Foreign Identity, Liability Of Foreignness And Its Overcoming Strategies

International operation has provided a broad space and opportunities for the modern enterprise’s development, but this is not a flat road. Theorists of liability of foreignness(LOF) have pointed out the additional costs that enterprises operating overseas were faced additional costs relative to local businesses, such congenital competitive disadvantage reduced the performance of company’s overseas operations, and even lead to its withdrawal from the host country market.In this paper, we explore the LOF problem that Chinese enterprises faced in the developed markets from the perspective of company’s "foreign identity". We identify the LOF that Chinese enterprises facing due to foreign identity comes from foreign identity’ stigmatized, multiplicity and dynamic nature. In order to overcome these liabilities, we propose that Chinese enterprises could take actions by organizational identity reconstruction, organization impression management and selecting the appropriate entry mode. Based on this we propose hypothesis and construct a theoretical model,then verify it with the case study method.The results of this paper show that stigmatized foreign identity has a negative impact on externalities image of Chinese enterprises, which result in discrimination from the host country’s stakeholders, reducing the legitimacy of the enterprise in the host country. The multiplicity of forign identities, namely the nominal organizational identity, employee perception identity and the employee expecting identity are inconsistent, which leading to the lack of identification of the organization, increasing the difficulty of cross-cultural management, reducing the corporate strategic behavior consistency. The dynamic nature of foreign identity increases the contradiction between maintaining identity stability and responsing to environmental change among the different countries. The out of sync and difference of environmental change between countries presents new challenges for organization identity.In order to overcome the stigmatized foreign identity, we utilize the impression management strategy to improve corporate image of Chinese enterprises, and enhance their legitimacy and stakeholder’s acceptance; In order to overcome the multiplicity and dynamic of foreign identity, we utilize organizational identity reconstruction strategy to improve the identification for overseas employees to organizational identity and the responding ability of organizational identity to environmental change. Addition, for different entry modes have important regulatory impact on LOF, the paper recommends that Chinese enterprises could choose the appropriate entry mode, thereby reducing targeted LOF.Finally, using confirmatory method of matching type technology, this paper carried out a cross-case study by three classic cases-Lenovo, Huawei, Haier to validates the hypothesises. This research has some certain practical implications for Chinese enterprises to deal with the liability of foreignness in their transnational operations.