Re-Examining Isomorphic Pressure For MNCs: Evidence from Germany

Abstract

Although “isomorphism” has been one of the key tenets of theory, its applicability to the MNC setting has been challenged recently. The challenges are based on the assumption that there is limited institutional isomorphism in MNCs, and MNCs do not gain legitimacy through isomorphism (Kostova at al. 2008). The overarching objective of this study is to answer the research question “Do foreign subsidiaries become isomorphic to local practices due to constraints imposed upon them by institutional pressures?” Utilizing regulatory change as a quasi-experimental condition, this study examined the differences in the adoption behavior of foreign firms and West German firms to determine if foreign firms are indeed under institutional pressure to become isomorphic to West German firms, or if institutional pressure for foreign firms is primarily limited to regulatory pressure. Consistent with current challenges to applicability of isomorphism in the MNC settings, this study found that foreign subsidiaries do not become isomorphic to local practices and that institutional pressure for foreign subsidiaries is primarily limited to regulatory pressure. This research finding shows that foreign firms do have institutional freedom to choose which practices to adopt and do not become isomorphic to local practices because of institutional pressures for legitimacy.