Gaining legitimacy and host market acceptance: a CRM analysis for foreign subsidiaries in China

Abstract

PurposeBuilding on the scant literature on how foreign subsidiaries strategize Cause-Related-Marketing (CRM) to gain legitimacy and acceptance in host markets, this paper investigated the impact of two CRM components (post-crisis recovery, CSR activities) on subsidiary performance and future opportunities in China, a country whose institutional development lags behind its economic achievements. The study also investigated the moderating effects of strategic mindset and subsidiary empowerment on CRM effects, issues highly relevant to MNCs and their subsidiaries.Design/methodology/approachTo minimize common method variance, the study adopted a multi-informant firm executive survey design that included responses from a director and a manager from 230 foreign subsidiaries operating in China. The director-level respondents assessed Firm Competences, Organizational Ties, Subsidiary Performance and Future Opportunities. The manager-level respondents assessed CSR activities (Legal, Ethical and Philanthropic CSR) and other operational measures.FindingsThe two CRM components affected Subsidiary Performance (sales, shares and profit) and Future Opportunities in different ways as postulated by legitimacy theory. While Post-crisis Recovery enhanced Subsidiary Performance (sales), it could not enhance Future Opportunities by itself unless the subsidiary received headquarters empowerment. Interestingly, only Ethical and Philanthropic CSR activities with enhancement from Strategic Mindset mattered to Future Opportunities.Originality/valueThe research unfolded key elements in how foreign subsidiaries planned CRM strategies to gain legitimacy and acceptance in a host market with less-developed institutions, thereby addressing a gap in the literature. It also showed how firms internalize CRM and became receptive to social sentiments of a significant host market.