FROGS IN HOT WATER: MNCs RESPONSES TO CRISIS IN THE FRONTIER MARKET OF MOZAMBIQUE

Abstract

As the world becomes more globalized, multinational corporations (MNCs) are obliged to spread and open subsidiaries in foreign countries. Unfortunately, some countries have unstable political systems that exist in a state of systematic crisis. For corporations whose subsidiaries are caught in the middle of a political crisis in foreign territories, this unrest presents high physical and economic risks. Thus, what types of threats do firms encounter, and how do they perceive them? Can their experience influence their perception of the crisis? The focus of this dissertation is to study the decision-making process of multinational corporations in times of political and economic crisis at a subsidiary level, utilizing the example of Mozambique. Two studies were conducted. The first was drawn on prior literature on threat perception, social embeddedness and MNCs’ reaction to external threats. A conceptual model of MNCs’ response to political crises in frontier markets was developed. The antecedents or predictors of exit included influences on exit decision, past experiences, crisis perceptions and the moderator effect of social embeddedness between perception and exit. The second study focused on MNCs that not only decided to stay in the foreign market, but seek for unique opportunities in an economic crisis. The conceptual model created is simple, and builds upon existing literature on social embeddedness, MNCs’ experience, and international staffing. Within the international staffing literature, it provides a strong contribution to the theories on parent country nationals and host country nationals, implementing new constructs such as parent company experience and subsidiary company experience. Both models were tested using a survey data from managers of 108 MNCs’ subsidiaries in Mozambique, some of which exited due to the economic and political crisis, and some of which remained. The results indicate that both models are mostly supported. These studies contribute to the literature involving MNCs in host countries, including threat perception, social embeddedness, local content, international staffing, expatriates and past experiences. In practical terms, they provide a tool for both policymakers and private MNCs to act preemptively in times of political and/or economic crisis.