Politics, rumors and identity: how does a domestic firm challenge an MNE in the non-market environment amidst home–host political hostility?

Purpose Prior studies of competitive dynamics in emerging economies restricted their attention to how the multinational enterprise (MNE) initiates actions against the domestic firm in the market environment with no regard for the home-host relations. By contrast, this study aims to investigate how the domestic firm challenges the MNE in the non-market environment when there is home–host political hostility. Design/methodology/approach The authors conducted a case study of non-market rivalry between an MNE from the Taiwan region and a domestic firm on the Chinese mainland in the period 2004–2008. Findings Riding the home–host political hostility, the domestic firm mounted political tactics against the MNE on two fronts. It lobbied the government for identity-targeted policy changes, which demanded state-funded clients buy only from domestic suppliers. It also unethically spread identity-targeted political rumors to vilify the MNE in the local society. The MNE defended itself against the unfavorable policy by engaging in identity work of restructuring its distribution channels to conceal its “foreign” (non-domestic) identity. To fight off the rumors, it built a corporate citizen identity by identity work of aligning corporate social responsibility and research and development with local policy priorities. Originality/value The authors broaden the concept of competitive aggressiveness to include non-market actions, particularly unethical ones targeting a rival’s identity. The authors contribute to identity work scholarship by pinpointing an unrecognized phenomenon – high-effort identity work, used by the MNE as a defensive response. The emergent findings develop a moral perspective on non-market rivalry.