Turning a liability into an asset of foreignness: Managing informal networks in Korea

Although foreignness can bring both benefits and costs, much of the literature has focused on the liability of foreignness (LOF) while relatively little attention has been paid to the positive side. Despite the presence of LOFs, foreign companies may accrue some unique advantages from their foreign status, which are referred to as assets of foreignness (AOFs). Drawing upon social capital theory and institutional theory, this paper examines the issue of LOFs versus AOFs in the context of the informal networks in Korea and explores how foreign companies can manage their weaknesses in host country-specific informal networks to create value from their foreignness. We discuss two practical strategies, namely reactive and proactive strategies that can be used by foreign companies. While these two strategies can be pursued in parallel, this paper suggests that foreign companies should spend efforts and resources in pursuing proactive strategies with priority. This paper contributes to a more nuanced understanding of the role of foreignness in the international business context and provides practical insights into how foreign companies can leverage their foreign status in developing their own informal networks in Korea.