Why Local Adaptation Sometimes Fails to be Effective for MNEs: Exploring the Dynamics of Collective Bonuses, Egalitarianism, and Informal Norms

Abstract

Past literature has documented the liability of foreignness (LOF) that foreign MNEs face when they introduce organizational practices abroad that work well in their home countries, particularly practices that conflict with local cultural norms. However, when foreign MNEs adopt practices that resemble those of their local counterparts, whether and why foreign MNEs still face a LOF is unclear. This study explores why foreign MNEs that implement a compensation practice used by local counterparts – collective bonuses – may not experience the same performance benefits. Our data consists of interviews and longitudinal survey data of the organizational practices of MNEs in France, a country where commitment to egalitarian resource distribution is culturally strong. We find that foreign MNEs, especially those from countries where egalitarian commitment is relatively low, benefit significantly less in terms of productivity when implementing collective bonuses than do their French counterparts. We show how even when foreign MNEs adopt local practices, they can subtly transfer the cultures of their home countries. In other words, they transfer informal, elusive norms (e.g., non-egalitarian attitudes of top management) that can be problematic. Tension persists between the informal requirements to facilitate the practice in the host country and the MNE’s home-country culture, a core part of their tacit knowledge. It is one of the first pieces to show that imitating local practices may not suffice to reduce LOF because cultural conflicts make such imitation ineffective. Our findings shed light on how MNEs’ cultural heritage can shape the effectiveness of their practices abroad.