Foreignness-based social comparison and strategic change: which peer groups matter and when?

We advance the application of the behavioral theory of the firm (BTOF) in the international context by developing and validating a foreignness-based social comparison framework. Moving beyond industry-based social comparison, our novel framework highlights foreignness as a basis for foreign firms’ identification of social reference groups during international operation. We argue that foreignness is a multi-layered social construct, including an undifferentiated layer shared by all foreign firms in host countries, and a differentiated layer associated with their countries of origin. We theorize that foreign firms simultaneously benchmark two reference groups (i.e., foreign peers and home-country peers) for performance diagnosis that leads to strategic changes. Moreover, host-country institutional conditions moderate these social comparison effects by shifting foreign firms’ attention allocation between the two groups. When these conditions alter the liabilities and benefits associated with foreignness, the salience of undifferentiated foreignness changes relative to that of differentiated foreignness, resulting in managerial attention shift between foreign-peer-based and home-country-peer-based social comparison. Through an analysis of strategic changes among a panel of foreign firms operating in China, our empirical findings support the foreignness-based social comparison framework by elucidating the simultaneous effects of dual social comparisons and the attention shifts between them.