Strategic Responses as Matching Strategies in Transition Economies: Strategic
Choices and Actions that Follow the Logic of Appropriateness
ABSTRACT
This paper seeks to contribute to the institutional-based view on strategy in emerging economies
by conceptualizing how multinationals, in competition with other firms, enact to match their
strategies and make strategic choices during institutional transitions. Changing dynamics of
institutional transitions in emerging markets make changes in strategic choices inevitable both for
domestic and foreign firms. In this paper I discuss the MNE as a socio-economic institution and
its micro-foundation interaction with other institutional actors on different institutional levels. I
further highlight the dynamic feature of how MNEs respond to their external environments; a
feature originating in formal and informal rules, which refer to behavioral regularities or selfactivating social processes, accounted for through some major strategic change situations to
which the strategic behavior of the MNE can be matched. I further explore the dynamic feature
through the institutional lens, discuss strategy as ‘a pattern in a stream of actions’ and propose
that in emerging markets, strategic choices according to which the strategy is rationalized follow
the logic of appropriateness. The framework seeks to guide decision makers in multinationals to
develop emerging market matching strategies and make strategic decisions about appropriate
local social and environmental responses with the main objective to fulfill the obligations
encapsulated in a role, an identity, and the ethos, practices and expectations of the focal MNCs
institutions as a legitimate actor or a responsible corporate citizen.
INTRODUCTION
The institutional-based view has become a dominant perspective in strategy and international
business research on emerging economies (Brouthers et al., 2005; Chang and Hong, 2000; Child
and Tsai, 2005; Chung and Beamish, 2005; Delios and Henisz, 2000; Filatotchev et al., 2000;
Guillen, 2000; Hitt et al., 2000; Isobe et al., 2000; Khanna and Palepu, 2000; Meyer and Nguyen,
2005; Peng and Luo, 2000; Uhlenbruck and De Castro, 2000; Wan, 2005; White, 2000; Yiu et al.,
2005). Institutions, metaphorically seen as “rules of the game” (North, 1990) matter for the
strategic behavior of firms and because institutions provide rules on “how to act or how to play
the game”. Strategy is about accomplishing a difference in firm performance. If the firm is able to
match its strategy with institutional environments then it is likely to accomplish higher
performance. However, failure to accomplish such strategic match will make a prior match
obsolete under new circumstances (Zajac, Kraatz and Bresser, 2000). Nowhere is this argument
more staggeringly powerful than in emerging economies since “the changing dynamics of
institutional transitions have to make changes in strategic choices inevitable – both for domestic
and foreign firms participating in these transitions and for economies embracing these
transitions” (Peng, 2003, 293). Unfortunately, little is known about how firms make growthoriented strategic choices during institutional transitions, i.e., “fundamental and comprehensive
changes introduced to the formal and informal rules of the game that affect organizations as
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players” (Peng, 2003, 275). Institutional transitions in some emerging economies - such as the
Brazil, Russia, India and China - are so pervasive that these countries can be labeled transition
economies (Peng, 2000). In other words, they are in transition from one market stage to another
by way of integrating structural reforms of companies, markets and society (Jansson, 2007).
Furthermore, studies related to how multinationals develop growth-oriented responses are
relevant as they would extend the ideas of a company’s sustainable competitive advantages to
emerging markets (Hoskisson, Eden, Lou and Wright, 2000). However, we need a better
understanding of how firms match their strategies and make strategic choices during institutional
transitions in emerging markets because they may ensure the growth and survival of
multinationals operating in complex global markets (Turcan, Marinova and Rana, 2012).
Hence, the central question is then: how do firms respond and make strategic choices, in
competition with other firm, when the rules of the game are unclear, hidden or even absent.
Research demonstrates that during the transitions, different organizational forms are likely to
confront different regular, normative and cognitive institutional pressures (Scott, 1995) leading to
various strategic choices during different phases of transitions (Peng, 2003). Child (1972) argued
convincingly that strategic choice is the critical variable in a theory of the firm, and while some
choices are based on a cost-benefit analysis not all of them are likely to be efficiency driven
(DiMaggio and Powell, 1983), hence, there are reasons to believe that behind a certain type of
strategic response there is a major logic, a mode of reasoning or a major strategic orientation,
according to which the strategy is rationalized, or made reasonable (Priem, Rasheed and Kotulic,
1995; Dacin, Goodstein and Scott, 2002; Townley, 2002; Jansson, 2007). Although strategic
responses to institutional pressures have been studied (Oliver, 1991), for instance, to explain the
ethical behavior of MNCs (Tan and Wang, 2011), the issue that has been largely underresearched is what kind of logic or mode of reasoning that strategic choices follow in emerging
markets and the impact it has on growth-oriented strategic responses.
