The impact of liability of origin on corporate performance of Chinese high-tech multinationals

Abstract

Background: Multinational companies (MNCs) from emerging economies often face disadvantages in international markets because of the liability of origin (LOO) associated with their home country identity, known as ‘born disadvantage’. Recently, fierce international competition and geopolitical conflicts have introduced a new form of LOO, further challenging MNCs’ efforts to gain legitimacy in host countries.

Aim: This study aims to examine the impact of the new LOO on the corporate performance of Chinese high-tech manufacturing MNCs’ overseas subsidiaries and to explore institutional distance as a moderator and organisational legitimacy as mediator.

Setting: The research focusses on 179 overseas subsidiaries of Chinese high-tech manufacturing MNCs operating in diverse host country environments.

Method: A moderated mediation model was employed, utilising both secondary and primary quantitative data to investigate the relationships between the new LOO, organisational legitimacy, institutional distance and subsidiary performance.

Results: The new LOO’s impact on corporate performance varies with host country stakeholder’s perception of subsidiaries legitimacy. High institutional distance intensifies the negative impact of the new LOO on organisational legitimacy, significantly influencing subsidiary performance.

Conclusion: The new LOO poses significant challenges for Chinese high-tech MNCs in achieving legitimacy and sustaining performance in international markets, particularly in host countries with high institutional distance.

Contribution: By integrating institutional and identity theories, this study provides valuable insights into the dynamics of the ‘born disadvantage’ amid geopolitical tensions. The findings are important for Chinese MNCs and authorities to develop more effective internationalisation strategies in institutionally distant markets with escalating geopolitical conflicts to enhance corporate performance.