Between a rock and a hard place: Internal- and external institutional fit of MNE subsidiary political strategy in contexts of institutional upheaval

We investigate how subsidiaries' political capabilities in emerging markets are not just shaped by their home- or host country institutions, but by both simultaneously - presenting a dilemma for subsidiaries of multinational enterprises (MNEs) in host countries. Subsidiaries need to develop CPA that simultaneously “fit” parent company requirements and “external fit” requirements in relation to the host environment. Achieving this dual fit is particularly difficult in volatile host contexts, where the value of political capabilities changes rapidly. Subsidiaries face a dilemma because the easily transferable capabilities – that draw on parent resources – lose value due to their decreasing “external fit” with the host country's volatile institutional environment. Conversely, the most valuable relational political capabilities lack “internal fit,” as they may not be legitimate in the home environment. To understand how firms deal with this dilemma, we develop a typology of political capabilities that takes into account their transferability/stickiness and their dynamic institutional contingency in the host country. Our study shows that MNEs - even from institutionally very different economies - can successfully transfer political capabilities to develop effective CPA in a volatile political environment. Yet, as political risk becomes discontinuous, this strategy may reach its limits.     

Dealing with high-risk environments: Institutional-based tools to reduce political risk costs

The international business (IB) literature on political risk mitigation has assigned explanatory preeminence to the organizational capabilities of multinational corporations (MNCs). The literature has assumed that political risk is avoidable for MNCs with specific political capabilities. We argue that political risk is inevitable. We posit that even if MNCs have political capabilities, host countries' political risk and its associated costs will not simply disappear. Extending the literature on political risk mitigation, we highlight the role of institutional-based tools in curbing political risk costs. Specifically, we posit that MNCs can reduce political risk costs through (i) international investment agreements, (ii) investment contracts with host governments, (iii) political risk insurance, and (iv) guarantees with binding enforcement mechanisms in unison with relying on political capabilities, thereby dampening the negative effect of uncontrollable host country political risk. We leverage the political-institutional approach to political risk and draw on relevant literature from law and IB to develop a framework to describe the conditions under which MNCs may use these institutional-based tools.     

Survival of the foreign subsidiaries of TMNCs: The influence of business group affiliation

We investigate the survival rates of the foreign subsidiaries of multinational firms from India to test if affiliation to a business group affects a subsidiary's survival chances. Business group affiliation is an important organizational attribute of firms in emerging economies. Business groups are complex organizations with heterogeneous resources that evolve along with changes in the institutional environment of a firm's home country. We examine how business group affiliation and the development stage of the host country jointly influence the survival chances of foreign subsidiaries. Our results show that business group affiliation does not have an independent influence on a subsidiary's survival rates, but it does have a contingent effect, where the contingency emerges from the development stage of the host country. Our findings thus have implications for the theory of TMNCs, and business group strategy in emerging economies.     

Organisation of new product development in Asia and Europe: results from Western multinationals R&D sites in Germany,India, and China

From research on Western new product development (NPD) practices a rich body of literature has emerged. However, the impact of country specific and cultural influences has not been examined in this context yet. This study is a first attempt to identify differences in NPD practices between Research and Development (R&D) subsidiaries in Germany, China and India within multinational companies. Data has been generated by qualitative interviews with R&D executives in those countries across multiple cases. The study samples strategic, organizational and operational aspects indicates definite differences in process coordination, rewarding systems, market orientation and the average age of NPD teams. Other aspects like strategic targets, the management involvement, etc. show rather slight differences across the countries. Hence, findings suggest that while some aspects are universally applicable across cultural frontiers, Western companies have to understand different expectations regarding NPD in India and China by adjusting practices accordingly.     

Promotability of Host‐Country Nationals: A Cross‐Cultural Study

Drawing on person–environment fit and national identity theory, the article proposes that person–national culture fit is likely to influence the promotability of host‐country nationals in multinational firms. Focusing on fit with upward influence tactics, it suggests that the parent company's national culture influences managerial expectations of host‐country nationals in foreign subsidiaries. It argues that host‐country managers who demonstrate upward influence tactics that are culturally appropriate to the parent company's national culture will be more promotable than those who do not. Higher‐level supervisors were asked to assess the promotability of two direct subordinates, who were independently surveyed about the upward influence tactics they used. The study contrasted ingratiation, exchange of benefits and coalition, and directness influence tactics of host‐country nationals in domestic Ecuadorian firms with American and German multinationals in Ecuador. Compatible with our hypotheses, data from a sample of 79 firms suggest that exchange of benefits and coalition are more likely to be associated with promotability in German than in domestic Ecuadorian firms. In addition, upward‐appeal assertiveness is more likely to be associated with promotability in American than in domestic Ecuadorian firms.     

