Building legitimacy in an adverse foreign environment: when the liability of foreignness can become a source of competitive advantage?

Abstract

Although the banking industry is by nature risk-prone, network-based and subject to strong institutional barriers, banks going international generally operate alone. Within a context of high liability of foreignness, how do they transform their internalization advantage of strategic assets in order to develop competitive advantage? This paper suggests reconsidering liability-based international business models in light of a multiple case study analysing a few foreign banks in India. Using a neoinstitutionalist framework, we find that banks resort to legitimacy-seeking strategies in order to overcome the high liability of foreignness and enjoy their internalization advantage. Furthermore, this paper tentatively tries to operationalize the concept of legitimacy strategies in this very specific case, around three pillars: (l) an overall superior expertise (2) an overall strong global reputation (3) an acculturation strategy aiming at indianizing the local banking unit