The Impact Of Economic Liberalization In The Global Business Environment

The global business environment has significantly changed during the latter part of the 20th Century as many developing countries began their economic liberalization. A notable example is China, which introduced economic reforms in the late 1970s, opening up the country to foreign investment. Another example is the case of Central and Eastern European countries that introduced major institutional and economic reforms after the fall of the Soviet Union in the early 1990s. Economic liberalization continued into the new century as more countries opened up their markets to the world’s multinational enterprises (Ul-Haq and Farashahi, 2010). In 2013, developing economies received $778 billion in foreign direct investment (FDI) inflows, while transition …show more content…
Developing and emerging markets are a good place to examine the impact of institutions on MNE activities and behavior because they are characterized by weaker institutional environments and tend to experience important institutional transitions that can lead to volatile environments that MNEs must manage (Peng, 2003). At the same time, when global companies establish operations in developing and emerging markets, they bring with them expertise, knowledge, international standards and capital and thus can themselves have a significant influence on local …show more content…
This research will employ the concept of institutional work, which suggests that companies or collectivities of them can create, maintain or destroy institutions (Lawrence and Suddaby, 2006). This paper argues that MNE subsidiaries are constrained by regulations and norms within their institutional environment but at the same time strive to shape them using institutional work. Organizational strategies may vary from conforming to active resistance in response to institutional pressures, depending on the kinds of pressures exerted on organizations (Oliver, 1991). The scale and scope of MNE subsidiaries dictate that they are continually engaging in actions, which allow them to not only operate in their institutional environments but also to shape them. For example, one of the ways that MNEs attempt to minimize costs associated with weak regulatory frameworks, characteristic of many developing and emerging markets, is by establishing relationships with local actors to help them influence local institutions (Khanna et al., 2005). In many developing and emerging countries routine permits can be difficult to obtain and MNE subsidiaries develop relationships with key actors to facilitate the process of obtaining these permits.