Determinants of foreign ownership in international R&D joint ventures: Transaction costs and national culture

In this study, we integrate the transaction costs economics and national culture perspectives by examining the determinants of foreign equity ownership in international R&D joint ventures. Specifically, we focus on the impact of different uncertainty dimensions–environmental and behavioral–on the share of equity that multinational enterprises take in their overseas R&D joint ventures. We further investigate the roles that two national culture components–power distance and uncertainty avoidance–play in this process. Using 543 international R&D joint venture announcements by foreign enterprises in China, India, Japan, and the United States during the period of 1985 to 2004, our results provide support for both transaction costs economics and the national culture perspectives.     

Trust after the Global Financial Meltdown

Over the last decade, and culminating in the 2008 global financial meltdown, there has been an erosion of trust and a concomitant rise of distrust in domestic companies, multinational enterprises, and political economies. In response to this attrition, this article presents three arguments. First, we suggest that trust is the “glue” of any viable political economy, and we propose that the stakes of violating public trust are particularly high in light of the asymmetry between trust and distrust. Second, we identify a constellation of key barriers to overcoming distrust that companies face in the current environment: (1) corporate mind‐sets that promote a preoccupation with quantification, hierarchical leadership models, and “blind trust” in authority; (2) the anonymity of core stakeholders; (3) the agency of the media as a driver of the political economy; and (4) firm‐centric models of stakeholder relationships. Third, we argue that, notwithstanding these challenges, these phenomena are not fatal and can be addressed through a holistic transformation in corporate culture. Such a transformation might include a shift to collaborative leadership models and replacing authority models with responsibility, a “names and faces” approach to stakeholders through cases and stories, more egalitarian communication exchanges with external stakeholders, and a reprioritization of the firm as a vital element among others within a system rather than the central core of a network. We conclude that the value of trust at the individual, institutional, national, and global levels cannot be overstated. Without a reinvigoration of trust in our political economies, at all levels, the future of an economically vibrant planet is indeed bleak.     

How does crisis management in China differ from the West?: A review of the literature and directions for future research

Scholars often use Western-based frameworks to examine issues in crisis management in Eastern cultures such as China. However, relying on these frameworks may not be useful since in many cases they do not consider contextual factors such as culture. In this review of the literature on crisis management in China we examine two key issues. First, we examine the factors that trigger a crisis in China. Second, we identify distinct crisis management strategies deployed in China. Finally, this paper discusses the managerial implications and directions for future research.     

Does China receive more regional FDI than gravity would suggest?

It is an empirical regularity that the activities of multinational corporations are concentrated in their home region. This has been shown to be the case for a majority of the 500 largest multinationals as well as for subsets of this 500 sorted by region or industry. The analysis has also been applied to the activities of a sample of all US and OECD multinationals, aggregated by country. These concentrations have been explained using theories, such as region-bound FSAs which constrain the ability of multinationals to internationalize, as well as transactions costs which make doing business outside a multinational’s home market more costly. To date, there has been no analysis that focuses on the regional and global character of multinational activity destined for China. This paper works to fill that void. Using data on FDI into China from each investor country over the period 1995–2005, this paper documents a significant regional concentration of Asian multinational activity operating within China. This regional concentration is sustained even after the special relationships with Hong Kong and (other) Offshore Financial Centres are accounted for. The evidence therefore extends the evidence of regional concentrations of MNE activities found elsewhere to China and its relationship with Asia.     

The Determinants of the Boundary-spanning Functions of Japanese Self-initiated Expatriates in Japanese Subsidiaries in China: Individual Skills and Human Resource Management

Self-initiated expatriates (SIEs) who work for a subsidiary of a multinational enterprise from their country of origin and hence are familiar with both countries' language and culture can be expected to act as boundary-spanners between the assigned expatriates sent from the parent country and host country nationals, and between the headquarters and the subsidiary. We develop a new model of boundary-spanning that encompasses both individual and organizational antecedents and validate the model using survey data from Japanese-affiliated companies in China. We find that familiarity with Chinese language and culture and the potential dual allegiance of SIEs contribute to enhancing their boundary-spanning behavior. We also find that relationships of trust among the parties concerned (social capital) and global career opportunities for such self-initiated expatriates (geocentric staffing) have positive influences on their dual allegiance. Finally, normative and systems integration of human resource management are associated with increasing levels of social capital and geocentric staffing.     

