The answer to the question ‘Who are we?’ as an organisation lies within an organisation’s identity, a critical construct in organisational studies (Albert, Ashforth & Dutton 2000:13). According to Oliver and Vough (2020:76), organisational identity is viewed as a ‘socially constructed perception of an organization’s core characteristics’ that are widely recognised and accepted by organisational members, that is, stakeholders. In the context of MNC subsidiaries, stakeholders in host countries examine an MNC’s organisational identity to assess whether it aligns with local social values, business norms, and product and brand expectations (Ritvala, Granqvist & Piekkari 2021; Zuo 2025). An important factor in the formation of organisational identity is an MNC’s national identity (Jack & Lorbiecki 2007).

National identity theory suggests that citizens of a country identify with their country’s formal and informal institutions (Ashta 2021; Liu & Turner 2018). Depending on the local stakeholders’ perception and attitude towards the MNC’s country of origin, national identity can be crucial to performance when MNCs enter foreign markets (Edman 2016; Gregorič, Rabbiosi & Santangelo 2021). Consequently, organisational identity, and moreover, national identity, becomes a crucial metric for determining the organisational legitimacy of MNCs in foreign markets (Ellimäki et al. 2021; Wei & Yang 2018). According to Ramachandran and Pant (2010), the national origins of MNCs determine the LOO, that is, disadvantages faced in host countries, which can ultimately influence the corporate performance of MNCs.

Liability of origin is rooted in the adverse stereotypes stakeholders in host countries have of the MNC’s home country. This negative stereotyping leads host countries to perceive the organisational identity of MNCs’ subsidiaries as illegitimate (Marano, Tashman & Kostova 2017; Zuo 2025). It has long been argued that MNCs from EE face substantial disadvantages when seeking to compete abroad (Ramachandran & Pant 2010). China, in particular, is continuously facing LOO and seeking to acquire complete legitimacy in foreign markets. Given China’s unique political and economic institutions, culture, social norms and values, its MNCs experience adverse stereotyping from host country stakeholders. Jiang et al. (2022) explore the LOO of Chinese MNCs and suggested that host countries might perceive these entities as lacking in ‘warmth’ attributes such as friendliness, good intentions, sincerity and trustworthiness. These perceptions result in host countries not expecting Chinese MNCs to behave according to the hosts’ standards, leading to increased suspicion and scepticism, ultimately impacting the success of these MNCs’ subsidiaries. Jiang et al. (2022) conclude that when the perceived warmth dimension of China is low, Chinese MNCs are less likely to complete deals in foreign countries. This finding emphasises the impact of national stereotypes on international business operations.

Substantial attention has been devoted to LOO in the international business context (Marano et al. 2017), emphasising how traditional disadvantages impact MNCs’ corporate performance. Tan and Yang (2021), however, proposed that besides the typical stereotyping, Chinese MNCs are also increasingly confronting a novel form of LOO, referred to as the ‘new LOO’. This emerging ‘born disadvantage’ stems from escalating geopolitical tensions between countries (Tan & Yang 2021).

Limited exploration of the new LOO has been conducted, with the scant research available focussing primarily on EE MNCs operating in developed economies. However, as geopolitical conflicts intensify, the new LOO faced by EE MNCs also impacts their operations in their developing counterparts (Zámborský et al. 2023). The potential impact of the new LOO on MNCs’ business operations in foreign markets highlights the importance of moving beyond focussing exclusively on the traditional LOO to better understand the consequences of and potential solutions for the new LOO.

Drawing from the theoretical discussions in this section, the theoretical framework of LOO formation and impact mechanisms are graphically illustrated in Figure 1.

