Competitive dynamics between MNCs and domestic companies at the base of the pyramid: an institutional perspective

Abstract

This article investigates the factors underpinning the competitive dynamics between multi-national corporations (MNCs) and domestic companies in base of the pyramid (BoP) markets. We analyze the case of a multi-domestic MNC, Hindustan Unilever Limited (HUL), facing the competition from two small domestic companies, Nirma and CavinKare, in the low-end shampoo and detergent markets in India respectively. Our findings highlight a fundamental rigidity of HUL. By using institutional theory as our interpretative lens, we ascribe this rigidity to the overlap of institutional domains faced by the MNC's subunit, at two levels: 1) the constant search for legitimacy in both the host country domain and within the MNC, which requires the concurrent adherence to local policies and to practices institutionalized within the MNC; and, 2) the simultaneous pursuit of legitimacy in both low- and high-income markets, which requires non-consistent actions to conform to cognitively distant social groups. Building on previous work, we interpret these phenomena as manifestations of “institutional dualism.” This work advances the current understanding of strategic behavior of firms in BoP markets. Furthermore, it contributes to international business literature by providing new theoretical and empirical depth to the concept of institutional dualism, which emerges as a potential liability for MNCs competing in highly idiosyncratic foreign markets.