MNEs and foreign partner strategic alliance in Middle East emerging Arab markets

Abstract

Purpose: This article seeks to advance, build upon and extend our understanding of the evolution of business-to-business relationships as part of internationalisation strategy, exploring and drawing on the theoretical lens of psychological contract theory within the principal agent context. This article aims to extend our understanding of the role and explore implications that psychological contracts play in developing trust and long-term personal manufacturer-distributor/ agent relationships between Western and Middle East and North Africa (MENA) Arab region corporations. The research presents an integration of psychological contract theory borrowed from deeply rooted constructs of Human Resource Management (HRM) and added to the field of Strategy and International Business to the Principal Agent Theory model. The paper aims to present a model which helps to explain the overall relationship between Western and MENA corporations that can be applied to build trust, commitment, and co-operation between firms as a strategic approach to achieving successful internationalisation strategies and competitive advantage. A proposed agenda for future research lays the foundation for strategy and international business scholars to advance the principal agency theory within the psychological contract theory. Findings: The results of the study present trust as the fundamental major key factor upon which business relations and dealings are built in MENA Arabic speaking countries. Positive psychological contracts are characterised through a multiplier model that presents the key elements that build trust. Research Implications: The findings of the study provide insights and a deeper understanding of the psychological dimensions and aspects that influence business partnerships. The aim is to advance and broaden the widely acknowledged and iconic principal agency theory by integrating language, culture and contextual nuance considerations that exist between Western multinational enterprises (MNEs) and their local partners in the Middle East North Africa (MENA) region to internationalisation strategies. Practical Implications: The framework and trust multiplier model developed in this study can be utilised by management as part of their internationalisation strategy to build strong relationships between Western MNEs entering the MENA region.