Home country institutions and nonmarket political strategy effects on EMNE foreign location choice

Abstract

While the literature has generated impressive insights on why emerging market multinationals enterprises (EMNEs) select certain foreign locations over others, we still lack an understanding of how the home country institutional weakness affects EMNEs' foreign location choices and the mechanisms through which EMNEs overcome this effect. In this study, we investigate how the home country institutional weakness affects EMNEs' foreign location choices and how EMNEs can use home country nonmarket political strategy to address their liability of foreignness. We argue that EMNEs struggle with home country institutional weakness that are carried over in host countries and create barriers for EMNEs to enter developed or markets more institutionally distant from their home country. Thus, EMNEs are more likely to choose institutionally similar countries as their foreign direct investment (FDI) targets to help them offset the additional liability they carry. Thus, the nonmarket political strategy can serve as a response to address barriers and help EMNEs reach developed markets and those more distant from their home country institutions. On the other hand, the findings show limitations of the strategy to completely moderates the effects of home country institutional weakness on EMNEs’ foreign location choices.