Study On Institutional Distance, Entry Mode And Legitimation Strategic Choice For Multinational Enterprises

Previous research on multinational enterprises has focused on two kinds of theory perspective, one is the resources perspective the other is the strategic perspective. Recently, scholars more and more realized that the institutional factors is the key to understand and analyze the multinational enterprises. View of new institutional theory believes that institutional perspective can connect the enterprise strategic and the external environment factors. Previous research on institutional perspective shows that multinational companies will face "dual" institutional pressure.One is from the host country, the other is from the parent company. Each of them has their own legitimacy demands. This paper considered that there are two main factors impact their legitimacy, one is the institutional distance, and the other is the entry mode. On the one hand, high institutional distance lead the lack of legitimacy. It has become the primary obstacles for the multinational enterprises. On the other hand,different entry mode brings different kinds of legitimacy threshold for multinational enterprises. Therefore, this paper will based on the institutional distance and entry mode factors, treat them as the important factors of the institutional situation for multinational enterprises.Legitimacy is one of the most important concept in institutional theory. It has become the most important tools to understand the relationship between environment and multinational enterprises. The theory on legitimacy believed that the legitimacy is the necessary prerequisite for multinational enterprises to be survival. However,different institutional distance and entry modes bring different kinds of institutional pressure and legitimacy threshold. Institutional distance not only brings the obstacles for the accepted and recognized at the macro-level, it also brings obstacles for its internal legitimacy at the organization-level. The status of the legitimacy for the multinational enterprises is closely related to their entry mode, different entry mode brings different legitimacy, access path, obtain way and legitimacy constraints.This paper studies on the institutional distance, entry mode and legitimation strategic choice for multinational enterprises. First of all, this paper based on the summarize of the legitimacy theory, institutional distance theory and enterprise entry mode theory, treat institutional distance and the entry mode as two important factorsof the legitimacy threshold of multinational enterprises. For institutional distance(formal or informal institutional distance), entry mode(Greenfield mode or M&A mode) separately, and also both factors lead legitimacy "threshold" for the multinational enterprises. Further, different institutional distance and entry mode constituted different kinds of legitimacy thresholds. This paper shows that there are four kinds of legitimacy threshold type, they are:1the high institutional distance and M&A mode "hostile- multiple" threshold type;2low institutional distance and M&A mode "loose- multiple" threshold type,;3high institutional distance and Greenfield mode "hostile- unit" threshold type and 4high institutional distance and Greenfield mode "loose- unit" legitimacy threshold.Secondly, this paper constructs the internal and external legitimacy strategy separately and also the strategic combination of multinational enterprises. We proposed that there have two strategies "compliance" or "manipulation" can deal with the external legitimacy threshold, and two strategies "homogeneous" or "heterogeneous" can deal with the internal legitimacy threshold. Furthermore, this paper constructs the theoretical model of the strategic combination both in internal and external legitimacy. There have four strategy combination: 1 "compliance" and "heterogeneous" strategic make the "prudent" strategy combination;2 "manipulation" and "heterogeneous" make the "risk" strategy combination,;3 "manipulation" and "isomorphism" make the "positive" strategic combination and 4 "compliance" and "isomorphism" make the "conservative" strategy combination.At last, this paper discusses the strategic choice under each kind of legitimacy thresholds. We proposed the principles and basis of legitimation strategy selection for the multinational enterprise. For institutional distance, entry mode separately, and also both factors’ legitimization strategies choice lead legitimacy "threshold" for the multinational enterprises.This study attempts to answer the following questions:(1) how the institutional distance and entry mode impact the multinational enterprises’ legitimacy, hat kinds of the legitimacy threshold each of them leads, what is the influence mechanism;(2)what is the characteristics of each kind of legitimacy threshold, how multinationals respond to the legitimacy threshold;(3) how to choice strategies to overcome thelegitimacy threshold in different constraints, what is the choice basis, how strategic choices affect to the firm’s performance.This paper get the following conclusions:(1)Either institutional distance or the entry mode is the important factor influences the legitimacy for multinational enterprises. Different institutional distance and entry mode bring different legitimacy threshold. When the institutional distance become higher, multinational enterprises will face higher both internal and external legitimacy threshold. Compared with the Greenfield model, M&A model has higher internal legitimacy threshold. Compared with the M&A model, Greenfield model has higher external legitimacy threshold.(2) This study confirms that the higher institutional distance, the higher legitimacy threshold there is. But the different character of the institutional distance result different strategic choice. So we not only consider the degree of institutional distance, but also need to consider the direction of institutional distance. This study shows that when the host country’s formal institutional environment is better than the mother country, companies prefer to choose the conformance strategy to overcome the external legitimacy threshold. When the informal institutional distance is higher,multinational companies more prefer to choose conformance strategy to overcome the external legitimacy threshold. When the informal institutional distance is lower,multinational companies more prefer to choose manipulation strategy to overcome external legitimacy threshold.(3) This study shows that the effect of entry model play an important role of internal legitimacy. It also impact the choice of the legitimacy strategy. In M&A model, multinational enterprises prefer choose distinctive strategy to overcome internal legitimacy threshold. In the Greenfield Model, multinational enterprises prefer to choose isomorphism strategy to overcome internal legitimacy threshold.(4) This paper also argues that the strategic choice based on the "double factors" —institutional distance and entry mode should be in full consideration and analysis. The multinational enterprises need to understand the characteristics of the situation and the main legitimacy threshold. After that, they can use contingency theory, matching the situational characteristics and strategic choice for betterperformance.There also have some theoretical contribution in this paper.Firstly, this research integrated both institutional distance and entry mode as the composition of legitimacy threshold. Shows the process of how to the multinational enterprises deal with the legitimacy threshold by strategy selection. We revealed the mechanism of the action.Secondly, this paper attempts to "bind" the internal and external legitimacy together as the previous research focus on external legitimacy, but ignored the significance of internal legitimacy. Further, this paper proposed two internal legitimation strategy, “homogeneous” and “heterogeneous” strategies. That will expand relevant legitimacy theory.Finally, this paper has explored of the character of institutional distance.Revealed that not only the degree of the institutional distance but also the merits of institutional environment between the host and home country can influence the legitimation strategy choice.