Liabilities of foreignness and international performance of SMEs in Vietnam: digital technology capability as a capability-restoration mechanism

Abstract

This study aims to examine how liability of foreignness (LoF) is associated with the international performance of small and medium-sized enterprise (SMEs), and how digital technology capability (DT) conditions this relationship. Drawing on the resource-based view (RBV), the study conceptualizes DT as a capability-restoration firm-specific advantage that helps resource-constrained firms sustain efficiency, legitimacy and relational functioning under foreignness pressures. The study draws on survey data from 286 managers in SMEs in Vietnam. Confirmatory factor analysis in covariance-based structural equation modling was used to assess the measurement model, while hierarchical regression analysis and Hayes’s PROCESS model were used to test the direct and conditional associations among LoF, DT and international performance. The regression results show that LoF is negatively associated with international performance. DT has a positive direct association with performance and significantly conditions the LoF–performance relationship. Rather than indicating slope attenuation, the interaction reveals a vertical displacement pattern: firms with stronger DT maintain higher absolute performance levels than firms with weaker DT under comparable LoF conditions, although LoF remains negatively associated with performance even among high-DT firms. This study contributes to RBV and LoF research by developing a capability-restoration perspective on DT. Rather than treating DT as a generic efficiency tool or claiming that it neutralizes foreignness, the study shows that DT operates as a context-dependent firm-specific advantage that helps firms sustain performance when foreignness pressures are high. It also refines LoF theory by showing that the performance implications of foreignness vary with firms’ digital and relational resource configurations.