Abstract
Foreign investors generally need to overcome a liability of foreignness stemming from contextual distance between their home country and the target country. We argue that they can limit that liability more easily by investing in a global city rather than elsewhere in the target country. Accordingly, we hypothesize that the contextual distance to a target country has a positive effect on a firm's propensity to invest in a global city in that country. We also predict that this effect is stronger for investments in knowledge-intensive activities and weaker for investors with more target-country experience in general and target-country experience in global cities in particular. Our hypotheses receive considerable support in an analysis of 11,748 foreign greenfield investments by 1025 manufacturing and service firms during 2008-2012. Our findings suggest that global cities are superior subnational locations for gathering contextual knowledge about target countries and limiting the liability of foreignness.
Original language | English |
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Article number | 101022 |
Number of pages | 13 |
Journal | Journal of World Business |
Volume | 55 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jan 2020 |
Keywords
- Contextual distance
- Global cities
- Knowledge-intensive activities
- Liability of foreignness
- Location decisions
- Target-country experience
- RESEARCH-AND-DEVELOPMENT
- JAPANESE MULTINATIONAL-CORPORATIONS
- CULTURAL DISTANCE
- INTERNATIONAL EXPERIENCE
- HOST-COUNTRY
- CHOICE
- ENTRY
- IMPACT
- CITY
- HEADQUARTERS