MNEs’ Legitimation Strategies and the Role of Institutional Distance in Sub-Saharan Africa: The Case of Electricity Provision

Abstract

Sub-Saharan Africa is experiencing epochal changes, arguably becoming the new frontier for business. Multinational enterprises (MNEs) wishing to operate there need to adopt legitimation strategies, showing their social and long-term commitment with local context. We argue that, a viable approach would be promoting access to electricity for local population. However, MNEs will be more able to implement this strategy whenever from countries institutionally closer, as they are more likely to possess capabilities and knowledge required to deal with local environments. An econometric analysis is performed on foreign investments undertaken in Sub-Saharan Africa from 2005 to 2011. Results support the positive role of institutional closeness in promoting access to electricity, but only when considering formal institutions, while similarity between informal institutions appears to be a barrier.

Keywords: Institutions, legitimacy, sub-Saharan Africa, access to electricity, distance