Emerging Market Multinationals’ Home Non-Market Advantages and their Subsidiaries’ Strategic Responses to Institutions in a Host Emerging Country Environment

Abstract

This study examines the link between emerging market multinationals’ home non-market advantages and their affiliates’ strategic responses to institutions in a host emerging country. Drawing on the agency perspective in organisational institutionalism, strategic management and theories on emerging market multinationals in international business, my analysis sought to capture the actions of the studied firms in relation to institutions rather than assess the pressuring effects of structures. Based on a comparative case study of infant emerging market multinational enterprises (EMNEs), I expose the types of institutional constraints the subsidiaries faced as they sought to access resources in the product and service, labour, and capital markets, highlight the strategic responses deployed, the organisational factors explaining their actions, the mechanisms used as well as outcomes. The findings indicate that EMNEs’ subsidiaries differ in their capacity to deal with weak institutional arrangements in a host emerging market context. Their response will vary from reactive, seeking adaptation and institutional fit, to proactive, seeking influence and institutional change. I argue that this variation can be explained by the nature of their parent companies’ non-market advantages rooted in proactive or reactive institutional capabilities developed as result of their experience in dealing with the institutional arrangements of their home market industry. The nature of these non-market advantages will influence the capabilities endowment of the affiliates. Building on a multidimensional view of embeddedness, I suggest that proactive strategies leverage deeper and wider social embeddedness mechanisms, while reactive strategies rely much more on corporate embeddedness mechanisms. I also propose that proactive responses secure an advantage in the host emerging market context while reactive responses enable the survival of the affiliate. This study provides insights into the scholarly debate on EMNEs’ advantages by explaining the interplay between the institutional capabilities developed at home and the strategic responses to host emerging market institutions. The findings refine earlier arguments suggesting that EMNEs have an advantage in other emerging markets. In addition, this research contributes to the agency perspective in the study of the multinational enterprise by linking the enabling resources and capabilities, the types of embeddedness mechanisms and the nature of responses to institutions.