The new LOO stems from the escalating geopolitical conflicts between countries (Gu et al. 2022; Tan & Yang 2021). Tensions between different states can adversely affect normal international relations (Bloom 2009). According to Tan and Yang (2021), the risk of the new LOO is even more pertinent to Chinese MNCs, especially those operating in competitive, high-tech industries. China has made substantial strides in the high-tech industry, resulting in increased competition between Chinese MNCs and host country corporations (Jiang et al. 2022). China’s progression in competitive industries enhances the competition faced by host countries to maintain the position of industry leaders, fuelling geopolitical tensions (Jiang et al. 2022; Witt 2019). This phenomenon can be seen as an industry-level identity disadvantage, which contributes to the new LOO.

Fierce industry competition between China and host countries is thus the driver of the new LOO, as opposed to the traditional assumptions of technological incapabilities and institutional voids of EE MNCs (Tan & Yang 2021). Wang (2014) further elaborates that manifestations of this new LOO include scepticism regarding the motives behind Chinese foreign investment (e.g. national security concerns), investment practices (e.g. irresponsible corporate behaviour) and methods (e.g. allegations of unfair competition by enterprises).

Geopolitical conflicts between countries create an environment of heightened uncertainty and tension, which amplifies cognitive and regulatory challenges faced by MNCs in foreign markets (Guo 2024). Such conditions often result in the stigmatisation of Chinese MNCs, which hinders support from the local government and other stakeholders (Amankwah-Amoah & Debrah 2017; Zhang & De Vries 2023). This, in turn, could significantly impact the MNCs’ international corporate performance (Amankwah-Amoah & Debrah 2017; Alkire & Meschi 2018; Yang & Liu 2020). The national identity of China is, thus, expected to be a crucial determinant of Chinese MNC subsidiaries’ performance when they enter foreign markets, particularly in countries with high geopolitical tensions (Jiang et al. 2022). Accordingly, the following hypothesis was developed:

Establishing and maintaining legitimacy in host countries is a pressing issue faced by MNCs (Kostova & Zaheer 1999). Legitimacy is a widely accepted concept in institutional research (Bitektine & Haack 2015; Colyvas & Powell 2006). Institutional theory suggests that an organisation’s legitimacy, growth and ultimate survival in foreign countries are contingent upon its compliance with the established principles within the given institutional context (DiMaggio & Powell 1983; Pollock & Rindova 2003; Suchman 1995).

Following an extensive review of legitimacy research, Deephouse et al. (2017:9) define organisational legitimacy as ‘the perceived appropriateness of an organization to a social system in terms of rules, values, norms and definitions’. These are dictated by a combination of regulations, societal norms and cognitive frameworks. When MNCs expand into foreign markets, their subsidiaries integrate into the respective local societies, necessitating interactions with various local stakeholders (Cao & Alon 2021).

These stakeholders judge and assess the MNCs’ subsidiaries mainly on their organisational identity, which plays a crucial role in gaining legitimacy (Gregorič et al. 2021). For these multinationals, it is imperative to work towards earning recognition and acceptance from these stakeholders to grow and ultimately survive (Kostova, Roth & Dacin 2008).

Misconceptions in public perception can hinder interactions between MNCs and local stakeholders (Marano et al. 2017). Local stakeholders’ adverse stereotypes towards the cultural, institutional and economic conditions of the MNCs’ home country (LOO) can negatively impact the perceived identity and legitimacy of these MNCs (Ramachandran & Pant 2010; Tan & Yang 2021). This is especially true in the context of EE MNCs, which tend to experience more legitimacy challenges than developed economies (Ramachandran & Pant 2010; Zhang et al. 2020).

Stereotypes may cause host country consumers to view products from EE MNCs as low quality (Klein 2002; Jiang et al. 2022), governments to suspect these MNCs of corruption and lack of transparency (Zhang 2022), investors to doubt their corporate governance (Marano et al. 2017; Liou, Brown & Hasija 2021), and civil societies to question their commitment to environmental protection and labour rights (Fiaschi, Giuliani & Nieri 2017). Such negative perceptions lead to the discrimination of EE MNCs, thus hampering the MNCs’ ability to gain legitimacy in host countries. Consequently, local stakeholders are discouraged from providing resources that are crucial to the success of these corporations (Fisher, Kotha & Lahiri 2016; Tan & Yang 2021; Jiang et al. 2022).

