Navigating Political System Change in a Transitional Economy.

We examine how multinational enterprises (MNEs) respond to a sudden transition of political systems in the emerging market of Indonesia. We draw on the political science and nonmarket strategy literature to explain how local subsidiary firms of MNEs ('subsidiaries') adapted their nonmarket strategy during the transformation of Indonesia's political landscape from an autocratic regime (1967-1998) to the current democratic and decentralized system. Based on multiple qualitative case studies of Western European subsidiaries, we found that MNEs adapted their business strategies to relate with multiple layers of government in an environment of rampant corruption. Under Suharto, MNEs sought to develop relations with his regime, while also seeking to avoid informal transaction costs. From 1998, MNEs began to conduct survival strategies by partnering with local firms and leveraging local political networks. Later however MNEs adopted proactive, innovative strategies that replaced corrupt activities, for example, by leveraging government-level partnerships and forming long-term relationships with local communities. These findings suggest that MNEs need active agency and proactive nonmarket strategies to address the negative challenges of unstable political environments. [ABSTRACT FROM AUTHOR]