Strategies of Multinationals to Overcome Infrastructure Deficiencies in Developing Economies

Abstract

We analyze how multinational subsidiaries overcome deficiencies in infrastructure in developing economies. Drawing insights from the resource dependence theory, we explain how a subsidiary‟s dependence on host country‟s soft infrastructure or institutions and hard or physical infrastructure becomes a critical constraint under which it has to strategically respond. We propose three ideas. First, we propose that the degree of infrastructure deficiencies in a developing economy constrains the subsidiary‟s investment scale in the country. Second, the subsidiary can overcome these constraints using three strategies: adaptation, or gaining experience in operating with deficient infrastructure; influencing or lobbying the government to reduce uncertainty in investment; and escape, or reducing exposure to deficient infrastructure by seeking foreign markets. Third, the first two strategies are more effective in addressing hard infrastructure deficiencies and the last strategy is more effective in redressing soft i...