Ethics and human resource management and development in a global context: case study of an Indian multinational

A firm's orientation to ethics is influenced largely by its national and organizational culture. Research shows that a growing number of Indian firms place a distinct emphasis on long-term orientation to business strategy with a social mission, underpinned by firm commitment to core organizational values, employee development and welfare. Through a case study of a large Indian multinational conglomerate, this article provides preliminary evidence of how some emerging economy firms are successfully mixing and matching indigenous business and people management strategies with the Western emphasis on meritocracy and professionalism to compete in the contemporary global economy. It further shows how the human resource development (HRD) discipline can play a pro-active role in embedding ethics and values throughout the organizational and HR architecture. The HRD professionals in the case study firm also face several structural and cultural challenges in discharging their ethics-driven HR mandate, such as management's ethnocentric attitude to global staffing and clash of work cultures.     

Analysis of human capital development in Puerto Rico: summary and conclusions

This study explored whether perceptions of organizational business ethics differ by hierarchical levels. The study sample included more than 40,000 executives, mid-level managers and non-managerial employees from business organizations in six countries: Brazil, China, Germany, India, the UK and the US. We found that executives provided the most positive assessment of ethical business culture within their respective organizations. Employees’ assessments were less positive, and mid-level managers’ assessments fell in the middle. Organizational size and respondents’ age were not related to differences in responses. Statistically significant differences among hierarchical levels were found in Brazil, the US, Germany, the UK and China. Differences were not significant in India. Executives with longer tenure at the same organization tended to provide higher ratings of organizations’ ethical cultures, while managers’ and employees’ ratings tended to decrease with time.     

MEDIA MERGERS AND MEDIA BIAS WITH RATIONAL CONSUMERS

We present an economic model of media bias and media mergers. Media owners have political motives as well as profit motives, and can influence public opinion by withholding information that is pejorative to their political agenda—provided that their agenda is not too far from the political mainstream. This is true even with rational consumers who understand the media owners’ biases, because the public do not know how much information the news organizations have and so do not know when news is being withheld. In line with conventional wisdom, this problem can be undone by competition; but competition can be defeated in equilibrium by media mergers that enhance profits at the expense of the public interest. We thus derive a motive for media merger policy that is completely distinct from the motives behind conventional antitrust. While media bias may reduce the profit incentives to merge, media markets nonetheless err by being insufficiently competitive, and the consequences of merger are more severe than in other markets.     

Innovation,the multinational corporation: Some implications for national science policy

In recent years the role of research and development has been examined with great interest to determine its causal relation to economic growth. Emerging from a number of studies is a realization that the process of innovation is the key variable. Innovation refers to that complex chain of events and processes which stretches from the conception of a new idea (often in an R & D lab) through to the acceptance in the market place of a new or improved good or service. This article sets out to examine the impact on the innovative potential of the corporate structure of a country when multinational corporations are active in such a country. In particular, the emphasis is on high technology manufacturing industries. The host country most often referred to will be Canada.     

Antecedents and Outcomes of Political Tie Intensity: Institutional and Strategic Fit Perspectives

Although international nonmarket strategy research has highlighted the importance of political ties, it is still unclear why some foreign subsidiaries are more politically active than others and what conditions may render political practices beneficial in a host country. We argue that foreign subsidiary political tie intensity—the extent to which senior managers provide time and resources in informally dealing with government officials for nonmarket purposes—will be influenced by political institutions in their parent's home country, especially when the MNE parent attempts to protect foreign subsidiary resources. Additionally, we assert that fit between a parent's home country political institutions and foreign subsidiary political tie intensity will positively affect subsidiary performance. We employ primary data collected from 181 foreign subsidiaries in the Philippines and find support for our hypotheses. This study advances international nonmarket strategy research by highlighting how an MNE's home country political institutions shape subsidiary political networking and strategic performance outcomes in host country environments.     

Analysis of Local Acceptance of a Radioactive Waste Disposal Facility

Like many other countries in the world, Korea has struggled to site a facility for radioactive waste for almost 30 years because of the strong opposition from local residents. Finally, in 2005, Gyeongju was established as the first Korean site for a radioactive waste facility. The objectives of this research are to verify Gyeongju citizens' average level of risk perception of a radioactive waste disposal facility as compared to other risks, and to explore the best model for predicting respondents' acceptance level using variables related to cost-benefit, risk perception, and political process. For this purpose, a survey is conducted among Gyeongju residents, the results of which are as follows. First, the local residents' risk perception of an accident in a radioactive waste disposal facility is ranked seventh among a total of 13 risks, which implies that nuclear-related risk is not perceived very highly by Gyeongju residents; however, its characteristics are still somewhat negative. Second, the comparative regression analyses show that the cost-benefit and political process models are more suitable for explaining the respondents' level of acceptance than the risk perception model. This may be the result of the current economic depression in Gyeongju, residents' familiarity with the nuclear industry, or cultural characteristics of risk tolerance.     

