A liability or an asset of foreignness? Theorizing on informal networks in international management

Keywords: Informal network; Liability of foreignness; Asset of foreignness; Social capital

Abstract: This article discusses how firms can accrue competitive advantage from their foreign status in the host country, with a particular focus on informal networks. Drawing on the literature on the liability and asset of foreignness, we argue that foreign firms can be in a better position to balance between the bright and dark side of informal networks than local firms. Foreign firms can deviate from local isomorphic pressures to minimize potential involvement in negative sides. Moreover, they can build more instrumental informal networks in which the dark side of informal networking is better controlled and regulated without losing social cohesion, flexibility, and other benefits of the bright side. This article contributes to our understanding of how foreign firms can turn foreignness into assets from liabilities when managing their informal networks in the host country.