., Thompson, S., & Wright, P. W. 2002. The productivity and wage effects of foreign acquisition in the United Kingdom. Journal of Industrial Economics, 50 (1): 85–102.

    Article  Google Scholar 

  • Chung, C. C., Lee, S.-H., Beamish, P. W., & Isobe, T. 2010. Subsidiary expansion/contraction during times of economic crisis. Journal of International Business Studies, 41 (3): 500–516.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. W. 2001. Survival and profitability: The roles of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44 (5): 1028–1038.

    Article  Google Scholar 

  • Duhaime, I. M., & Schwenk, C. R. 1985. Conjectures on cognitive simplification in acquisition and divestment decision making. Academy of Management Review, 10 (2): 287–295.

    Google Scholar 

  • Dunne, T., Roberts, M. J., & Samuelson, L. 1988. Patterns of firm entry and exit in U.S. manufacturing industries. RAND Journal of Economics, 19 (4): 495–515.

    Article  Google Scholar 

  • Dunning, J. H. 1993. Multinational enterprises and the global economy. Wokingham: Addison-Wesley.

    Google Scholar 

  • Dunning, J. H., & Lundan, S. M. 2008. Multinational enterprises and the global economy, (2nd edn) Cheltenham: Edward Elgar.

    Google Scholar 

  • Eden, L., & Molot, M. A. 2002. Insiders, outsiders and host country bargains. Journal of International Management, 8 (4): 359–388.

    Article  Google Scholar 

  • Edman, J. 2009. The paradox of foreignness, PhD Dissertation, Institute of International Business, Stockholm School of Economics.

  • Elango, B. 2009. Minimizing effects of “liability of foreignness”: Response strategies of foreign firms in the United States. Journal of World Business, 44 (1): 51–62.

    Article  Google Scholar 

  • Flamm, K. 1984. The volatility of offshore investment. Journal of Development Economics, 16 (3): 231–248.

    Article  Google Scholar 

  • Freeman, J., Carroll, G. R., & Hannan, M. T. 1983. The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48 (5): 692–710.

    Article  Google Scholar 

  • Ghertman, M. 1988. Foreign subsidiary and parents’ roles during strategic investment and divestment decisions. Journal of International Business Studies, 19 (1): 47–67.

    Article  Google Scholar 

  • Görg, H., & Strobl, E. 2003. “Footloose” multinationals? The Manchester School, 71 (1): 1–19.

    Article  Google Scholar 

  • Hennart, J.-F., Roehl, T., & Zeng, M. 2002. Do exits proxy a liability of foreignness? The case of Japanese exits from the US. Journal of International Management, 8 (3): 241–264.

    Article  Google Scholar 

  • Kogut, B., & Kulatilaka, N. 1994. Operating flexibility, global manufacturing, and the option value of a multinational network. Management Science, 40 (1): 123–139.

    Article  Google Scholar 

  • Konings, J., & Murphy, A. 2006. Do multinational enterprises relocate employment to low-wage regions? Evidence from European multinationals. Review of World Economics, 142 (2): 267–286.

    Article  Google Scholar 

  • Kronborg, D., & Thomsen, S. 2009. Foreign ownership and long-term survival. Strategic Management Journal, 30 (2): 207–219.

    Article  Google Scholar 

  • Li, J. 1995. Foreign entry and survival: Effects of strategic choices on performance in international markets. Strategic Management Journal, 16 (5): 333–351.

    Article  Google Scholar 

  • Li, J., & Guisinger, S. 1991. Comparative business failures of foreign-controlled firms in the United States. Journal of International Business Studies, 22 (2): 209–224.

    Article  Google Scholar 

  • Livengood, R. S., & Reger, R. K. 2010. That's our turf! Identity domains and competitive dynamics. Academy Of Management Review, 35 (1): 48–66.

    Article  Google Scholar 

  • Luo, Y. 2001. Toward a cooperative view of MNC–host government relations: Building blocks and performance implications. Journal of International Business Studies, 32 (3): 401–419.

    Article  Google Scholar 

  • Mata, J., & Portugal, P. 2000. Closure and divestiture by foreign entrants: The impact of entry and post-entry strategies. Strategic Management Journal, 21 (5): 549–562.

    Article  Google Scholar 

  • Mata, J., & Portugal, P. 2002. The survival of new domestic and foreign-owned firms. Strategic Management Journal, 23 (4): 323–343.

    Article  Google Scholar 

  • Mezias, J. M. 2002. Identifying liabilities of foreignness and strategies to minimize their effects: The case of labor lawsuit judgments in the United States. Strategic Management Journal, 23 (3): 229–244.

    Article  Google Scholar 

  • Miller, S. R., & Parkhe, A. 2002. Is there a liability of foreignness in global banking? An empirical test of banks’ X-efficiency. Strategic Management Journal, 23 (1): 55–75.

    Article  Google Scholar 

  • Mitchell, W. 1994. The dynamics of evolving markets: The effects of business sales and age on dissolutions and divestitures. Administrative Science Quarterly, 39 (4): 575–602.

    Article  Google Scholar 

  • Mitchell, W., Shaver, J. M., & Yeung, B. 1994. Foreign entrant survival and foreign market share: Canadian companies’ experience in United States medical sector markets. Strategic Management Journal, 15 (7): 555–567.

    Article  Google Scholar 

  • Morschett, D., Donath, A., & Schramm-Klein, H. 2011. What do we really know about antecedents of international divestment? A systematic review. Mimeo, Université de Fribourg.

