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

Gerhard Schnyder and Dorottya Sallai

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: 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.

Keywords: nonmarket strategy; subsidiaries; capabilities; CPA; risk (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-06-01
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in Journal of International Management, 1, June, 2020, 26(2). ISSN: 1075-4253

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:102942

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