Feeling the Squeeze: Nonmarket Institutional Pressures and Firm Nonmarket Strategies.

Author:Voinea, Cosmina Lelia
Position:RESEARCH ARTICLE - Report - Statistical data

1 Introduction

In the current competitive business landscape, it has become essential for most multinational enterprises (MNEs) not only to focus on the relationships with market actors, but also with nonmarket institutions: Political institutions, regulatory and standards authorities, and social institutions, such as the media and interest groups (Hillman et al. 2004; Mellahi et al. 2016). For many MNEs, these institutions and their power, obligations and influences have a major impact on their sustainable competitive position (Kassinis and Vafeas 2006; Dieleman and Boddewyn 2012; Doh et al. 2012; Lawton et al. 2013). In particular, MNEs with a high dependence on nonmarket institutions may have to pursue political or social objectives in order to align their interests with those of the institutions (Marquis and Qian 2014), establishing the flow of critical resources (Kostka and Zhou 2013) or obtaining the support of critical stakeholders (Wang and Qian 2011). Much MNE research has explored the challenges the organizations face, the strategies and tactics they can undertake in dealing with institutions in various nonmarket contexts and their performance (Kostova and Zaheer 1999; Rajwani and Liedong 2015). For instance, Boddewyn (2016) provides an interesting overview of the studies dealing with the relationships between MNEs and political and regulatory institutions. Marano and Tashman (2011) investigate the relationship between MNEs and nongovernmental organizations. Vachani et al. (2009) show NGO influence on MNE social development strategies in varying nonmarket contexts. However, many studies have investigated a restricted selection of nonmarket institutions in relation to MNE nonmarket behaviour. MNEs must deal with various types of institutions and their pressures in the nonmarket context simultaneously. How they manage the pressures from these institutions depends on the perceived formal and informal power and obligations of the institutions. Nonmarket institutional pressures consist of various drivers. Our knowledge of the composition of drivers and perceived power of nonmarket institutions in a particular setting and the responses of MNEs is still limited (Hiatt et al. 2015). Specifically missing is an examination of how underlying drivers of pressures of various types of institutions affect the nonmarket behaviour of MNEs in a host environment (Lux et al. 2011; Zhang et al. 2016). Doh et al. (2012, p. 23) stress that "both scholars and managers need to understand the institutional factors in more detail in nonmarket research". Hence, it is imperative to gain a better understanding of the perceived impact of nonmarket institutional pressures on MNEs, the underlying drivers of these pressures and how MNEs behave in a host nonmarket environment.

Therefore, the aim of this study is to explore the various types of nonmarket institutional pressures that influence MNEs nonmarket strategies. We will do so by assessing both the underlying perceived formal and informal drivers of certain classes of nonmarket institutional pressures and the resulting relationships between the classes of pressures and the MNEs' responses. The extant literature on factors driving institutional pressures has been largely developed from two main perspectives: The institutional perspective and the corporate political strategy perspective. Doh et al. (2012) emphasize that the integration of different perspectives is a logical next step in advancing nonmarket strategy research. Therefore, this study combines institutional and corporate political strategy perspectives to examine the primary drivers of certain classes of institutional pressures facing MNEs in a nonmarket environment and how the organizations respond to these pressures. This study further contributes to the nonmarket strategy literature because we investigate the relationships between various types of nonmarket institutional pressures and the nonmarket behavior of MNEs in a non-US setting.

Aguinis and Glavas (2012) emphasize that institutional theory can help elucidate why MNEs may feel compelled to develop nonmarket activities and strategies. Ioannou and Serafeim (2012) stress that institutional theory provides insight into the challenges facing MNEs in establishing legitimacy in various host nonmarket contexts. According to Doh et al. (2012), nonmarket strategy research is embedded in multiple institutional perspectives and levels of analysis. Two important perspectives in institutional theory relevant to the field of nonmarket strategy and MNEs are new institutional economics (Clougherty and Grajek 2008) and neo-institutional perspective (Orr and Scott 2008). Therefore, this research applies the economic perspective of new institutionalism and the sociological perspective of neo institutionalism, because their overall orientation emanates from similar traditions, level of analysis, and perspectives (Doh et al. 2012). Both perspectives emphasize the importance of political, social and economic institutions in constraining and facilitating the nonmarket behavior of firms.

