Abstract
This study focuses on the multinational enterprise’s (MNE) pursuit of external legitimacy and the survival implications associated with various strategic initiatives that are implemented at the subsidiary level to secure legitimacy in increasingly corrupt host market environments. In this context, the strategic insights proffered by resource dependence theory (RDT) and institutional theory (IT) are characterized by distinct spatial orientations. RDT predicts that subsidiaries will implement proximal localization strategies in which local (host country) partners and employees are hypothesized to be best-suited to efforts to enhance the subsidiary’s legitimacy and reduce its likelihood of exit from the host country market. Conversely, IT suggests that distal localization strategies in which subsidiaries that prefer to engage home country partners and employees in the subsidiary investment are better-suited to reducing the likelihood of subsidiary exit from increasingly corrupt host country market environments. We develop a set of competing hypotheses based on RDT and IT to examine the relationship between host market corruption levels, MNE strategy and the likelihood of exit. The hypotheses were tested against a large sample of subsidiaries established between 1995 and 2006 in 44 host countries. Our results reveal the enhanced efficacy of distal localization strategies. Subsidiaries that prefer transnational joint venture partnership arrangements (constituted by home country partners only), employ a greater proportion of expatriates and engage fewer host country partners in subsidiary investments enjoy a diminished likelihood of exit under conditions of heightened corruption.
Published Version
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