Strategic Embeddedness and Legitimacy of Foreign Subsidiaries: The Moderating Role of Profile Building

Purpose – This study examined the process by which external embeddedness with local stakeholders influences the social legitimacy of multinational enterprise (MNE) subsidiaries in the host country. Specifically, this study employed the concept of dual embeddedness to construct a framework that links internal embeddedness with headquarters (HQ) via personal and impersonal control (HQPC and HQIC, respectively) and external embeddedness with local stakeholders via primary and secondary stakeholder embeddedness (PSE and SSE, respectively). Through this framework, this study analyzed the causal relationship between the two types of embeddedness and the indirect effect of internal embeddedness on the subsidiary’s social legitimacy (SSL). Furthermore, when a subsidiary engages in HQ-oriented behavior such as subsidiary profile building (SPB), the effect of its local external embeddedness on SSL is expected to be moderated. Design/Methodology – A professional online survey company was employed to gather responses from 309 subsidiaries worldwide. The resulting data were analyzed using partial least squares structural equation modeling with SmartPLS 4.0.9.2. Confirmatory factor analysis validated the convergent and discriminant validity of the proposed current research model. A total of 5,000 bootstrapping tests were conducted to examine the significance of multiple paths for possible indirect effects. Findings – Except for the impact of HQIC on SSE, both HQPC and HQIC generally exhibited statistically significant and positive effects on PSE and SSE. The effect of SSE on SSL was also statistically significant and positive, whereas PSE did not have a significant effect. The negative moderating effect of SPB on the relationship between SSE and SSL was confirmed, while the indirect effect of the path from HQPC to SSE to SSL was empirically validated. Originality/value – This study demonstrates that embeddedness influences social legitimacy, offering insights into the relational contexts of MNE subsidiary management. It thus provides practical guidance on configuring relationships with both local stakeholders and HQ while also expanding stakeholder theory grounded in resource dependence theory and advancing research on dual embeddedness.