Liabilities of foreignness: mitigation strategies and international performance among Indian SMEs

Small and medium-sized enterprises represent the backbone of national economies around the world. However, little is known about liabilities of foreignness (LOF) confronted by SMEs in foreign markets. This study identifies the LOF encountered by Indian SMEs in foreign markets, how they cope with foreignness related uncertainties, and how LOF affects SMEs’ international performance. Grounded in multiple theoretical lenses, such as resource-based view (RBV), knowledge-based view (KBV), institutional theory and network perspective on internationalization, the study develops an integrated conceptual model, which is examined using a mixed methods research design. It includes exploratory interviews followed by a web-based questionnaire. Drawing on literature strands such as international business, international entrepreneurship and strategic management, the study conducts in-depth exploratory interviews with 15 Indian SMEs. The research hypotheses developed are tested on a sample of 68 Indian SMEs. For the quantitative portion of the thesis, the study adopts a comparative perspective between SMEs that had business experience within Indian states and SMEs without interstate experience. The key findings suggest that sample SMEs in this study encountered disadvantages in foreign markets, such as challenges due to unfamiliarity and uncertainties associated with the host markets environment and discriminatory behavior from foreign customers. The results indicated that SMEs employed traditional approaches to mitigate LOF, such as leveraging managers’ international experiences, knowledge, and networks to tackle LOF. However, one of the crucial findings was the discovery of intra-country liabilities that SMEs encountered due to subnational differences within India. A key finding from the quantitative part of the study indicated that, unlike SMEs without interstate experience, LOF did not appear to weaken the international performance of SMEs with interstate experience. The study offers several contributions to the literature. Due to the lack of an agreed-upon operationalization of the LOF construct, there is inconsistency in how LOF is measured in the extant literature. A key contribution of this thesis lies in the operationalization and examination of LOF in the context of emerging market SMEs. The LOF literature has also tended to downplay the impact of home country experiences, in terms of influencing emerging market firms’ international activities. This study contributes to this gap by conceptualizing and exploring the role of intra-country variations on SMEs’ internationalization. Additionally, the study adopts a comparative perspective to examine how SMEs with and without interstate experience tackle LOF and perform internationally. Furthermore, the extant LOF studies have generally used a single methodological approach (quantitative or qualitative); this thesis contributes by using a sequential mixed methods design for a deeper and richer examination of LOF. Lastly, as LOF comprises of several disadvantages that foreign firms encounter, the study adopts a multi-theoretic approach to understand this composite concept.