Formal institutional context in global strategy research: A layer cake perspective

Research summary: We offer a novel view of formal institutions as a layer cake, suggesting a structural relationship between higher-level and lower-level institutions. In this context, inter-layer conflict imposes complex pressures on multinational corporations (MNCs). These tensions have become more rife amid the growth in global connectedness and the commensurate increase in the importance of within-country differences. Drawing on political science and economic geography research, we introduce regime type and the distribution of economic resources as conditions under which inter-layer conflict is most likely to arise. We leverage two caselets to illustrate the inter-layer conflict and the novel response options MNCs can deploy. Our perspective advances the theoretical understanding of intra-national institutional diversity, laying the groundwork for future research at the nexus of institutional theory and global strategy. Managerial summary: Firms often encounter opposing pressures in their operating environments because institutions within the nation-state impose misaligned policies. Despite acknowledging that such interactions exist, firms traditionally did not make it an integral part of their strategy. We demarcate how formal institutions cascade, forming a layer cake of relevant influences whereby the structural relationship between higher-level and lower-level institutions may impose complex pressures when in conflict. We turn to political science and economic geography literatures for explanations of when such conflict is most likely and offer a window into the responses by multinational firms using caselets within the COVID-19 pandemic context. We offer new avenues for research on the ways in which institutions function to affect multinational firms in a global economy increasingly characterized by institutional complexity.