Abstract
Liability of foreignness (LOF) refers to the difficulties and additional costs that multinational enterprises face when they operate in a foreign market. Rooted in institutional theory, extant literature has discussed isomorphism, transference, and sociopolitical activism as legitimation strategies to counteract LOF. This view relates to the macro level of firm and society, assumes passivity of subsidiaries, and neglects implementation of these strategies. Consequently, this paper aims at complementing this restrictive view through a qualitative study to explore how French multinational banks respond to LOF challenges in India, an adverse institutional environment typical of emerging markets but also unique due to strong economic nationalism and cultural traditions. As such, the present article contributes to the institutional research stream by (1) presenting an empirical investigation at the micro level of subsidiary organisational practices to operationalise legitimation strategies in managerial terms; (2) revealing rhetoric proactive strategies beyond the passive or reactive paths identified previously; and (3) discussing the internal implications of implementing legitimation strategies directed at external recipients within the intraorganisational network of multinational banks, using the resource-based view.
Highlights
The banking industry represents an exceptional context to investigate the socalled liability of foreignness (LOF) that is, the difficulties and additional costs that multinational enterprises (MNEs) encounter when they operate in a foreign market (Zaheer 1995)
Using the institutional framework complemented with the resource-based view on strategic implementation, our results suggest that multinational bank (MNB) in India use a combination of legitimation strategies targeted at external recipients based on specific organisational practices and that these strategies are enabled through specific resources from the headquarters that require subsidiaries to balance global/local tensions
The empirical study analysed the behaviour of three French MNB subsidiaries operating in India in relation to local sociopolitical actors
Summary
The banking industry represents an exceptional context to investigate the socalled liability of foreignness (LOF) that is, the difficulties and additional costs that multinational enterprises (MNEs) encounter when they operate in a foreign market (Zaheer 1995). The banking business essentially involves collecting and lending money to people, corporations, or public bodies, which requires access to ‘soft’ information (i.e., knowledge about local customers’ expectations and capacity to reimburse) and familiarity with which they can build mutually trustful relationships. In this regard, domestic banks are more familiar with local customs and have better access to soft information vis-à-vis foreign banking MNEs (Bhaumik et al 2018; Claessens and van Horen 2012; Mian 2006)
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