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Host country corruption and the organization of HQ–subsidiary relationships

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Abstract

Multinational enterprises (MNEs) operating in more corrupt host (than home) countries face actual costs related to processing information for decision-making, and lack of local legitimacy, and potential reputation and legal costs in case of corruption scandals. Drawing on the organizational perspective of corruption, we argue that greater subsidiary autonomy helps minimize these costs. However, headquarter (HQ)–subsidiary communication weakens the autonomy-based advantages for minimizing legitimacy costs, and MNEs’ experience in relatively corrupt countries weakens the advantages for minimizing information-processing costs. Our analysis of 261 Italian foreign subsidiaries in 25 host countries confirms most of our arguments except the moderating effect of MNE experience. Our findings contribute to research on corruption and FDI, weak institutional contexts and MNE strategies as well as the literature on HQ–subsidiary relationship.

Resume

Les entreprises multinationales (EMN) opérant dans des pays d’accueil plus corrompus (que domestiques) sont confrontées aux coûts réels liés au traitement de l’information pour la prise de décision et au manque de légitimité locale et à la réputation potentielle et aux frais juridiques en cas de scandales de corruption. En nous appuyant sur la perspective organisationnelle de la corruption, nous soutenons qu’une plus grande autonomie des filiales permet de minimiser ces coûts. Cependant, la communication siège-filiale affaiblit les avantages liés à l’autonomie pour minimiser les coûts de légitimité, et l’expérience des EMN dans des pays relativement corrompus affaiblit les avantages de minimiser les coûts de traitement de l’information. Notre analyse de 261 filiales étrangères italiennes dans 25 pays d’accueil confirme la plupart de nos arguments à l’exception de l’effet modérateur de l’expérience des EMN. Nos résultats contribuent à la recherche sur la corruption et les IDE, la faiblesse des contextes institutionnels et des stratégies des EMN.

Resumen

Las empresas multinacionales (EMN) con operaciones en países anfitriones más corruptos (que sus países de origen) enfrentan costos reales relacionados con el procesamiento de la información para la toma de decisiones, y carecen de legitimidad local, y potencial reputación y costos legales en caso de escándalos de corrupción. Basándonos en la perspectiva organizacional de la corrupción, argumentamos que una mayor autonomía de la subsidiaria ayuda a minimizar estos costos. Sin embargo, la comunicación entre la casa matriz y la subsidiaria debilita las ventajas basadas en la autonomía para minimizar los costos de legitimización, y la experiencia de la EMN en países relativamente corruptos debilita las ventajas para minimizar los costos de procesamiento de información. Nuestro análisis de 261 subsidiarias italianas en el extranjero en 25 países anfitriones confirma la mayoría de nuestros argumentos excepto el efecto moderador de la experiencia de la EMN. Nuestros hallazgos contribuyen a la investigación en corrupción y IED, contextos institucionales débiles y las estrategias de las EMN también como la literatura de la relación entre casa matriz y subsidiaria.

Resumo

Empresas multinacionais (MNEs) operando em países de destino mais corruptos (do que na origem) enfrentam custos reais relacionados ao processamento de informações para tomada de decisões, e falta de legitimidade local, potencial reputação e custos legais no caso de escândalos de corrupção. Com base na perspectiva organizacional da corrupção, argumentamos que uma maior autonomia da subsidiária ajuda a minimizar esses custos. No entanto, a comunicação matriz (HQ)-subsidiária diminui as vantagens baseadas na autonomia para minimizar os custos de legitimidade, e a experiência das MNEs em países relativamente corruptos as vantagens de minimizar os custos de processamento de informações. Nossa análise de 261 subsidiárias estrangeiras italianas em 25 países de destino confirma a maioria de nossos argumentos, exceto o efeito moderador da experiência em MNE. Nossas descobertas contribuem para a pesquisa sobre corrupção e FDI, contextos institucionais fracos e estratégias de MNE, bem como a literatura sobre a relação entre subsidiárias e matriz.

摘要

在较腐败的东道国(与国内比)经营的跨国企业(MNEs)面临与处理决策信息、缺乏当地合法性、以及腐败丑闻可能带来的声誉和法律成本相关的实际成本。从研究腐败的组织视角来看, 我们认为较大的子公司自治有助于最大限度地降低这些成本。然而, 总部(HQ)– 子公司沟通削弱以自治为基础的最大限度降低合法性成本的优势, 且跨国企业在相对腐败国家的经验削弱信息处理成本最小化的优势。我们对25个东道国的261家意大利境外子公司的分析证实了我们的大多数论点, 除了跨国企业经验的调节作用之外。我们的研究结果对研究腐败和外国直接投资(FDI), 薄弱的制度情境和跨国企业战略以及对总部 – 子公司关系的文献做出了贡献。.

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Authors and Affiliations

  1. Department of Strategy and Innovation, Copenhagen Business School, Kilevej 14A, 2000, Frederiksberg, Denmark

    Larissa Rabbiosi & Grazia D Santangelo

  2. Department of Political and Social Science, University of Catania, via Vittorio Emanuele 49, 95131, Catania, Italy

    Grazia D Santangelo

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  1. Larissa Rabbiosi
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  2. Grazia D Santangelo
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Correspondence to Larissa Rabbiosi.

Additional information

Accepted by Yadong Luo, Senior Editor, 26 May 2018. This article has been with the authors for three revisions.

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Rabbiosi, L., Santangelo, G.D. Host country corruption and the organization of HQ–subsidiary relationships. J Int Bus Stud 50, 111–124 (2019). https://doi.org/10.1057/s41267-018-0169-1

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