Social Amplification of Risk in the Internet Environment

This article analyzes the dynamic process of risk amplification in the Internet environment with special emphasis on public concern for environmental risks from a high‐speed railway tunnel construction project in South Korea. Environmental organizations and activists serving as social stations collected information about the project and its ecological impact, and communicated this with the general public, social groups, and institutions. The Internet provides social stations and the public with an efficient means for interactive communication and an open space for active information sharing and public participation. For example, while the website of an organization such as an environmental activist group can initially trigger local interest, the Internet allows this information to be disseminated to a much wider audience in a manner unavailable to the traditional media. Interaction among social stations demonstrates an amplifying process of public attention to the risk. Analyses of the volume of readers’ comments to online newspaper articles and public opinions posted on message board of public and nonprofit organizations show the ripple effects of the amplification process as measured along temporal, geographical, and sectoral dimensions. Public attention is also influenced by the symbolic connotations of risk information. Interpretations of risk in religious, political, or legal terms intensify public concern for the environmental risk.     

Country institutional environments and international strategy: A review and analysis of the research

We review and analyze the growing body of literature that addresses the institutional context of international strategy. By examining articles in eleven major journals from January 2008 to July 2020, we identify six major categories of international strategies and implementation approaches: market entry and internationalization, political strategies, multinational technology and innovation, multinational corporate social responsibility, multinational headquarters and subsidiary relationships, and international human resources management. A parallel analysis of the relevant institutional variables categorizes institutions into eight types: economic institutions, political institutions, regulatory institutions, normative institutions, administrative institutions, cultural/cognitive institutions, demographic institutions, and knowledge institutions. These eight categories allow us to contextualize the institutional environment in which the six international strategies and implementation approaches are employed. Our review identifies important progress in international strategy research that has yielded a greater understanding of institutional impact on multinational activities. Yet, it also reveals that many areas of international strategy research remain fragmented, highlighting the need for future research and suggesting new directions for such investigations. Our analysis concludes by identifying knowledge gaps in each of the six strategy categories and making a series of suggestions for relevant future research.     

Why the Home Region Matters: Location and Regional Multinationals

Much of the literature in international business analysing the multinational enterprise uses the country as the relevant environmental parameter. This paper presents both theoretical and empirical evidence to demonstrate that country‐level analysis now needs to be augmented by analysis at the ‘regional’ level of the broad triad markets of Europe, North America and the Asia Pacific. The great majority of the world's 500 largest firms concentrate their activities within their home region of the triad. This study uses variance component analysis and finds that this home region effect outperforms the country effect. Together, the regional and industry effects explain most of the geographic expansion of multinational enterprises (MNEs), whereas country, firm and year effects are very minor. The new data and variance component analysis on the activities of large MNEs reported here suggest that new thinking is required about the importance of large regions of the triad as the relevant unit of analysis for business strategy to supplement the conventional focus on the country.     

Politics and Power within Multinational Corporations: Mainstream Studies,Emerging Critical Approaches and Suggestions for Future Research

Given the increased public interest in the use and misuse of power in multinationals in the aftermath of the financial crisis, it is notable that power relations in multinational corporations (MNCs) have not gained enhanced attention in the academic community. What is missing so far in the study of MNCs is a systematic examination of how power and politics within MNCs have been addressed in mainstream international business (IB) and sociological research studying the MNC. This paper starts by critically reviewing these two mainstream approaches in the study of MNCs as organizations and seeking to understand the shortcomings of former research. Next, it reviews new emergent critical perspectives, which the authors call socio‐political studies of MNCs, where power and politics are addressed not just more prominently, but also differently, from a more bottom‐up and actor‐centred perspective. After reviewing this emergent stream of research, the authors propose that future studies should take a more micro‐political perspective and focus in more detail on the micro‐foundations of power relations. In the concluding section, the authors show how future studies of MNCs can learn from both critical interactionist and discursive theories when analysing organizational politics and power relations. A framework is proposed for the study of micro‐level political game‐playing in MNCs, based on a three‐dimensional framework for organizational power (episodic, rules of the game and domination), and some key research questions for future studies are suggested.