When in Rome, do as the Romans do: Subsidiary Autonomy as a Response to Corruption Distance

Research on the HQ-subsidiary relationship that has studied the allocation of decision-making authority within the HQ-subsidiary dyad (i.e. subsidiary autonomy) in relation to the local context has mainly seen the local context as a source of opportunities (e.g. provider of local valuable knowledge and resources). However, the concept of liability of foreignness reminds us that the local context also imposes constraints to foreign entrants, which translate into more or less tacit costs of doing business abroad. We focus on corruption as a local context constraint that reflects the more tacit and implicit form of liability of foreignness, and study the influence of the distance between home and host country corruption (corruption distance) on subsidiary autonomy. We draw on institutional theory and argue that majority-owned foreign subsidiaries experiment greater autonomy for high levels of corruption distance as a result of a pressure for local conformity. However, the ultimate organizational response of the MNE to corruption distance critically depends on internal forces based on socialization and resource-dependence, which exert different pressures for internal consistency. A tension between internal and external pressures materializes for high levels of socialization, so that subsidiary autonomy will be reduced in presence of high corruption distance. Instead internal and external pressures reinforce one another and subsidiary autonomy will be enhanced when the subsidiary controls critical resources and corruption distance is high.