Anti-Competitive Regulations and Subsidiary Relational Embeddedness Strategies

The institution-based view (IBV) of firm strategy argues that formal and informal institutions combine to govern firm behavior and suggests a predominant reliance on network-based informal relationships when formal institutions are absent or deficient. Our knowledge on how formal and informal institutions combine to govern firm behavior remains scant when formal institutions are present but show varying degrees of non-marketsupporting regulation. This issue gains great relevance for subsidiaries which in host locations have also to confront the liability of outsidership. To advance IBV, we draw on industrial organization and firm productivity literature. In particular, we propose and test a conceptual model illustrating a U-shaped relationship between the extent of anti-competitive regulation in relevant service supplying sectors and the degree to which subsidiaries embed with value chain partners. Our model also suggests that this U-shaped relationship is steeper for subsidiaries with a center of excellence role within the multinational enterprise, and that highly embedded subsidiaries are superior performers.