Conflicting isomorphic pressures in MNCs

Taking an intrafirm perspective, MNCs experience especially complex institutional pressures (Westney, 1993) resulting from possibly conflicting sets of external environments. MNC subsidiaries can be viewed as being located in multiple organizational fields or institutional environments. This multiplicity of organizational fields creates complex institutional pressures and potentially results in barriers to acceptance of new practices.

Firstly, MNC subsidiaries are rooted in the organizational field within a given country and hence experience pressures to adopt local organizational practices and become isomorphic with the local institutional context, leading to local adaptation (Kostova & Roth, 2002). Legitimacy in the local national environment is seen as an important way to help subsidiaries to overcome the liability of

foreignness (Hymer, 1976; Zaheer, 1995). This implies that if a subsidiary is going to adapt to a new practice coming from the parent company then this may involve giving up some degree of local legitimacy, if the institutional environment of the parent is very different from the institutional environment of the subsidiary.

So an important concept in these discussions is the institutional distance between the parent and the subsidiary (Kostova, 1999).

Empirical research has found that the national institutional context (regulatory, cognitive and normative) impacts the commitment of subsidiaries to a new practice but that only the cognitive aspect of the institutional context influences the implementation of the new practice (Kostova & Roth, 2002). This finding is consistent with knowledge transfer research where it has been found that institutional distance increases the stickiness of knowledge transfer and reduces the motivation of the subsidiary to accept new practices (Jensen & Szulanski, 2004). In addition to institutional distance, transfer between subsidiaries is likely to be shaped by macro-level power relations between countries (Ferner, Almond

& Colling, 2005). The term “dominance effects” have been coined to describe hierarchical relationships between national economies within the global economy (Smith & Meiksins, 1995) where firms from countries lower in the hierarchy perceive an interest in adopting practices from higher based economies.

Secondly, MNC subsidiaries all belong to the same intraorganizational field which is contained within the boundaries of the firm (Kotova, Roth & Dacin, 2008). So in addition to institutional pressures from the national environment, MNCs also experience pressure to utilize knowledge-based organizational core competencies and capabilities and to leverage practices on a worldwide basis, which forms an important source of global competitive advantage (Ghosal &

Bartlett, 1988; Grant, 1996; Kogut, 1991; Nohria & Ghoshal, 1997).

The location of MNC subsidiaries within both the local national institutional environments and also the intraorganizational MNC environment creates an inherent tension between balancing the need for local adaptation and global integration (Rosenzweig & Singh, 1991; Westney, 1993). Local interests of subsidiaries may not always be aligned with those of headquarters or the MNC as a whole (Nohria & Ghohal, 1994). It is acknowledged that becoming isomorphic with all environments is not possible (Kostova & Zaheer, 1999). This subsidiary dilemma is known as “institutional duality” (Kostova & Roth, 2002).

To add to the ideas of duality it has been further suggested that at a very high level of analysis MNCs as a specific type of organization form their own institutional field (Kostova et al., 2008). MNCs operate according to particular rules, logic and norms and that are subject to particular types of scrutiny and sanctions. For instance, MNCs might be expected to confirm to supra-national regional or global standards or regulations e.g. ISO standards, with respect to environmental standards, human rights issues and ethical labour practices (e.g.

Christmann, 2004).

In comparing the relative strength of institutional pressures from the MNC intraorganizational field with the pressures from the multiplicity and ambiguity of national organizational fields at the meso level, it is argued by researchers that that the MNC organizational field has a stronger influence over its members

(Kostova et al., 2008). Legitimacy with the parent company is important to any subsidiary because subsidiaries rely on the support of the parent organization for providing major resources, including technology, capital and management experience (Bartlett & Ghoshal, 1989, 1998: Kostova, 1999; Martinez & Ricks, 1989; Pfeffer & Salancik, 1978; Prahalad & Doz, 1981) and also because of the degree of formal authority that the MNC has over any subsidiary⁷. MNCs are likely to consciously create and strengthen their intraorganizational field with the goal of reinforcing and disseminating a shared business model (Kostova et al., 2008). This reduces ambiguity and provides a sense of direction, certainty and legitimacy to subsidiaries.

