Why do platform multinational companies struggle abroad? A multi-method study of the role of informal institutional distance

Abstract

Firms providing virtual platforms that connect buyers with sellers of goods and services are increasingly venturing abroad, sometimes from or near inception. However, these platform multinational companies (PMNCs) seem to struggle more against local competitors in foreign markets compared to more traditional MNCs when it comes to capturing market share and generating profits. In this study, we explore the underlying causes of these patterns. We first flesh out several stylized facts from a longitudinal case study of the mobile phone industry in China, and then we use these facts as input for formal economic modelling and simulations to derive generalized propositions. We find that informal institutional distance (IID) at the macro business system and micro product market levels poses challenges to all MNCs. Yet, whereas traditional MNCs can overcome IID by leveraging their product quality advantage, PMNCs are usually unable to do so and are, thus, more likely to underperform. We explicate that this pattern is likely underpinned by network effects that exacerbate the role of IID for the foreign PMNC. We discuss implications of these results for theory of the PMNC, particularly focusing on the need for research examining how this unique form of MNC can overcome internationalization challenges associated with IID.