Because of geopolitical conflict, local stakeholders have additional legitimacy concerns about Chinese MNCs, which significantly raises the level of legitimacy pressure experienced by these MNCs (Jiang et al. 2022). National identity discrimination, mainly driven by geopolitical tension between countries, resulted in the new LOO (Tan & Yang 2021). The higher the pressure because of the new LOO, the more unlikely host country governments are to award contracts, licences or preferential treatment to these EE MNCs (Parente et al. 2019), and the lower the likelihood of these MNCs achieving a higher level of legitimacy. Chinese MNCs, thus, face increased challenges resulting from the new LOO, which could adversely affect their subsidiaries’ corporate performance. In accordance with the proposed linkages between the new LOO, organisational legitimacy, and EE MNCs’ corporate performance, the following three hypotheses were developed:

Multinational companies can be viewed as social constructs formed by specific national institutional contexts, with their identities moulded by their home country’s institutional system (Gu et al. 2022). Multinational companies often encounter a competitive disadvantage resulting from the institutional distance between their home country and the host countries in which they operate. Institutional distance is a well-recognised phenomenon in international business (Fiaschi et al. 2017; Yang & Liu 2020). It is defined as the difference between the regulatory, normative and cognitive institutions of two countries (Kostova & Zaheer 1999). The greater the institutional distance between countries, the vaster the institutional differences, and consequently, the more difficult it is for MNCs to gain legitimacy in host countries (Kostava et al. 2020).

Three primary disadvantages arising from institutional distance for MNCs have been identified in the literature: (1) unfamiliarity hazard, where foreign enterprises face informational asymmetries compared to local businesses (Tzeng 2023); (2) discriminatory hazards, involving host country stakeholders’ preferential treatment towards domestic enterprises, leading to higher barriers for foreign firms (De Beule, Elia & Piscitello 2014) and (3) relational hazards, where foreign enterprises struggle with exclusion from local social networks, negatively impacting the establishment of trust and business success (Shirodkar & Konara 2017). In this vein, the greater the institutional distance between the MNCs’ home country and host countries, the greater the institutional pressure exerted by the host countries’ institutional environment on the MNCs. This increased distance leads to a more pronounced LOF for the MNCs. Consequently, as the institutional distance widens, MNCs’ subsidiaries facing the new LOO find it increasingly challenging to gain legitimacy in the host countries. Accordingly, the following hypothesis was proposed:

In addition to the proposed theoretical prediction that institutional distance likely moderates the relationship between the new LOO and corporate performance via organisational legitimacy, a potential moderated mediating effect was proposed. Drawing on institutional and legitimacy theories, the researchers posited that the hurdle for MNCs in gaining legitimacy, to a certain extent, stems from the difference in the institutional environments of home and host countries, that is, institutional distance.

Institutional distance may lead stakeholders in the host country to be less informed about new market entrants. This lack of awareness can lead to stakeholders relying on stereotypes, potentially labelling MNCs’ investments as illegitimate and ultimately impacting the MNCs’ corporate performance in host countries. At the same time, MNCs, as foreigners, often face different institutional standards compared to domestic firms (Zaheer 1995). This can subject MNCs to stricter government regulations and potentially unfair discriminatory treatment in the host country (Denk, Kaufmann & Roesch 2012). Furthermore, the substantial differences between the home and host countries’ regulatory systems make it more challenging for MNCs to accurately interpret and respond to the host country’s institutional environment. This can lead to local stakeholders further alienating MNCs. Institutional distance is also considered a key factor that triggers the LOF (Eden & Miller 2004; Gu et al. 2022) and the LOO in the context of EE (Ramachandran & Pant 2010). The greater the institutional distance, the more significant the ‘born disadvantage’ challenges faced by EE MNCs. In the context of a high level of institutional distance, the new LOO, together with LOF, makes it more complicated for the subsidiaries of MNCs to obtain legitimacy in host countries and ultimately achieve improved corporate performance.

