Overcoming Liability of Outsidership Under Sanctions: A Capability-Based Framework from Emerging Market Pharmaceuticals.

BACKGROUND: Sanctions and economic constraints impose substantial barriers to firm internationalization in emerging economies, particularly by exacerbating the liability of outsidership (LOO), defined as the disadvantages associated with exclusion from critical business networks. Despite extensive research on barriers to internationalization, limited attention has been paid to how firms in sanctioned economies leverage organizational capabilities to mitigate LOO at the micro level. OBJECTIVES: Drawing on the resource-based view, dynamic capabilities theory, and the Uppsala internationalization model, this study examined how pharmaceutical companies navigate LOO under sanctions through the strategic deployment of organizational capabilities. METHODS: A qualitative multiple-case study was conducted in 10 Iranian pharmaceutical companies operating internationally under sanctions. Data were collected through interviews with senior executives and analyzed using thematic analysis. RESULTS: The findings indicated three main interrelated routes through which capabilities mitigate LOO: 1) networking capability (NC) increases absorptive capacity (AC) by establishing trust-based relationships and facilitating knowledge exchange; 2) AC enhances operational capability (OC) by aligning operations with international benchmarks; and 3) NC, AC, and OC jointly reduce LOO by enabling access to alternative networks, strengthening operational legitimacy, and generating a competitive advantage. CONCLUSIONS: This study contributes to the internationalization literature by demonstrating how sanctions intensify LOO and necessitate the reconfiguration of firm capabilities. The findings show that dynamic capabilities interact with operational capabilities to support internationalization in constrained environments.