The strength of these legitimizing forces or isomorphic pressures and how they are interpreted and perceived is governed by and filtered through the relational context with the parent company (Kostova & Roth, 2002). For instance, it has been found empirically that inter-organizational trust (between the parent organization and the subsidiary organization) increases the level of commitment of a subsidiary to an intended initiative of a new organizational practice (Kostova

& Roth, 2002; Tsai & Ghosal, 1998). It is suggested that under conditions of uncertainty and complexity trusting the parent increases the perception that the practice is valuable for the subsidiary and hence creates mimetic pressures rather than coercive pressures (Tsai & Ghosal, 1998). Identification with the parent organization has also been found to influence the implementation dimension of organizational practice adoption (Kostova & Roth, 2002).

Given the argument above that the MNC organizational field has a stronger influence over subsidiaries than the local organizational field, this suggests that once intended strategic initiatives are underway in an MNC there are limited opportunities for subsidiary choice owing to the relational context and dependence between the headquarters and the subsidiary (DiMaggio & Powell, 1983; Kostova, 1999; Meyer & Rowan, 1977; Tolbert & Zucker, 1983). So under these conditions, and given intra-organizational competition with other subsidiaries, a recipient unit will comply with the wishes of headquarters to become internally socially legitimate. This implies that a corporate headquarters can – if it wishes – exercise strong coercive forces for isomorphism, especially under conditions of uncertainty when the value of a new organizational practice is as yet unknown. For instance, it has been found that the control of the parent over its subsidiaries’ decisions is an important driver of the global standardization of various MNC activities such as advertising and human resource practices (Hannon, Huang & Jaw, 1995; Laroche, Kirpalani, Pons &

Zhou, 2001).

7 Researchers in international business theory currently regard subsidiaries as semi-autonomous entities. Ambos, Andersson & Birkinshaw, 2010 p 1101 state:-

We view subsidiary units as semi-autonomous entities that have some discretion over their actions. Subsidiaries according to this perspective are strongly influenced by headquarters, but they can also set their own strategic priorities, and they have the ability to influence the scope of their own operations as well as firm-wide strategy.

However relying solely on coercive forces, rather than engaging mimetic behaviour as an optimal choice of active agency, may be inadvisable for the parent company because this could provoke active agency responses in opposition to the initiative and reduce the level of implementation (Nutt, 1986;

Oliver, 1991). As discussed in the opening chapter, subsidiaries may respond using avoidance strategies. For instance, a subsidiary may only undertake ceremonial adoption where the new practice template is notionally implemented but the subsidiary is not committed because it does not believe in the economic benefits of the new practice within its local institutional environment (Kostova &

Roth, 2002; Meyer & Rowan, 1977). Or subsidiary managers may intentionally decide not to implement a particular practice, while reporting otherwise to headquarters, situation termed as minimal adoption (Kostova, 1999).

A third active agency response in opposition to an initiative is that agents in subsidiaries may seek to modify routines coming from the parent organization.

Local adaptation may take place during the process of reproducing the routine, and may focus on the social dimensions of routines (e.g. Brannen, Liker & Fruin, 1999; Edmondson, Bohmer & Pisano, 2001; Williams, 2007). This can be seen as an attempt to bargain between different local and headquarters constituents.

Empirical research on process transfer within MNCs has shown that subsidiaries that have built up substantial capabilities and resources have more power to utilize political processes to negotiate with headquarters (Mudambi & Navarra, 2004).

A final much more extreme active agency response is that subsidiaries with a strong power base may have the ability to defy or obstruct corporate headquarters and take independent action, resulting in their non-adoption of the new practice (Andersson & Forsgren, 1996; Mudambi, 1999). Or smaller subsidiaries may band together in political coalitions and effectively force the corporate headquarters to suspend an initiative. Defiance is likely to occur when the norms and interests of the focal organizations diverge substantially from those attempting to impose requirements on them (Scott, 2001).

Looking at how a subsidiary may passively or more actively resist a corporate mandated strategic initiative it may be that engaging active agency to obtain an attitudinal commitment to the new practice is actually more important than the choice per se of a strategic initiative (Armenakis et al., 1993; Miller, Johnson &

Grau, 1994). Consistent with strategy literature, this would mean that developing commitment to new practice adoption would start before implementation (Dooley et al., 2002; Guth & MacMillan, 1986; Wooldridge & Floyd, 1990). Kostova and Roth (2002) suggest that one of the main ways to overcome active agency responses from subsidiaries, such as avoidance or defiance, is by the parent maintaining an appropriate relational context with strong trust, dependence, and identification with the parent organization.