Redefining the Liability of Foreignness

We investigate the performance impact of the liability of foreignness in manufacturing, a disadvantage that an MNC faces when it locates its manufacturing facility abroad. Building on organizational learning theories in the international business literature, we examine the moderating role of experiential learning in overcoming the liability of foreignness in manufacturing. We differentiate two different types of learning: learning from a parent firm’s experience with prior foreign investment and learning from accumulated experience with a foreign operation following entry, or learning-by-doing. From a panel analysis using a matched sample of foreign and home operations owned by the same MNCs, we confirm that foreign operations are initially at a disadvantage relative to home operations and that both types of learning contribute to mitigating the initial disadvantage.