The impact of multinational enterprises on public governance institutions in areas of limited statehood

The purpose of this paper is to explore the interaction between multinational enterprises (MNEs) and public governance institutions in regions of limited statehood by focusing on three areas of inquiry: first, the impact of MNEs in these environments; second, the mechanisms and levels through which MNEs engage with external governance processes; and finally, the strategic motivation for the mode and level of engagement.

The authors follow an applied qualitative research approach, drawing on the principles of case study design, through interviews with executives that were involved in setting up four MNEs in Afghanistan.

The results reveal a relationship between the depth of country embeddedness and the level of engagement of MNEs with public institutions and this is related to issues around risk mitigation and time horizons. Deeper embeddedness in the local markets brings greater exposure to risk leading to more and wider engagement in governance processes and cross-sector partnerships in order to influence these concerns.

The research contributes to institutional theory and demonstrates the interplay between organizations and the institutional surroundings. MNEs in Afghanistan are deeply affected by institutional weakness which contribute toward greater uncertainty and impact their behavior, but MNEs also have a direct bearing on institutions.

In fragile and conflict-affected states, MNEs can contribute toward peace and institution building and reinforce cycles of positive development, or they can further pathological behavior and contribute to conflict.

MNEs are increasingly going to be expected to step into the gaps associated with institutional voids and this will require a different approach to doing business and their choice of approach will have a direct bearing on social outcomes in host countries.

The authors reveal two models of MNE engagement in these areas of limited statehood, namely an embedded vs autonomous model and examine their implications.