Greater distance heightens institutional risks for MNCs, especially in host countries experiencing geopolitical conflicts with their home country. This complicates the process of gaining legitimacy, increases institutional costs, and adversely affects success and performance in international markets. Accordingly, the following hypothesis was formulated:

Based on a comprehensive review of prior literature, the proposed relationships between the new LOO, organisational legitimacy, institutional distance and corporate performance are illustrated in Figure 2.

According to research by Witt (2019) and Tan and Yang (2021), the risk of the new LOO is more pertinent to high-tech industries that are more likely to threaten the national security of host countries. Given China’s technological progression and the subsequent challenges it poses to Western nations (Jiang et al. 2022), Chinese high-tech MNCs were the primary focus of this study. More specifically, high-tech MNCs in the manufacturing sector were investigated since this sector represents one of the largest segments of Chinese outward foreign direct investments (FDI) (NBS 2023). Furthermore, the number of MNCs investing in manufacturing leads in comparison to all other industries (China-Africa Business Council 2021).

Both primary and secondary data sources were utilised for data collection. The new LOO and institutional distance variables were quantified using secondary quantitative data. Primary data were collected by means of a structured questionnaire to measure organisational legitimacy and overseas subsidiary corporate performance.

Prior to formal data collection, a preliminary pilot study was conducted with 12 respondents from Chinese high-tech manufacturing MNCs. The questionnaire was then refined based on the feedback from these respondents. Formal data collection took place from June 2019 to January 2020. The attendance of multiple international exhibitions and investment forums in China (e.g. the second China International Import Expo, the 2019 China Import and Export Fair, and the 2019 China-Africa Private Sector Cooperation Forum) enabled the identification of 212 eligible Chinese high-tech manufacturing MNCs for the sample.

Three steps were followed to ensure the quality of the collected primary data. Firstly, it was required that all respondents either held a senior management position or were involved in the FDI decision-making process at their respective MNCs to ensure the respondents were knowledgeable about their organisation’s FDI projects. Secondly, the survey was conducted using structured questionnaires with the assistance of fieldworkers who received comprehensive training from the lead author prior to data collection. These fieldworkers, therefore, had a thorough understanding of the research project. The fieldworkers first briefed the respondents about the aim of the research, after which they were handed the questionnaire. This step ensured that the quality of data collected was maximised and the number of non-responses kept to a minimum (Lavrakas 2008). Thirdly, only completed questionnaires were included in the analysis, and as a final step, all questionnaires with identical responses across all items were excluded to maintain the validity of our analysis.

Out of the 212 questionnaires, 187 were deemed suitable for analysis. Of these 187 questionnaires, eight were completed for state-owned enterprises (SOEs). State-owned enterprises are frequently perceived less favourably by host country stakeholders compared to their non-state-owned counterparts, primarily because of their strong relations with home governments (Huang, Shen & Zhang 2022). This perception often leads to these SOEs facing greater challenges related to the new LOO and legitimacy challenges, especially in host countries that have hostile political and diplomatic relations with the MNCs’ home country (Huang et al. 2022). To minimise biases and ensure the integrity of the findings, these eight SOEs were excluded. A final sample of 179 Chinese private, high-tech manufacturing MNCs was, therefore, considered for empirical analysis.

It was imperative to acknowledge that the sampled MNCs may have outbound FDI projects in multiple countries. Respondents were, therefore, instructed to consider their most recent outbound FDI project when completing the questionnaire. A description of the final sample is reflected in Table 1.

All the MNC subsidiaries included in the sample were, at the time of data collection, established in host countries within 5 years or less. Only 14.3% of the sample employ more than 100 employees at their respective subsidiaries, which was expected given the relatively brief operational history of these FDI projects. In terms of entry mode, 43% of the sampled MNCs entered the host countries via a wholly owned subsidiary (WOS), while the majority (57%) made use of a joint venture.

