MNC strategy and social adaptation in emerging markets

Abstract

Emerging markets experience institutional and social changes over time that present different stakeholder expectations for multinational corporations (MNCs). MNCs are often accused of social misdeeds and experience public crises during the changes, leaving questions on how they adapt to the local social transition to sustain operations. Conventional adaptation strategies put too much emphasis on maximizing economic returns by arbitraging national differences and catering to local market and consumer characteristics. The economic orientation may fail to address evolving and diverse stakeholder expectations, easily leading to public crises. This study conceptualizes economic adaptation and social adaptation as two sets of knowledge and capabilities that would have equally important impacts on MNCs’ sustainable operations in emerging markets. The empirical testing examines consumer rights-related public crises experienced by 180 MNCs in China. The results suggest that MNCs’ social adaptation activities have significantly positive effects in mitigating public crises while certain aspects of economic adaption, such as early entry into China, reliance on local leadership, and speedy expansion of local employees, lead to public crises. The significant interaction effects confirm that MNCs need to follow a balanced approach, paying attention to both economic and social components to avoid public crises and sustain growth in emerging markets.