It is widely accepted that when firms enter a foreign market, they face considerable challenges and incur additional costs relative to indigenous firms. This liability of foreignness phenomenon is a consequence of many things, not least their lack of familiarity with local cultural norms and values, and economic, political and legal systems that are very different to their own. One especially difficult, but under-explored, issue arises when the host country has ethical and compliance standards that are lower than those in the firms' home country. The dilemma is essentially how to compete successfully with local firms while being ethical and legally compliant at home. This paper uses interviews with Chinese and foreign experts, as well as secondary data, to analyse the challenges facing foreign firms operating in China and to explore the tactical and strategic means by which they can be addressed.
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