Local stakeholders and local legitimacy: MNEs' social strategies in emerging economies

Abstract

Abstract Despite the ever-increasing footprint of multinational enterprises (MNEs) in the world's emerging economies, the role of corporate social responsibility in MNEs' emerging economy operations has only recently started to attract the interest of international management scholars. We add to this growing stream of research by investigating how MNEs' social conduct in their emerging economy subsidiaries relates to their relationships with certain local stakeholders in the respective countries. Using stakeholder theory and the concept of local legitimacy, we argue that employees and the local governments are among the forces that drive firms to push for high standards in their working conditions and to engage in developing the local community. Further, we hypothesize that such efforts positively affect the performance of the subsidiary's employees and its relationship with local authorities. To test our hypotheses, we conduct a large-scale, cross-industry analysis using data from 213 MNE subsidiaries in Asia, Eastern Europe, and Latin America. Our results show that MNEs' local mid-level employees drive corporate social efforts and also positively react to the corporate social engagement of their employer. In contrast, local governments do not have a significant influence on MNEs' social strategies. Their support of the firm may increase, however, as a result of the firm's active development of the local community.