Is the US Ready for FDI from China?
Studies in International Investment series
Edited by Karl P. Sauvant
Chapter 5: Revisiting Liability of Foreignness: Socio-Political Costs Facing Chinese Multinationals in the United States
5. Revisiting liability of foreignness: sociopolitical costs facing Chinese multinationals in the United States Lorraine Eden and Stewart R. Miller* Alien status always imposes some penalty on managerial effectiveness. (Caves 1971, p. 6) INTRODUCTION China’s gaze is now looking outward. With over $1 trillion in foreign exchange reserves at the beginning of 2008, the Chinese government encourages domestic firms to engage in a strategy of outward direct investment – “Going Global.” In addition, the China Investment Corporation (CIC), the new state agency inaugurated in October 2007 with a registered capital base of $200 billion, has been set up to make its own overseas investments (China Business 2007). In 2006, Chinese outward foreign direct investment (FDI) flows had reached $18 billion, for a stock of $82 billion (Kekic and Sauvant 2007). Firms are expanding abroad – and one of their primary destinations (as so many firms before them) is the United States of America. As Chinese investment into the United States increases, one cause for concern for Chinese executives is liability of foreignness (LOF), which refers to the added costs, specifically socio-political costs, faced by the foreign affiliate of a multinational enterprise (MNE) that are not incurred by domestic firms in the host country (Zaheer 1995). In this chapter, we ask what kinds of LOF costs face affiliates of these new Chinese multinationals when they come to the United States. Our study focuses on LOF costs to both Chinese parent firms and their US affiliates. We begin by discussing liability of foreignness and...
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