Ross School of Business, U. of Michigan, United States
Multinational enterprises (MNEs) often aim to convey an impression of being local when operating in a foreign market, a phenomenon referred to as identity switching. Past research suggests that MNEs' identity switching can be advantageous, enabling them to garner local support in the host country. However, it can also be detrimental as MNEs may violate the expectations of stakeholders in their home country. We propose that the rise of nationalism amplifies concerns about violating the expectations of home-country stakeholders, subsequently discouraging an MNE from engaging in identity switching. Furthermore, we argue that the impact of home-country nationalism is conditioned by the MNE’s dependence on the host market as well as its external identification with the home country. We test our arguments using a sample of East Asian MNEs aiming to establish their intellectual property rights in the United States. To test our theory, we employ a difference-in-differences design and exploit a rise in home country nationalism in China prompted by the US-China Trade War. Our results broadly support our theory. Additionally, our post-hoc analysis indicates that, although avoiding identity switching might help MNEs respond to the increasing nationalism in their home country, they may forego the benefits of this strategy, as evidenced by a lower likelihood of their patent applications being granted.
