The Limits and Promises of Embeddedness as a Strategy for Social Value Creation

Multinational enterprises (MNEs) attempting to create social value in Base of the Pyramid (BoP) economies are encumbered by unique market and institutional barriers. To overcome these challenges, BoP scholars have advocated the strategy of using embeddedness as a replacement for inefficient formal institutions. Reliance on informal social ties for coordinating market exchange, however, leads to costly investments, exposure to opportunism, and the creation of non-transferable capabilities. We argue that embeddedness should be used as an intermediate step towards developing more enduring formal institutions rather than as a replacement for them. We put forward the notion of proto-institutions as a useful concept for exploring how MNEs can engage in co-designing efficient and inclusive institutional forms aimed at engendering long-term social value creation.