Geographically, the largest portion of FDI projects (63.1%) spans Asia and Africa, followed by 16.2% in Europe. The top 10 FDI destinations in terms of the number of projects include the United States of America, Japan, Singapore, Vietnam, Germany, Russia, Italy, Brazil, South Africa and Ethiopia. This reported region and country distribution aligns with current trends in the global expansion of Chinese enterprises (NBS 2023). To achieve a representative distribution, a stratified sampling procedure based on investment regions was used in the survey. Recognition was thus given to the fact that geopolitical tensions between China and host countries vary significantly across different regions.

To test the validity and reliability of the organisational legitimacy (leg) and corporate performance (per) measurement scales, both an exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were employed.

The EFA reported Kaiser–Meyer–Olkin (KMO) values exceeding the acceptable threshold of 0.7 (i.e. 0.868 and 0.794 for leg and per, respectively). A significant probability of 0.000 was also reported for the Bartlett’s Test of Sphericity, indicating that the data were suitable for factor analysis. Construct validity was thus confirmed. The factor loadings for all items were above the 0.500 threshold (Hair et al. 2014). Therefore, a single common factor for legitimacy (leg) and one for corporate performance (per) were identified. The characteristic roots for each construct explained 70.763% and 67.485% of the overall variance, respectively. Cronbach’s alpha coefficients were calculated to assess composite reliability (CR). As observed in Table 2, Cronbach’s alpha coefficients for each scale exceeded the critical threshold of 0.700 (Hair et al. 2022).

The survey data were further examined in a CFA obtaining a good fit for the 2-factor model (χ²/df [degrees of freedom] = 1.108 < 3, root mean square error of approximation [RMSEA] = 0.033 < 0.080, Tucker–Lewis Index [TLI] = 0.990 > 0.900, Comparative Fit Index [CFI] = 0.994 > 0.900 and Goodness-of-Fit Index [GFI] = 0.964 > 0.900). Convergent validity was assessed by means of the average variance extracted (AVE) and the CR. As indicated in Table 2, the two AVE values surpass the minimum threshold of 0.500, and the CR for both constructs exceeds the threshold of 0.800 (Hair et al. 2022). The square root of the AVEs is higher than the inter-correlations among constructs, as shown in Table 3, confirming discriminant validity.

Given the subjective measures employed to estimate organisational legitimacy and corporate performance, concerns pertaining to common method bias issues, particularly self-report bias, had to be addressed. For this purpose, both procedural and statistical controls, as well as methodological safeguards, were implemented. The procedural controls included anonymous questionnaire submissions, minimisation of the ambiguity of the measurement items and the use of diverse sources to obtain the relevant data for the study. Furthermore, we collected data at different time points (mornings and afternoons) to control for potential time-of-day effects on participant engagement and response patterns. We also gathered data across multiple trade exhibitions and investment forums, which helped minimise temporal and contextual biases that might be associated with specific events or settings.

The methodological safeguard was our research design complexity. As our hypotheses included moderation, mediation and moderated mediation effects, our research design was resistant to common method bias as respondents cannot anticipate these complex analytical relationships (Han 2021).

Furthermore, a statistical measure, namely Harman’s single-factor test, was employed. By performing CFA, all survey items were entered into the analysis and allowed to load onto a single factor. The model demonstrated very poor fit (χ²/df = 7.389, RMSEA = 0.253, TLI = 0.428, CFI = 0.619 and GFI = 0.769). From these results, it was concluded that common method bias was not a concern.

This article followed all ethical standards for research without direct contact with human or animal subjects.

The descriptive statistics and correlation analysis results for all the variables are presented in Table 3. A significant negative correlation between the new LOO and organisational legitimacy was reported, while the correlation between legitimacy and corporate performance was positive and statistically significant. Both these findings align with the proposed hypotheses. Notably, all the correlation coefficients reported in Table 3 are below 0.400, and the maximum variance inflation factor (VIF) was 1.24, which is lower than the critical cut-off level of five (Hair et al. 2022). Given these results, multicollinearity was not deemed to be an issue.

