Between a Rock and a Hard Place: Developing Organizational and Institutional Fit in MNE Subsidiary Political Strategy in Contexts of Institutional Upheaval

Abstract

Recent corporate political activities (CPA) studies applying the “fit paradigm” found that foreign subsidiaries’ political capabilities in emerging markets are shaped not just by host country- but also by home country institutions: Subsidiaries of multinational enterprises (MNEs) need to develop CPA that “fit” parent political capabilities. Yet, this literature neglects that this “organizational fit” requirement goes together with an “institutional fit” requirement between subsidiary CPA and the host institutional environment. Achieving this dual fit is particularly difficult in very volatile institutional host environments where the value of political capabilities changes rapidly. In such environments subsidiaries face a dilemma between the decreasing “institutional fit” of easily transferable capabilities and the lack of “organizational fit” of necessary “sticky,” local ones. To understand how firms deal with this dilemma, we develop a typology of political capabilities that takes into account their varying transferability/stickiness and their dynamic institutional contingency in the host country. Our empirical study of Hungary shows that MNEs even from institutionally very different economies can successfully transfer political capabilities to develop effective CPA in a radically volatile political environment. Yet, as political risk becomes discontinuous, this strategy may reach its limits.