Explaining Discrimination experienced by MNEs: An Interest Alignment and Agency Theory of the LOF

Half a century after Hymer’s (1960) seminal work, bias and discrimination experienced by transnational enterprises in foreign host countries remains widely observed yet unsatisfactorily theorized. Existing work on the liability of foreignness has drawn on economics and sociology and emphasized exogenous factors such as distance and difference (Zaheer, 1995; Zaheer and Kostova, 1999; Eden and Miller, 2004). Yet, bias and discrimination are endogenous responses enacted by national groups securing their interests. A socio-political perspective would hence appear to offer more promise. On the starting premise that foreignness is a socio-political out-group category, we propose that bias and discrimination (B&D) are targeted behaviors enacted by in-group agents when they perceive threats to national or domestic interests. Whereas the costs of doing business abroad are a function of home-host distance and difference, B&D are a function of home-host misalignment of interests. Our theory sheds light on the endoge...