Comparative Institutional Analysis and Institutional Voids: The Influence of Firm Heterogeneity and Host-Country Institutions and Contexts

Identifying a range of responses, the existing literature on foreign firms’ reactions to institutional voids largely draws on transaction-cost economics. However, it does not explain how and why particular firms respond the way that they do. We draw on the comparative capitalisms literature to examine how two multinationals from the same industry, but contrasting institutional environments respond to the institutional void in Bangladesh’s medical system. Home-country ownership and regulative institutions influence the priorities and abilities of firms to work with local organizations. However, the importance of the Bangladesh market, which is specific to each firm, also plays a role as does important host-country legislation. We, therefore, extend the existing literature on institutional voids by highlighting the influence of institutionally conditioned firm heterogeneity, and add to the comparative capitalisms literature by stressing how broader contextual factors and specific host-country institutions shape firm behaviour. By doing so, we contribute to emerging research on the interactions between institutions, firms, and strategy. Our findings, therefore, offer important new knowledge that explains why and how some foreign firms are more likely than others to co-operate with local organizations in emerging markets to reduce the impact of institutional voids.