How MNEs deal with institutional dualities: A case study on petty corruption

Abstract

Institutional distances are utilized to explain country differences. When MNEs operate across several countries, they experience different cultures, norms and social habits which may be in conflict with customs they are used to from their “home country”. The notion of institutional dualities is employed to explain MNEs’ challenges of striving to earn legitimacy in two different environments simultaneously. Problems caused by institutional dualities are already explored in literature but how MNEs manage them in practice remains under-addressed. Besides, current literature treats institutional dualities generically and ignores the fact that some institutional domains within one institutional duality deviate more than others. To address these shortcomings, this study embraces the value of assessing different institutional dualities distinguishably. I look at petty corruption and treat this as an example of an institutional distance. I strive to extend existing theory on how MNEs can deal with institutional dualities by conducting an in-depth case study on a company based in a low-corrupt country having a subsidiary in a relatively high-corrupt country. I find that MNEs manage the institutional duality of petty corruption either by institutionalization or externalization of inconsistent practices. MNEs institutionalize petty corrupt practices by developing rules and routines that directly control conflicting host country practices. In cases where the cost is disproportionately high, MNEs externalize incongruent practices – thereby accepting less direct control with activities in the host environment. The research illustrates how MNEs which operate in countries with significant institutional distances still can avoid engaging in corrupt practices. It also illustrates that an in-depth understanding of institutional differences between host and home environments increase MNEs success in dealing with institutional dualities.