  • Mudambi, R., & Zahra, S. 2007. The survival of international new ventures. Journal of International Business Studies, 38 (2): 333–352.

    Article  Google Scholar 

  • Nachum, L. 2003. Liability of foreignness in global competition? Financial service affiliates in the City of London. Strategic Management Journal, 24 (12): 1187–1208.

    Article  Google Scholar 

  • Nachum, L. 2010. When is foreignness an asset or a liability? Explaining the performance differential between foreign and local firms. Journal of Management, 36 (3): 714–739.

    Article  Google Scholar 

  • Nebus, J., & Rufin, C. 2010. Extending the bargaining power model: Explaining bargaining outcomes among nations, MNEs, and NGOs. Journal of International Business Studies, 41 (6): 996–1015.

    Article  Google Scholar 

  • Nees, D. 1981. Increase your divestment effectiveness. Strategic Management Journal, 2 (2): 119–130.

    Article  Google Scholar 

  • Pennings, E., & Sleuwaegen, L. 2000. International relocation: Firm and industry determinants. Economics Letters, 67 (2): 179–186.

    Article  Google Scholar 

  • Petersen, B., & Pedersen, T. 2002. Coping with liability of foreignness: Different learning engagements of entrant firms. Journal of International Management, 8 (3): 339–350.

    Article  Google Scholar 

  • Pinkse, J., & Kolk, A. 2011. Multinational enterprises and climate change: Exploring institutional failures and embeddedness. Journal of International Business Studies, 43 (3): 332–341.

    Article  Google Scholar 

  • Rangan, S. 1998. Do multinationals operate flexibly? Theory and evidence. Journal of International Business Studies, 29 (2): 217–237.

    Article  Google Scholar 

  • Shaver, J. M., Mitchell, W., & Yeung, B. 1997. The effect of own-firm and other-firm experience on foreign direct investment survival in the United States, 1987–92. Strategic Management Journal, 18 (10): 811–824.

    Article  Google Scholar 

  • Shepherd, D. A., Douglas, E. J., & Shanley, M. 2000. New venture survival: Ignorance, external shocks, and risk reduction strategies. Journal of Business Venturing, 15 (5): 393–410.

    Article  Google Scholar 

  • Shimizu, K. 2007. Prospect theory, behavioral theory, and the threat-rigidity thesis: Combinative effects on organizational decisions to divest formerly acquired units. Academy of Management Journal, 50 (6): 1495–1514.

    Article  Google Scholar 

  • Siegel, J. I., Pyun, L., & Cheon, B. Y. 2010. Multinational firms, labor market discrimination, and the capture of competitive advantage by exploiting the social divide, Strategy Unit Working Paper 11-011, Harvard Business School.

  • Tsang, E. W. K., & Yip, P. S. L. 2007. Economic distance and the survival of foreign direct investments. Academy of Management Journal, 50 (5): 1156–1168.

    Article  Google Scholar 

  • Tsetsekos, G. P., & Gombola, M. J. 1992. Foreign and domestic divestments: Evidence on valuation effects of plant closings. Journal of International Business Studies, 23 (2): 203–223.

    Article  Google Scholar 

  • Un, C. A. 2011. The advantage of foreignness in innovation. Strategic Management Journal, 32 (11): 1232–1242.

    Article  Google Scholar 

  • UNCTAD. 2000. Tax incentives and foreign direct investment: A global study. Geneva: United Nations Publications.

  • Vachani, S. 1995. Enhancing the obsolescing bargain theory: A longitudinal study of foreign ownership of US and European multinationals. Journal of International Business Studies, 26 (1): 159–180.

    Article  Google Scholar 

  • Vernon, R. 1979. The product cycle hypothesis in a new international environment. Oxford Bulletin of Economics and Statistics, 41 (4): 255–267.

    Article  Google Scholar 

  • Voget, J. 2011. Relocation of headquarters and international taxation. Journal of Public Economics, 95 (9): 1067–1081.

    Article  Google Scholar 

  • Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.

    Article  Google Scholar 

  • Zaheer, S., & Mosakowski, E. 1997. The dynamics of the liability of foreignness: A global study of survival in financial services. Strategic Management Journal, 18 (6): 439–463.

    Article  Google Scholar 

  • Zander, I. 1998. The evolution of technological capabilities in the multinational corporation: Dispersion, duplication and potential advantages from multinationality. Research Policy, 27 (1): 17–35.

    Article  Google Scholar 

  • Zingales, L. 1998. Survival of the fittest or the fattest? Exit and financing in the trucking industry. Journal of Finance, 53 (3): 905–938.

    Article  Google Scholar 

Download references

Acknowledgements

We are grateful to three referees, Luís Catela Nunes and João Santos Silva for helpful suggestions, to Editor Ulf Andersson for his constructive guidance throughout the process, and to Fundação para a Ciência e Tecnologia and Nova Fórum for support.

Author information

Authors and Affiliations

  1. Nova School of Business and Economics, Lisboa, Portugal

    José Mata & Ernesto Freitas

Authors
  1. José Mata
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ernesto Freitas
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to José Mata.

Additional information

Accepted by Ulf Andersson, Area Editor, 19 June 2012. This paper has been with the authors for two revisions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Mata, J., Freitas, E. Foreignness and exit over the life cycle of firms. J Int Bus Stud 43, 615–630 (2012). https://doi.org/10.1057/jibs.2012.21

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2012.21

Keywords

Search

Navigation