Overcoming the Liability of Foreignness in International Retailing: A Consumer Perspective

Foreign firms usually suffer the liability of foreignness (LOF), which refers to additional costs incurred by a firm when conducting business overseas that local firms do not incur. In this paper, we focus on one type of consumer bias, namely the perceived importance of supporting domestic retailers (PISD), and investigate whether foreign retailers are able to overcome this disadvantage by obtaining pragmatic legitimacy, which is achieved by providing superior retail mix attributes, and improving moral legitimacy, which is attained by conducting corporate social responsibility (CSR) activities. Our results show that to overcome the LOF, at least in Chinese market, foreign retailers should emphasize value-for-money retail mix attributes such as increasing product quality and running effective promotional campaigns. Interestingly, CSR is not effective in mitigating the disadvantage of PISD.