Strategic choices are not only driven by industrial conditions and firm capabilities but also
by formal and informal rules of a particular institutional environment that managers confront
(Bruton, Dess, & Janney, 2007; Carney, 2005; Delios & Henisz, 2000; Hill, 2007; Khanna &
Palepu, 2000; 2006; Le & Oh, 2007; Lee, Peng & Barney, 2007; Lu & Yao, 2006; Ma, Yao & Xi,
2006; Mayer & Nguyen, 2005; Ring et al, 2005; Rodriquez; Wan & Hoskisson, 2003; Zhou, Tse
and & Li, 2006). Thus, institutions provide the rules of the game in which organizations act and
compete. Such interaction between institutions and organizations shapes economic activities why
any analysis of firm behavior, such as the growth of the firm, must take into account the nature of
the institutional framework. However, much of the literature focus on strategic choices in
relatively stable institutional environments, assuming that the focal firm operates in a marketbased economy, is motivated to grow and has a number of strategic choices that it can adopt to
achieve growth. In other words, a market-based institutional framework is taken for granted and
formal as well as informal institutions have been assumed away as background conditions (Peng
& Heath, 1996; Peng, Wang & Jiang, 2008). If strategic choices are selected within, and
constrained by the institutional setting in which firms are operating, then given the tremendous
amount of diversity between institutional frameworks and organizational forms in developed
economies and emerging economies there are reasonable doubt that strategic choices developed
in a western context have limited or no applicability in emerging country markets. Thus, it is
unclear whether research done in the West can be applied on the firm in emerging economies
why it is necessary to further develop how firms make strategic choices in emerging markets
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under conditions of institutional transitions. This resonates well with Peng, Wang & Jiang (2008)
who echo Kiggundu, Jorgensen & Hafsis’ (1983) earlier insight and calls for new theoretical
tools to capture the complex and rapidly changing relationships between organizations and
environments in emerging markets. The major organizational form under investigation in this
paper is the multinational enterprise, which refers to the strategic option to research firms from
developed economies entering and operating in emerging economies as suggested by Wright et
al., (2005); research that is motivated by the complexity and heterogeneity of multinationals
(Kostova, Roth & Dacin, 2008).
In contributing to filling this gap in the literature, I explore strategic responses and their
underlying strategic choices that multinationals, in competition with other firm, in the emerging
market context in which they are operating. An emerging market context is motivated both by
theory and practice. According to the World Bank, Brazil, China, India, Indonesia, Russia and
South Korea are six countries that will grow on average 4,7 percent in the next fifteen year,
yielding more than half of the world’s economic growth. The socialist legacy as well as the recent
transformations in these countries present an institutional environment that is immensely different
from what a typical Western firm would encounter why exploring the growth of the firm in
transition economies will highlight an important facet about the diversity among organizations
that operate in different institutional environments (Peng & Heath, 1996); otherwise “it is
difficult if not impossible to discern the effects of institutions on social structures and behaviors if
all our cases are embedded in the same or very similar ones” (Scott, 1995: 146).
This paper represents a departure from the existing literature in at least three significant
ways. Firstly, unlike earlier institutional attempts it seeks to discuss the MNC as an economic
institution and its micro-foundation interactions with other institutional actors on different
institutional levels, i.e. how it connects to two surrounding levels of meso and macro institutions
through a blended institutional perspective in which social concepts are applied to capture the
heterogeneity and complexity of multinationals (as suggested by Kostova, Roth & Dacin, 2008).
It further highlights the dynamic feature of how MNCs relate to their external environments; a
feature originating in formal and informal rules, or what Jepperson (1991) refers to as behavioral
regularities or self-activating social processes, and further accounted for through some major
strategic change situations to which the strategic behavior of the MNC can be matched.
Secondly, and as above, the institutional lens is applied on strategy by exploring the
dynamic feature and - through the works of Mintzberg & Waters (1985) – discussed as ‘a pattern
in a stream of actions’. As previously mentioned, it is assumed that behind a certain type of
activity pattern there is a major logic, a mode of reasoning, according to which the strategic
choices are made and the strategy is rationalized. This logic is discussed by introducing the works
of March & Olsen (1989, 2006) and March (1994); matching strategy is, eventually, defined.
Thirdly, it presents a conceptual framework of appropriate strategic responses that MNCs,
in competition with other firm, enact to match their behavior toward the emerging market context
in which they are operating. Emulating from Oliver’s (1991) early typology of different strategic
responses that organizations enact as a result of institutional pressures, a more ‘situated’
classification, pertaining to a certain kind of strategic agent, namely the MNC, is discussed; and
relying, for instance on the works of Boddewyn and Doh (2011), some strategic postures for how
multinationals match their strategies and make appropriate strategic choices to major strategic
change situations in an emerging country markets context are illustrated. The theoretical
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framework that I seek to build aims to provide more valid and useful descriptions of strategies in
emerging markets, and from a practical global strategy perspective. The framework seeks to
guide decision makers in multinationals to develop emerging market matching strategies and
make strategic decisions about appropriate local social and environmental responses in order to
fulfill the obligations encapsulated in a role, an identity, and the ethos, practices and expectations
of the focal MNCs institutions as a legitimate actor or a responsible corporate citizen.
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