Is there a liability of localness? How emerging market firms respond to regulatory punctuations

Luis A. Perez-Batres, Lorraine Eden

Research output: Contribution to journalArticlepeer-review

47 Scopus citations

Abstract

In the 1990s, emerging economies all over the world deregulated, privatized and liberalized their domestic markets. These regulatory punctuations caused radical institutional changes for emerging market firms (EMFs). We argue that, for EMFs, regulatory punctuations created a liability of localness, parallel to the liability of foreignness that firms face when they go abroad. Whereas liability of foreignness comes from the differences caused by changing one's geographic place from 'here' to 'there'; liability of localness comes from changing one's point in time from 'then' (pre-exogenous regulatory shock) to 'now' (post-exogenous regulatory shock). In both cases, firms incur additional costs, and the ones that survive are ones that best develop strategies for coping with "being in a strange land". We apply our arguments to the Mexican banking industry, which was privatized and liberalized in the 1990s.

Original languageEnglish
Pages (from-to)232-251
Number of pages20
JournalJournal of International Management
Volume14
Issue number3
DOIs
StatePublished - Sep 2008

Keywords

  • Acquisition strategies
  • Banking
  • Emerging market firms
  • International diversification
  • Liability of foreignness
  • Liability of localness
  • Mexico
  • Multinational enterprises
  • Punctuated equilibrium
  • Regulatory punctuation

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