Bargaining never stops: Post-entry bargaining in decentralized emerging markets

Abstract

This study examines how multinational enterprises (MNEs) bargain with host-country stakeholders after market entry as they expand their operations across decentralized emerging markets characterized by multiple layers of government and influential non-state actors. Drawing on a longitudinal case study of a global MNE with 24 extractive sites across Indonesia, we show that post-entry bargaining requires continuous engagement with multiple layers of government over permits and regulations, as well as with local communities over employment, land and environmental impacts to avoid social unrest. In one region, community opposition forced the MNE to exit, despite substantial sunk costs, demonstrating that formal permits and government support cannot substitute for a social license to operate. We find that post-entry bargaining under institutional complexity requires cross-level strategies that address tensions across government and community levels. These strategies generate spillovers, allowing MNEs to alleviate tensions beyond their intended target. We thus demonstrate that foreign investment is shaped not only by national governments, but also by subnational authorities and communities who play a direct and often decisive role in shaping the terms and success of investments.