Liability of foreignness in immersive technologies: evidence from extended reality innovations

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.