The Dynamic Response Process to Conflicting Institutional Demands in MNC Subsidiaries: An Inductive Study in the Sub‐Saharan African E‐Commerce Sector

• DOI: http://doi.org/10.1002/gsj.1145
• Author: Alison E. Holm,Patricia Klopf,Benoit Decreton,Phillip C. Nell
• Date: 01 February 2017
• Published date: 01 February 2017

THE DYNAMIC RESPONSE PROCESS TO

CONFLICTING INSTITUTIONAL DEMANDS IN MNC

SUBSIDIARIES: AN INDUCTIVE STUDY IN THE SUB-

SAHARAN AFRICAN E-COMMERCE SECTOR

ALISON E. HOLM,

1

BENOIT DECRETON,

2

*PHILLIP C. NELL,

2,3

and PATRICIA KLOPF

2

1

Organisation for Economic Co-operation and Development (OECD),

Directorate for Financial and Enterprise Affairs, Paris, France

2

Institute for International Business, WU Vienna University of Economics

and Business, Vienna, Austria

3

Department of Strategic Management and Globalization, Copenhagen

Business School, Frederiksberg, Denmark

Research summary: How do subsidiary managers react when their headquarters’man-

agers make requests that conflict with the local environment in which the subsidiary

operates? Using data from a subsidiary based in Sub-Saharan Africa and headquartered

in Europe, we show that subsidiary managers need more time than usually expected to

react to headquarters’demands. Subsidiary managers sometimes postpone or test head-

quarters’demands before deciding how to respond to them. In addition, subsidiary man-

agers can implement headquarters’demands in ways that do not fit the expectations

from the headquarters or local actors (e.g., customers and suppliers), thus resulting in

additional delays. Headquarters managers must be aware that implementation can take

longer than they anticipate, particularly for subsidiaries located in environments that dif-

fer substantially from the environment of the headquarters.

Managerial summary: In this article, we examine responses to the conflicting institu-

tional demands faced by an e-commerce subsidiary located in Sub-Saharan Africa and

headquartered in Europe. Following an inductive approach, we gathered data from a

six-month participant-observation study and interviews with local managers. Our find-

ings show that the subsidiary managers responded to conflicting institutional demands

in a dynamic way, taking one response after the other. In some cases, the subsidiary

managers responded in a way that they thought would be satisfactory, but subsequent

pressures from their headquarters or their local environment pushed them to adopt a

new response. In other cases, the subsidiary managers intentionally adopted responses

knowing they would (have to) adopt another response later in the process. Copyright

© 2016 Strategic Management Society.

INTRODUCTION

Subsidiaries of multinational corporations (MNCs)

are embedded in both the internal context of the

MNC and the external context in which they oper-

ate (Meyer, Mudambi, and Narula, 2011; Narula,

Keywords: institutional duality; MNC; headquarters-

subsidiary relations; Sub-Saharan Africa; e-commerce

*Correspondence to: Benoit Decreton, Institute for Interna-

tional Business, WU Vienna University of Economics and

Business, Welthandelsplatz 1, D1 3St., 1020 Vienna, Austria.

E-mail: benoit.decreton@wu.ac.at

Copyright © 2016 Strategic Management Society

Global Strategy Journal

Global Strategy Journal, 7: 104–124 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1145

2014). Each context has specific requirements, and

it can be challenging for subsidiaries to cope with

situations in which demands emanating from their

headquarters are conflicting with demands from

their local environments (Marano and Kostova,

2016; Saka-Helmhout, Deeg, and Greenwood,

2016). This situation of conflicting institutional

demands is a particular form of institutional com-

plexity referred to as institutional duality (Hillman

and Wan, 2005; Kostova and Roth, 2002).