The stated hypotheses were addressed by employing a hierarchical regression analysis. Table 4 details the results obtained from the various regression analyses, examining direct, mediating and moderating effects. A bootstrapping methodology was also employed to ensure the robustness of results for the mediating and moderating effects. In addition, a moderated mediation effect, as illustrated in the conceptual framework (Figure 2), was analysed using Hayes’ PROCESS macro to assess if the mediation effect varies depending on the moderator variable (Muller, Judd & Yzerbyt 2005). The robustness of the results was ensured through bootstrapping for precise parameter estimates (Hayes 2013).

Several managerial implications could be derived from the findings of this study. Firstly, as a deliberately crafted and manageable institutional framework, geopolitical relations play a crucial role in the international expansion of enterprises. Our findings reveal that the new LOO resulting from geopolitical conflicts does not directly decrease the performance of MNCs in overseas markets but rather operates indirectly through diminished organisational legitimacy. This mediation mechanism suggests that Chinese high-tech MNCs should prioritise legitimacy-building strategies when entering markets affected by geopolitical tensions.

Secondly, legitimacy emerges as the crucial factor influencing the overseas subsidiary performance of Chinese high-tech MNCs. At their core, Chinese MNCs must align with their operational environments’ guiding principles, regulations, social norms and frameworks to maintain their existence and facilitate expansion. Since organisational legitimacy fully mediates the relationship between the new LOO and corporate performance, enhancing legitimacy can effectively buffer against geopolitical tensions. Furthermore, mastering identity management is a crucial strategic choice for these companies in gaining legitimacy. This identity management must be precise and tailored to address the specific challenges associated with the new LOO. Moreover, the new LOO of Chinese high-tech MNCs is not solely determined by the adverse perception of national identity. It is also attributed to their industry- and firm-specific identities. Therefore, the identity management strategy should be multi-level and multifaceted to address these diverse aspects effectively.

Thirdly, the effectiveness of MNCs in achieving legitimacy and promoting corporate performance within a host country is influenced by the institutional distance between countries. In host countries with significant institutional distance from China, the dual liabilities of origin and foreignness become more pronounced. Multinational companies in these environments face heightened legitimacy challenges and incur considerable costs in gaining legitimacy. Subsidiaries of these MNCs should allocate more resources and time to understand local institutions, develop networks and implement effective legitimacy strategies, aiming to enhance the performance of their overseas subsidiaries. However, MNCs should also consider balancing the costs and benefits of these endeavours. Alternatively, MNCs might employ avoidance strategies, such as targeting niche markets or markets with smaller institutional distances from China, to mitigate these challenges.

To conclude, recognising that organisational legitimacy serves as the critical bridge between the new ‘born disadvantage’ and performance outcomes enables Chinese MNCs to develop more effective internationalisation strategies tailored to specific institutional contexts. Furthermore, our moderated mediation model suggests that the strength of this mediating effect varies significantly based on institutional distance, requiring MNCs to calibrate their legitimacy-building efforts more intensively in institutionally distant markets where the pathway from the ‘born disadvantage’ through legitimacy to performance is most challenging.

Several limitations were encountered, which subsequently point towards future research avenues. Firstly, the sample was limited to private high-tech companies to ensure the reliability of the findings. As previously mentioned, the new LOO situation for SOEs may differ from that of private entities. Future research could, therefore, broaden its scope to include SOEs for a more comprehensive analysis. Secondly, the researchers aimed to empirically investigate the impact of the new LOO on corporate performance. The strategies adopted by MNCs to address this emerging form of liability were not assessed. Future studies could consider investigating the impact of specific strategic choices MNCs make and how their response strategies differ from those used in dealing with traditional LOO. Thirdly, LOOs undergo dynamic development and continuously manifest in various forms. This dynamic nature necessitates ongoing attention and presents challenges in accurately measuring ‘born disadvantages’. This aspect was beyond the scope of the current study, but it warrants further investigation.