Strategic responses of foreign subsidiaries to host country corruption

Abstract

PurposeThis paper seeks to discover whether and how a subsidiary located in a high‐corruption host country can pursue its parent's corporate non‐corrupt strategy, rooted in a low‐corruption home country. Theoretically, it aims to apply the construct of institutional duality. It also aims to argue that the subsidiary's strategic response is contingent to the relative strength of two sets of institutional demands: the articulation of the multinational company's (MNC's) corporate policy towards corruption; and the direct influence of the host country corruption on the subsidiary's daily business.Design/methodology/approachA qualitative analysis of interviews with executives of 27 Finnish companies (15 large MNCs and 12 small to medium‐sized enterprises (SMEs)) with subsidiaries in Russia was conducted.FindingsThe subsidiary's strategic response to host country corruption is contingent to the firm size and the respective resources. Large MNCs can implement their non‐corrupt policy also in their Russian subsidiaries due to their financial and relational resources. SMEs, which lack such resources, need to adapt to the demands from the corrupt environment. This is usually done by “outsourcing” situations prone to corruption to a local intermediary.Research limitations/implicationsThe empirical analysis is limited to one pair of countries (Russia and Finland) and selected locations in Russia (Moscow and St Petersburg).Practical implicationsThe paper provides examples of business strategies that help to mitigate the negative consequences of host country corruption without giving up one's moral and ethical principles.Originality/valueThe paper enriches the literature on corruption in international business by identifying the firm size as a key determinant for strategic responses to host country corruption.