Commentary The liability of foreignness, capabilities, knowledge, and the performance of the subsidiary

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Managing Subsidiary Dynamics Headquarters Role, Capability Development, and China Strategy, 2009, 1st edition, pp. 151 - 161
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One of the major conceptual dilemmas of international management has been issue of the liability of foreignness. The multinational enterprise (MNE), as it expands internationally, faces two fundamental problems: does it continue to do abroad what it does well at home, or does it change its approach to adapt to the differing conditions in its new markets? Additionally, the option of changing its approach confronts a major constraint: how to cover the costs of organizational complexity brought on by multinationality. Together, these problems and this constraint imply that multinationals face complexity and strategic-fit costs that quickly overwhelm the gains from economies of scale and scope that are derived from moving abroad into what are, for them, new markets. We know by the fact that multinationals exist and thrive that they are able to overcome these concerns. However, the question of why and how remains something of a mystery, although one we can conceptually work around this with a bit of theoretical and semantic legerdemain.
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