Taking this broad institutional perspective, this study also incorporates a corporate political strategy perspective to investigate strategic responses to various nonmarket institutional pressures. The corporate political literature defines and measures different types of reactive and proactive nonmarket strategies (e.g., Baron and Diermeier 2007; Blumentritt and Nigh 2002; Boddewyn and Brewer 1994; Meznar and Nigh 1995). One commonly used typology was developed by Hillman and Hitt (1999) (Hillman et al. 2004; van Kranenburg et al. 2017; Mellahi et al. 2016). They classified the types of nonmarket strategies into two broad categories. Firms can develop relational nonmarket strategies that are long-term oriented and create a certain in-depth base within the nonmarket environment meant to avoid or decrease nonmarket influences on their activities. They can also develop and implement a transactional nonmarket strategy to deal with nonmarket actors and issues in their environment. This type of strategy is based on mainly event-specificity and temporary actions. Firms can use both types of strategies simultaneously to respond to nonmarket institutional pressures (Nell et al. 2015).

Notwithstanding the growth of nonmarket strategy studies, Lawton et al. (2013) emphasize that studies in the nonmarket strategy field have traditionally focused on the United States, where particular nonmarket strategies are used and are considered more ethically appropriate than in other developed countries. The reason for the US focus is that hard data and ample material are available to develop and test hypotheses. Many emerging and developed economies do not have the same degree of transparency as the United States. In addition, many developed economies have more collegial firm nonmarket institutions relations and are less conflicting than those in the US. The United States can be characterized as a pluralist economy. Nonetheless, a growing interest exists in expanding nonmarket strategy research beyond the US domain. In addition, much of this work analyzes the firm-political institution relations, but does not include various nonmarket institutions (Peng et al. 2009; Boddewyn 2016). The empirical evidence of this study comes from MNEs operating in a corporatist economy the Netherlands. Therefore, a second contribution of this study to the nonmarket strategy field is the analysis of how firms perceive the drivers of pressures of nonmarket institutions in a non-US setting. The Netherlands is a small, industrialized economy with an open integrated economy and one of the founding members of the European Union (EU). There is strong and close cooperation amongst employers' organisations, labour unions and the government, leading to abundant negotiations, as well as substantial rules and regulations that oversee an extensive welfare state. This close cooperation has led to both a stable economic and political environment and to joint initiatives for economic integration in Europe that have made the Netherlands an interesting host location for MNEs. The Netherlands represents one of the largest recipients of foreign investments in the world and, due to its favorable location and active role within the European Union, many MNEs have chosen the country as strategic orientation (UNCTAD 2011). Data on foreign firms were obtained through a questionnaire survey and existing data sets.

Results show that the factors that determine the significant pressure of regulatory agencies mainly involve a temporary issue perspective on rules and regulations, insufficient autonomy of regulatory institutions and insufficient transparency in terms of rules and regulations. With regard to standards agencies, the pressure stems from costs, both in terms of complying with imposed standards and in terms of obtaining permits, licenses and authorisations. The institutional drivers that are specific to the pressure of political institutions include the saliency of policy issues and the costs of politics. Interest groups exert pressure through their ability to influence public opinion and through their collective concerns. In addition, institutional drivers related to media pressures include media credibility and its societal influence. Furthermore, evidence shows that the pressures from political institutions, interest groups, and the media are more likely to elicit relational rather than transactional strategies and tactics, whilst pressures from regulatory agencies, and standards agencies engender

transactional nonmarket more than relational strategies and related tactics.

The structure of this study is as follows: Sect. 2 explores the drivers of pressures from various types of nonmarket institutions that trigger different nonmarket strategies of firms, and presents the hypotheses. In Sect. 3, we present the study sample, method and data...

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