Home Country Image and Nonmarket Political Strategy Effects on Foreign Lcation Choice of EMNEs

Abstract

While the literature has generated impressive insights on why emerging market multinationals enterprises (EMNEs) select certain foreign locations over others, we still lack an understanding of how the home country institutional image creates barriers to EMNEs’ foreign location choices and the mechanisms through which EMNEs overcome this effect. In this study, we investigate how the home country institutional image affects EMNEs’ foreign location choices and how EMNEs can use home country nonmarket political strategy to overcome the effect. We argue that EMNEs struggle with poor home country institutional images that are carried over in host countries and create barriers when EMNEs enter into developed or more institutionally distant markets from their home country. Specifically, we suggest that EMNEs are more likely to choose institutionally similar countries as their foreign direct investment (FDI) targets to help them offset the additional liability they carry. While nonmarket political strategy can serve as a response to such disadvantages, it will not completely nullify the home country institutional image effect. This strategy can provide proximity to nonmarket elements and help EMNEs overcome the barriers created by poor home country institutional image on foreign location choice. We test and find support for our theoretical framework using a longitudinal dataset from 2002 to 2017 of outward FDI (OFDI) by Brazilian firms.