Dancing with the stars: what do foreign firms get from high-status local partners?

Abstract

Purpose

The purpose of this paper is to examine the impact of high-status local exchange partners on foreign firms.

Design/methodology/approach

Bridging status research and international business literature, the study develops a framework that describes three prominent effects of high-status partners on foreign firms, and further links these effects to firms’ relationship outcomes. The proposed conceptual model is examined using partial least squares structural equations modeling on a sample of 96 foreign firms operating in China.

Findings

The study provides evidence that high-status local exchange partners tend to seek higher relationship-specific investment from foreign firms, and in the meantime, provide firms with greater opportunities for local learning and networking; subsequently, foreign firms are more likely to achieve satisfactory outcomes in the relationships.

Practical implications

These findings suggest that affiliation with high-status local actors can be a key approach to overcome the liability of foreignness in a host country. Firms therefore, should treat them carefully as an important category of exchange partner portfolios. These are particularly relevant to foreign firms competing in China, a society characterized by strong hierarchies.

Originality/value

The study serves as a preliminary attempt to introduce status concept to the field of international business. It promotes status as a key criterion for local partner selection, and offers the status research a contextual insight in the dilemma of choosing high- vs low-status partner candidates.

Citation

Yu, Y. and Sharma, R.R. (2016), "Dancing with the stars: what do foreign firms get from high-status local partners?", Management Decision, Vol. 54 No. 6, pp. 1294-1319. https://doi.org/10.1108/MD-12-2015-0575