Extant literature is very informative with regard

to the potential responses to conflicting institutional

demands (see Kostova and Roth, 2002; Oliver,

1991; Pache and Santos, 2010, 2013). Yet, little

attention has been given to the idea that responses

to conflicting institutional demands can develop

over time. Frequently, it has been explicitly or

implicitly assumed that an organization employs a

single response to a conflicting demand

(Greenwood et al., 2011). Thereby, most of the lit-

erature has neglected the possibility that an organi-

zation might need time to address conflicting

institutional demands and make adjustments to its

response (Greenwood et al., 2011; Raaijmakers

et al., 2015; Tilcsik, 2010). Thus, there is a need to

further examine the response process of MNC sub-

sidiaries when they confront institutional duality,

including how subsidiaries manipulate, negotiate,

and make sense of the institutional pressures they

face (Faulconbridge and Muzio, 2016; Greenwood

et al., 2010; Tempel et al., 2006; Zilber, 2011).

More and more foreign e-commerce firms are

entering the African continent, being attracted by

the growth potential offered by leap frogging

(Manyika et al., 2013). However, there are still sev-

eral challenges to be overcome before firms can

benefit substantially from the e-commerce sector in

Africa (Forbes, 2014; UNCTAD, 2015). For

instance, the ratio of e-transactions paid by cash on

delivery is still at about 50 percent in Africa, while

this number drops to only 11 percent in Asia

Pacific and 5 percent in Europe (WorldPay, 2011).

In addition, the institutional logic of e-commerce

firms makes it particularly challenging for their

African subsidiaries to successfully overcome these

local challenges. Indeed, managers in e-commerce

firms have a global mindset and look for rapid scal-

ability of their business models, while the African

continent still requires extensive adaptation. This

makes it likely that headquarters will address their

subsidiaries with demands that are at odds with the

local environment and to which subsidiary man-

agers will not know how to respond. These con-

flicting demands can lead to frictions in the

subsidiaries, and recent examples even show that

foreign e-commerce firms are now closing some of

their African subsidiaries, e.g., CDiscount’s exist

from Senegal and Cameroon (Jeune Afrique,

2016). As foreign investments in the African

e-commerce sector represent a strong opportunity

for the development of the continent, we need to

understand how subsidiaries react when faced with

headquarters’demands that conflict with the local

environment.

We followed an inductive approach and used data

from participant-observation notes, interview tran-

scripts, and e-mail exchanges to address our research

question. We focused on the response process to

conflicting institutional demands from the emanation

of the demands to the response that ultimately

addressed it. By conducting a multiple case analysis

of 12 different response processes, we are able to

shed light on this phenomenon. We studied an

MNC subsidiary for which the institutional context

differed substantially from the one of their headquar-

ters. The subsidiary we investigated was located in

Cote d’Ivoire and headquartered in Germany.

Our findings suggest that the response process to

conflicting institutional demands can be dynamic,

i.e., that more than one response might be needed to

satisfy all actors. In some cases, the subsidiary man-

agers adopted responses they thought would be satisfac-

tory for both internal (headquarters) and external (local

environment) actors. However, the subsidiary managers

were later pressured by these actors to reconsider their

initial response and adopt another one. In these cases,

the dynamism of the response process emerged from

outside the subsidiary. In other cases, the subsidiary

managers intentionally adopted responses knowing that

they would not satisfy all actors and that they would

have to reconsider their initial response by adopting a

new one. Two types of responses were used in these

latter cases, namely postponing and testing. Both these

responses were used to gather information and/or to

negotiate with internal and external actors. The subsidi-

ary managers used postponing to actively delay the

response to the headquarters’demand. Postponing was

used when the subsidiary managers were uncertain

about the feasibility of the headquarters’demand, given

the local institutional context. The subsidiary managers

used testing when they were motivated to comply with

the demand but unsure about how to do so given the

local institutional context.

Institutional Duality in Sub-Saharan E-commerce 105

Copyright © 2016 Strategic Management Society Global Strategy Journal, 7: 104–124 (2017)

DOI: 10.1002/gsj