Social capital beyond borders

: how Latin American firms pursue legitimacy in foreign markets despite the effects of the liability of foreignness – an exploratory study

Abstract

Latin-American firms are increasingly expanding abroad as internationalization allows them to diversify risk and mitigate negative conditions faced at home. Nevertheless, upon expansion, they are also confronted with the effects of the liabilities of foreignness (LOF) and emergingness (LOE), stereotypes and stigmatization. This study investigates the role that social capital plays in internationalization processes and legitimacy-building in foreign markets. Unveiling whether a strong focus and commitment on environmental, social, and governance (ESG) practices poses as a legitimacy enhancer abroad also belongs to this study’s scope. An exploratory, qualitative approach was adopted through the use of semi-structured interviews to gain in-depth insights into how Latin-American firms experience internationalization, make use of social capital, and build legitimacy internationally. Findings reveal that social capital is fundamental for the success of international expansions. Nevertheless, this is the case especially for SMEs during the initial stages of an internationalization and is most effective in collectivistic cultures. Legitimacy is achieved through the combination of market strategies devoted at reputation-building, adaptation to the local market, and social capital. ESG effort was found to be a critical legitimacy enhancer, although most relevant for Latin-American firms expanding beyond the region, as the latter appears to be increasingly valued abroad than domestically, where it is inconsistently adopted. This research contributes to previous literature by advancing the understanding of social capital’s role in shaping the internationalization strategies of Latin-American firms, often overlooked in the literature, and presents legitimacy-building as a multi-stage process, formulating specific recommendations for managers.

Date of Award	16 Oct 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Pedro Parada (Supervisor)