When in Rome, do as the Romans do: Subsidiary Autonomy as a Response to Corruption Distance after Entry

Research on the HQ-subsidiary relationship that has studied subsidiary autonomy in relation to the local context has mainly seen the local context as a source of opportunities. However, the concept of liability of foreignness reminds us that the local context also imposes constraints to foreign entrants, which translate into more or less tacit costs of doing business abroad. We focus on corruption as a local context constraint that reflects the more tacit and implicit form of liability of foreignness, and study the influence of corruption distance between home and host country on subsidiary autonomy. Drawing on institutional theory, we argue that majority-owned foreign subsidiaries experience greater autonomy for high levels of corruption distance as a result of a pressure for local conformity. However, the ultimate organizational response of the MNE to corruption distance critically depends on internal forces based on socialization and resource-dependence, which exert different pressures for internal consistency. A tension between internal and external pressures materializes for high levels of socialization and subsidiary autonomy will be reduced in presence of high corruption distance. Instead, internal and external pressures reinforce one another and subsidiary autonomy will be enhanced when the subsidiary controls critical resources and corruption distance is high.