This study attempts to enhance the understanding of the liability of foreignness in the context of venture capitalists, hereafter VC, investing in emerging markets, hereafter EM, by drawing on case evidence from five cases. The outcomes of the study aim to provide VCs with a deep understanding of the investment environment within EM to lower the perceived risks and facilitate investments.
The literature review revealed a lack of evidence for the main institutional pressures, their impact on VCs as well as the strategies used to mitigate the impact of the liability of foreignness.
The main finding of the study is that a liability of foreignness exists for VCs due to political, legal and cultural pressures as well as a home bias. This leads to an increase in transaction costs. Furthermore, differences in the governance codes and business practices made it difficult for VCs to gain legitimacy within the EM while complying with all the rules and regulations of their home country.
Furthermore, local adaptation through the establishment of local offices to gain access to local networks and resources was the favoured mitigation strategy of VCs. Superior firm resources were used to facilitate learning about the EM by attracting local entrepreneurs and leveraging the added value of such resources during negotiations. The relocation of the headquarters from a portfolio company operating in an emerging market to a developed country in order to access financial as well as human resources was identified as a new mitigation strategy.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Research motivation
- Scope of the project
- Study procedure
- Literature Review
- Internationalisation
- Institutional theory
- Liability of foreignness
- Benefits of foreignness
- Difficulties in internationalisation
- Home Bias
- Strategies to overcome LOF
- Research Objective and Research Questions
- Methodology
- Case Study Method
- Single or multiple case study approach
- Sample Size and Selection Criteria
- Data Collection
- Data Analysis
- Case studies
- Cross-Case analysis
- Drivers Africa
- Institutional pressures
- Home bias Africa
- Drivers China
- Institutional pressures China
- Home bias China
- Drivers India
- Institutional pressures
- Home bias India
- Strategies Africa
- Local adaptation
- Exploitation of firm resources
- Strategies China
- Local adaptation
- Exploitation of firm resources
- Strategies India
- Local adaptation
- Exploitation of firm resources
- Similarities and differences
- Drivers
- Strategies
- Discussion and conclusion
- Drivers
- Home bias
- Strategies
- Implications
- Implications for VCs
- Implications for policy makers
- Contributions to academic literature
- Limitations
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The main objective of this dissertation is to examine the phenomenon of liability of foreignness (LOF) in the context of venture capital (VC) firms investing in emerging markets (EM), aiming to understand why VCs are hesitant to invest in EM and how they manage the challenges they face. The study uses case evidence from VCs investing in China, India, and Africa to identify common experiences and patterns related to the LOF.
- Institutional pressures and their impact on VCs in EM.
- The role of home bias in VC investment decisions.
- Strategies employed by VCs to overcome the LOF in EM.
- The influence of cultural differences on VC investment behavior.
- The importance of local adaptation and legitimacy building in EM.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the research topic, highlighting the transformation of emerging markets and the role of VC firms in their growth. It emphasizes the hesitance of VCs to invest in EM due to institutional voids and the resulting LOF, which remains largely unexplored. The study aims to understand the phenomenon of LOF in the VC context through a multiple case study approach.
- Literature Review: This chapter examines relevant literature from institutional theory and venture capital research. It discusses the internationalization of firms, institutional pressures, the liability and benefits of foreignness, difficulties in internationalization, home bias, and strategies to overcome the LOF.
- Research Objective and Research Questions: This chapter presents the research objective, which is to examine the LOF in the context of VCs investing in EM. It formulates three research questions to guide the study.
- Methodology: This chapter explains the chosen research approach, justifying the use of a multiple case study method to address the research questions. It discusses the selection criteria for participants, data collection methods, and data analysis techniques.
- Case studies: This chapter introduces the five selected case studies, providing details about the VCs and their investment experiences in China, India, and Africa.
- Cross-Case analysis: This chapter analyzes the similarities and differences between the five case studies. It identifies the main institutional pressures and their impact on VCs in each region, as well as the strategies used by VCs to overcome the LOF.
Schlüsselwörter (Keywords)
The study focuses on the liability of foreignness, venture capital, emerging markets, institutional pressures, home bias, internationalization, legitimacy, and strategies to mitigate the impact of the liability of foreignness. The study explores how VCs manage political, legal, and cultural differences in EM, as well as the importance of local adaptation and the exploitation of firm resources to gain legitimacy and achieve success.
- Quote paper
- Tim Schreier (Author), 2015, A liability of foreignness for venture capital firms investing in emerging markets. A case study approach, Munich, GRIN Verlag, https://www.grin.com/document/999705
