Why Do Some Multinational Firms Respond Better Than Others to the Hostility of Host Governments? Proximal Embedding and the Side Effects of Local Partnerships

Using a multiple-case study of alleged expropriations reported before the World Bank, the authors examine how multinational companies (MNC) react to the escalating hostility of host governments. The authors' study reveals how different choices regarding the interaction with local nonmarket stakeholders - which the authors refer to as proximal vs. mediated embedding - shape how managers respond to these disputes by affecting their ability to collect, process and interpret information, and to act upon it in a way that effectively mobilizes local and international support. In contrast to the prevailing view that local partners in international joint ventures shelter MNCs from abuse from political authorities, the authors' findings show that primary reliance on local partners to manage the local nonmarket environment can actually reinforce a liability of outsidership and even create a “liability of insidership”, to the extent that relying on local partners prevents the MNC from establishing quality connections with a broad range of nonmarket stakeholders, reducing its alertness and responsiveness to hostile acts from host governments.