Liability of Foreignness in Immersive Technologies: Evidence From Extended Reality Innovations
Authors:
Hyoryung Nam, Whitman School of Management, Syracuse University
Yiling Li, Yonsei School of Business, Yonsei University, Seoul, Korea
P.K. Kannan, R.H. Smith School of Business, University of Maryland, College Park
Jeonghye Choi, Yonsei School of Business, Yonsei University, Seoul, Korea
Journal:
Journal of International Business Studies, 2025
Summary:
This study presents a strategic guide for multinational firms adopting extended reality (XR) technologies by empirically examining how liability of foreignness (LOF) affects the effectiveness of XR and how its extent varies by technology-factors (e.g., realism, interactivity, vividness) and firm-specific contingencies (e.g., newness, brand platforms).
Research Questions:
1. Does liability of foreignness (LOF) exist in XR innovations? Specifically, are foreign brands’ XR innovations less effective at enhancing brand engagement than local brands’ XR innovations?
2. If LOF exists in XR innovations, under what conditions is LOF pronounced or mitigated?
3. Does the extent of LOF vary depending on XR features such as realism, interactivity, and vividness?
4. What strategies can foreign brands use to mitigate it?
What We Know:
• Multinational firms face distinct challenges in foreign markets due to liability of foreignness (LOF).
• LOF has been extensively studied in traditional business settings (e.g., product markets, offline retail, banking).
• However, its impact in the digital landscape—especially in emerging immersive technologies like AR and VR—remains largely unexplored.
Why is This Important?
• XR technologies are rapidly expanding, presenting new opportunities for global businesses.
• For global businesses investing in XR, overlooking LOF could result in missed opportunities, ineffective engagement, and costly missteps in international markets.
• Understanding when LOF in XR is most pronounced or can be mitigated is crucial for businesses aiming to effectively implement these technologies across different markets.
Novel Findings:
1. This study uncovers that LOF exists in immersive XR technologies, despite their role in helping global businesses overcome physical boundaries. Foreign brands, with limited understanding of local customers and culture, may find it challenging to create mentally fluent XR experiences that resonate with local customers.
2. This research introduces novel technology-driven contingencies of LOF in XR, providing strategic
insights for multinational firms on XR technology configurations. LOF is more pronounced in XR experiences that are less realistic, highly interactive, and visually intense. Unlike in traditional markets where superior technologies help mitigate LOF, in XR, advanced technologies can amplify it.
3. This research uncovers how LOF in XR innovations varies by firm and product contexts. LOF is mitigated for newer brands, and firms can further mitigate it through local marketing investments, particularly leveraging brand platforms. Notably, communications-based platforms (focused on building communities) are more effective at overcoming LOF than transaction-based platforms (focused on sales and promotions).
Implications for Practice:
The research offers four key recommendations for multinational companies looking to use XR effectively in foreign markets:
1. Know the culture. “Understand the cultural norms and nuances of a new market before you enter it. Tailor your XR strategy to fit the local culture, ensuring it feels relevant and engaging for local consumers.”
2. Choose XR technology wisely: “Some XR technologies can be more challenging for foreign businesses. Highly interactive and imaginative XR may increase the risk of cultural mismatches. If you’re not very familiar with the local market, start with simpler XR features and gradually introduce more advanced ones.”
3. Leverage Newness: “For multinational companies, a new brand or new product comes with a unique advantage — consumers are primarily focused on experiencing something new rather than noticing cultural mismatches. This gives you more flexibility in implementing advanced XR technologies in foreign markets.
4. Build a community: “Establish your own platform and start building a brand community around your product. That will help you in the long run to reduce the impact of the liability of foreignness.”
Full Citation:
Nam, H., Li, Y., Kannan, P.K., and Choi, J. (2025), Liability of foreignness in immersive technologies: evidence from extended reality innovations. Journal of International Business Studies.
Abstract:
Emerging extended reality (XR) technologies, such as augmented reality (AR) and virtual reality (VR), enable global businesses to deliver immersive experiences to customers beyond geographical borders. Despite the opportunities, leveraging XR innovations in foreign markets can present significant challenges. This study investigates whether and under what conditions global businesses experience liability of foreignness (LOF) when leveraging XR innovations. We argue that LOF in XR innovations arises from the inherent disadvantages foreign firms face in delivering mentally fluent XR experiences, which in turn can diminish the effectiveness of their XR innovations compared to local counterparts. We further contend that the extent of LOF in XR innovations varies depending on the features of XR technology, with greater LOF in less realistic, more interactive, and more vivid XR innovations. We also suggest that foreign businesses can mitigate LOF by strategically leveraging brand newness and brand platforms. Our empirical analyses, based on a dataset of 257 beauty brands in South Korea from 2019 to 2022, support the presence of LOF in XR innovations and show how technology features and brand-specific factors influence the extent of LOF. Our findings provide valuable insights for global businesses developing strategies to configure immersive technologies in international markets.
Web URL for the Article:
https://link.springer.com/article/10.1057/s41267-024-00756-w