Liability of Foreignness: A Case Study of CITIC Pacific's Sino Iron Project in Australia

Introduction
 Liability of foreignness refers to additional costs that foreign firms incur when doing business
overseas in which when done by local firms they do not incur (Zaheer, 2002).
 China International Trust and Investment Corporation (CITIC) undergone this in Australia. First
and foremost, the government of Australia took so long to approve CITIC’s request.
 This was followed by iron ores global price changing dramatically. CITIC had to negotiate with
three biggest mining companies that is Vale of Brazil, Rio Tinto and BHP Billiton but the last two
were not interested in investing jointly with Chinese companies.
 Despite the fact that some steel companies in Chinese had accepted 100% price increase, CITIC
feared that it would be bad timing because of the delays in Australia. Furthermore, there was a
40% increase of magnetite iron ores compared to other premium resources.

Institutional differences
 The delays meant that there would be higher labor costs and cost of prospecting with US$350
million on top of US$3.5 billion which had always been the original plan.
 Besides, local managers could on regular time leave work and take vacations but still demand for
bonuses at the end of the year. Additionally, when it was time to leave work, local engineers
could do it without worrying of any problems that would result.
 Moreover, they had no sense of belonging and loyalty like it is in Chinese and thus in case of any
problems arising they would blame each other and end up solving none.
 Again, at the end of 2009, when there was wave of acquisition in Australia, there was a sudden
increase of hostility and resistance to Chinese steel companies by Australian people.
 They held that the investments would only make Chinese government rich hence saw no point of
caring for them. As a result, the company had to work with different stakeholders which ended up
challenging it (Sun, Zhang & Chen, 2013).
 On top of that, the government increased regulations arguing that the Chinese company would
reduce their tax, affect local environment and diminish local employment opportunities.
 For instance, Australian Foreign Investment Review Board (FIRB) required that China’s
Nonferrous Metal Mining Group had to reduce its stake during Lynas acquisition.