Are environmental conditions in the eyes of the beholder? Foreign and local firms in Africa

Abstract

International business research has provided substantial empirical evidence that foreign firms investing in countries with adverse environmental conditions may emerge as the main competitors in those countries. Against this backdrop, the dominance of local banks in Nigeria is puzzling. Our exploratory study, designed to investigate this inconsistency, revealed that managers of foreign and local banks perceive Nigeria’s environmental resources differently and, consequently, respond to them with different strategic choices that lead to different performance outcomes. Building on environmental psychology theory, we theorize the mechanisms by which foreignness affects perceptions and the ways in which these perceptions guide strategic choices. The study makes novel contributions to IB theory by blending insights from environmental psychology with theories of international business and employing individual-level analysis to supplement the firm-level analyses that have dominated preceding studies. The research enabled us to shed light on different explanatory variables than those commonly employed in international business research and to explain the puzzle that triggered our interest.