In the three decades since its framing as a liability, the concept of foreignness has been theorized as the context that generates additional costs for firms that operate outside their home countries. Yet the concept of foreignness itself has not been conceptually clarified. This paper argues that foreignness is a function of the political and economic sovereignty of the host territory vis-à-vis the home country that a firm operates in, and of the discriminatory regulations that the sovereign host territory imposes on the multinational firm. Through the methodology of business history, we illustrate how American firms utilized non-market and corporate diplomacy strategies to negotiate the boundaries of their legal treatment as either local or foreign entities in the Philippines, when the erstwhile US colony progressed from an unincorporated territory to a sovereign nation. We contribute to the liability of foreignness literature by showing how multinationals formulate non-market strategies not only as a reaction to their foreignness as an asset or a liability, but also as a mechanism to actively negotiate their foreignness depending on the benefits they expect to generate.
