The antecedents of MNC political risk and uncertainty under right-wing populist governments

Abstract

Right-wing populist parties who obtain governmental power rely on ethno-nationalist mobilization for domestic legitimacy. They may therefore adopt policies that explicitly seek to disadvantage foreign multinational corporations (MNCs). Understanding what factors increase a foreign MNC’s exposure to adverse action by right-wing populists is an understudied question in the field of international business policy. We investigate this question in post-socialist member states of the European Union, which constitute extreme cases of right-wing populist government power. As such, they constitute a fertile ground to further our theoretical understanding of the distinction between calculable political risk and incalculable political uncertainty. Through a case study-based theory-building approach, which draws on existing literature and interview data, we derive a series of propositions and develop a research agenda. We identify factors at the country-, sector-, and firm-level that influence exposure to adverse policy action by host-country governments. We explore when political risk may turn into political uncertainty and provide suggestions to foreign MNCs operating in right-wing populist contexts on how to reduce this uncertainty. Our study provides insights for policy makers too, who should be aware of the impact political shifts towards right-wing populist governments have on political uncertainty for foreign companies.

Navigating Populism: A Study of How German and Swedish Corporations Articulate the Refugee Situation in 2015–2016

“…A third contribution springs from the understanding gained about how corporations respond to populism in countries where populist movements emerge in society but not in the ruling government. For good reasons, the literature has focused on how businesses relate to populism under explicit populist influences such as PiS in Poland or Fidesz in Hungary (Sallai et al, 2023), Trump's presidency in the United States (Béland, 2020) or the U.K. Brexit movement (Feldmann & Morgan, 2021). However, as pointed out by Feldmann and Morgan (2022), the challenge populism poses to corporations varies depending on the context.…”

“…Notably, the populist movements of the Sweden Democrats (SD) and the Alternative for Germany (AFD) affected their respective countries' political landscapes, although neither was part of a ruling majority. For this reason, unlike other studies investigating populism's impact on business, which typically focus on populists in political power (Béland, 2020;Kerr et al, 2022;Sallai et al, 2023), our context is only indirectly affected by populism.…”

Social Challenges for Business in the Age of Populism

“…Authoritarian Control. In countries, where populist leaders have a controlling majority in government, and where the degree of authoritarianism is higher, firms are exposed to more adverse policy interventions (Sallai et al, 2023). When taking office, populist leaders often first attack traditional interest representation structures, and quiet politics (Culpepper, 2011).…”

“…However, firms seen as “outsiders” or “enemies of the people” by populist leadership may quickly face unfavorable governmental interventions and economic nationalism (both under left- and right-wing populism). In this way, manufacturing multinationals that are considered to contribute to the government’s goals in relation to employment, taxes, and exports may operate relatively securely, while those that provide services for the domestic markets in retail, banking, energy, or media may more easily become the targets of populist policies (Sallai et al, 2023). In Hungary, for example, Orbán targeted foreign banks and services for Magyarization while positively encouraging foreign manufacturers to stay and grow (Bohle & Regan, 2021).…”

“…Researchers have investigated how firms’ CPAs develop and transform based on the type of populism they encounter, the characteristics of the markets they operate in, and the level of influence exerted by populists (Devinney & Hartwell, 2019; Feldmann & Morgan, 2023; Moffitt, 2020; Sallai et al, 2023). Many of these risks and uncertainties lie in the economic sphere, such as the rise of protectionism and tariffs, the disruption of supply chains, the uncertainty over migrant labor, the implementation of populist taxation and redistribution policies, the influence over expansive monetary policy, and its implications for inflation.…”