Emerging markets provide multiple growth opportunities for multinational corporations (MNCs) based on their untapped opportunities and continuous above-average growth rate. Average annual gross domestic product (GDP) growth in emerging markets was 5.1% for
the period 2010–2019, compared to 2.0% for advanced economies. In 2021, the emerging market represented 41% of the global GDP compared to 36% ten years ago. Many MNCs have reported rapid growth as a direct result of their operations in emerging markets.
However, emerging markets also present a range of challenges that lack analogs in developed economies, such as weak institutional environments.

Institutions act as market intermediaries, facilitating business transactions and reducing transaction costs. Examples of institutions include auditors, distributors, banks, labour unions, market research agencies, recruitment agencies, and credit rating agencies, as well as informal institutions such as culture, ethics, attitudes, beliefs, and trust. Institutional weaknesses promote uncertainty, decrease the capacity of organisations to plan efficiently, elevate business risks, and increase costs. Many MNCs are insufficiently knowledgeable of the local environment in emerging markets, resulting in an inadequate understanding of necessary institutional development and poor performance. Knowing the differences between countries and regions is a crucial prerequisite for success in emerging markets. Understanding the local market context enables multinationals to manage their level of institutional development. Using local responsiveness which focus on the needs to understand local market variations as a strategy for addressing institutional environment can be a factor to improve subsidiary effectiveness.

Many relevant insights can be gleaned from studies focussed on the opportunities presented by India and China, which represent two of the world’s most rapid GDP growth rates. However, the Middle East is one of the most promising regions for emerging markets, yet
it has not received scholarly attention commensurate with its vast resources. Our research aims to fill that gap and answer a research question regarding the most significant factor that developed-market multinationals can use to influence subsidiaries’ effectiveness in emerging Middle Eastern markets. The conceptual model is built based on the literature review and incorporates institutional theory outcomes that assume that different types of institutional voids, as well as subsidiaries’ local responsiveness, exert an influence on subsidiaries’ effectiveness in emerging markets.

For the study, data collected from primary and secondary sources are used to accomplish the research objective. The primary data were collected using a close ended survey with participants who were executive officers and sales and marketing directors from 300
multinationals operating in the Middle East. We selected United Arab Emirates and Egypt as an environment for the research because both markets are robust, high-growth, and the largest market within the region. Participants in the survey were invited to examine different types of institutional voids identified in the literature and clarify the role of local responsiveness in improving subsidiaries’ effectiveness. The secondary data are derived from recent articles and academic research on the performance of multinationals in
emerging markets, with an emphasis on the Middle East region. We adopted a quantitative approach using structural equation modelling and confirmatory factor analysis to describe the relationship between research variables as per the conceptual model and test hypotheses about the relationship between research constructs.

The results of the analysis of structural equation modelling, multiple regression analysis, and hypothesis testing show a strong positive and statistically significant relationship between the exogenous variable—local responsiveness—and the endogenous variable— subsidiary effectiveness. However, hypothesis testing revealed no significant negative relationship between market exchange voids, political and social systems, and openness on subsidiary effectiveness. Our results indicate that local responsiveness is the most influential factor affecting subsidiary performance in Middle Eastern emerging markets. These findings differ from those of other studies concerning the role of institutional voids, demonstrating that digital transformation and government efforts have eroded many historically important institutional voids. More generally, moving into the digital age is advancing business and operations in the Middle East. These results provide insights regarding improving performance in emerging market host countries and offer detailed
guidance to MNCs seeking to expand their operations into the Middle East.