Strategic responses of MNCs in emerging markets: addressing institutional voids associated with informal institutions

Abstract

Purpose The purpose of this paper is to address the question how multinational corporations (MNCs) can respond to different domains of formal voids associated with informal institutions in emergent markets. Design/methodology/approach The author advances the institution-based view of international business strategy by developing a framework and six propositions. The theoretical distinction of informal institutions as an additional aspect when disrupting formal institutional voids are instrumental in developing a refined understanding of how MNCs can respond to institutional voids. Findings By emphasizing the notion of informal institutions that are associated with formal institutional voids, the author moves away from a unidimensional toward a multidimensional view of substituting formal voids. The presented response variety includes a variety of substitutes. Research limitations/implications Further research can apply qualitative research to further examine where, when and why social innovations can be used efficiently to address institutional weaknesses or absences. The author suggests further research opportunities in the implication section. Social implications Constituting substitutive formal institutions with complementary informal institutions can help strategic managers navigate business activities in emerging markets. Institutional weaknesses can be used as opportunities to create legitimacy and serve social needs. To help facilitate such impacts public policies need to be developed accordingly. Originality/value The paper provides a new and critical perspective on how MNCs can use institutional voids as opportunities. The author’s key contribution is to highlight specific substitutive actions from MNCs to institutional voids when different cultural-cognitive and normative circumstances apply in emerging markets.