Abstract
We examine how foreign-owned multinational enterprises (MNEs) respond to changing corruption practices in a sudden transition of political systems in one of the world’s largest emerging markets. We draw on the political science and corporate political activity literatures in explaining how local subsidiary firms (subsidiaries) of Western European MNEs adapted their political activities during the transformation of Indonesia’s political landscape from an autocratic regime to a democratic and decentralized system. Based on four case studies of political activities, we found that the political strategies of our subsidiaries changed in response to evolving power structures in an environment of arbitrary and pervasive corruption. Under Suharto’s regime (1967-1998) MNEs sought to avoid informal transaction costs by developing relations with his supporters. When Suharto fell MNEs began to conduct transitioning strategies by partnering with competitors, leveraging political networks, and outsourcing corrupt practices. Later, however, MNEs developed ethical political strategies by leveraging government partnerships, supporting national interests, and forming relationships with local communities. We theorize that corruption in times of political system change can be dynamic and evolving and that the nature of this corruption offers MNEs more agency than previously understood in managing corrupt demands in ethical ways.