Emerging economies and multinational corporations : An institutional approach to subsidiary management

Purpose – The purpose of this article is to analyze the impact of the rise of emerging economies and emerging economy firms on multinational corporations (MNCs) with respect to four important strategic decisions for MNCs' foreign investment – control and coordination strategies, geographic and product markets of entry, timing of entry, and organizational design for foreign subsidiaries. Design/methodology/approach – The author utilizes an integration of institutional perspective with the existing explanations of MNC activities, to support their arguments about the impact of the rise of emerging economies on MNCs' strategy and structure decisions. The author presents propositions linking the type of external governance structure in the emerging economy's institutional environment (rule based or relationship based) with the strategy and structure decisions for MNCs. Findings – The paper proposes that MNCs will follow different control and coordination strategies, geographic and product market strategies, entry timing strategies and organizational design strategies depending on whether the target emerging economy's institutional environment is characterized by a rule based or a relationship based governance structure. Originality/value – Increasing globalization and rapid rise of emerging economies and emerging economy firms has not only opened up many opportunities for MNCs, but also raised many challenges. Extant literature has, however, not paid enough attention to how MNCs can best make use of the opportunities available in emerging markets, while taking care of the associated challenges. This paper is unique in providing a holistic framework pertaining to important strategic decisions that MNCs have to make, with specific reference to emerging markets.