Managing the Legitimacy of ‘Sinful’ Companies in Extreme Institutional Environments

We examine how multinational enterprises (MNEs) manage their legitimacy in extreme institutional environments. Building on the legitimacy-as-process perspective, we investigate the legitimation activities of a century-old local subsidiary of a beer-brewing MNE in Indonesia, the world’s largest Muslim country. Drawing on a triangulated dataset that includes a series of interviews with company directors and related market and non-market actors, we present a longitudinal case study of how the subsidiary continued to negotiate its legitimacy and nonmarket influence in an unstable environment where alcohol consumption is proscribed. Based on this case we present a process model that suggests how foreign-owned businesses may maintain legitimacy in extreme institutional environments despite their engagement in ‘sinful’ products. Our study contributes to the nonmarket strategy literature and notably to research on managing the legitimacy of foreign firms in ‘sin’ industries. These contributions have implications for political risk management in inherently extreme institutional contexts.