External dynamics during the Arab Spring: Institutional duality in dynamic external environments

Abstract

External dynamics have the potential of unforeseeably and drastically changing market conditions and bear great risks and uncertainty. In this case study on the Arab Spring, we explore the effects of external dynamics on institutional duality, i.e., institutional pressures that foreign subsidiaries are confronted with through headquarters (internal) and host country environments (external). Based on an analysis of a European water boiler manufacturer with a production site in Egypt, we analyze institutional pressures before and during the Arab Spring as well as foreign subsidiary and MNE HQ reactions to changed external pressures. We find that external pressures and uncertainty increase in a situation of external dynamics, leading to higher internal pressures. However, MNE HQs decrease internal pressures exerted on subsidiaries if HQs trust subsidiary control mechanisms. Moreover, subsidiaries can influence internal pressures by constructing their internal legitimacy. Our observation of a direct relationship between external and internal pressures and of subsidiary and HQ responses to institutional duality in a dynamic environment represent important contributions to institutional duality literature.