To engage or not to engage with host governments: Corporate political activity and host country political risk

Abstract

Research summary: We analyze how a host market’s institutional context can influence a multinational enterprise’s (MNE’s) senior management’s choice and deployment of corporate political activity (CPA). First, we argue that a non‐engaged approach to CPA is likely to be chosen when senior management perceives high host country political risk, arising not only from host country political institutions, but also from the distance between home and host government relations. Second, we propose that the deployment of this approach can require active adaptation through four political strategies: low visibility, ensuring a minimal degree of general attention from other actors; rapid compliance, entailing high speed actions to obey the rules; reconfiguration, involving rearranging the MNE’s structure and processes for competitiveness; and anticipation, implying the prediction of public policy and analysis of interest groups to anticipate responses. Managerial summary: Senior managers of multinational enterprises often examine when and how to engage, or not to engage, with host governments. We argue that senior managers are likely to choose to evade engagement with a host government when they perceive high host country political risk, not only through public political risk ratings, but also via their home and host government relations. We show that this choice can require senior managers to lead active adaptation through four strategies: low visibility, enabling the MNE to operate under the radar of host governments; rapid compliance, entailing high speed actions to obey the rules; reconfiguration, involving rearranging the MNE’s structure and processes for competitiveness; and anticipation, implying the prediction of public policy and analysis of interest groups to anticipate responses. A video abstract is available at https://youtu.be/DL1LlQEhGU0.

Managing the MNE subsidiary: Advancing a multi-level and dynamic research agenda

“…Such actions would make them more politicized and exposed to bilateral political relations. Others may emphasize political ties in the host country as means to secure access to resources (De Villa, Rajwani, Lawton, & Mellahi, 2019;White, Fainshmidt, & Rajwani, 2018), or to engage in 'geopolitical jockeying' aimed at delegitimizing rivals as shown by Lubinski and Wadhwani (2020) for colonial India. On the other hand, how do MNE subsidiaries respond to disruption of political ties through changes in power positions in government?…”

Corporate Political Strategies in Weak Institutional Environments: A Break from Conventions

“…In this sense, western-oriented CPA is starkly different from CPA in weak institutional environments. Building on De Villa et al (2018) and advancing the dark side of CPA, we find that Nigerian banks align their CPA with their politico-socio-cultural context, which leads to the deployment of unique strategies that have previously been undocumented. More importantly, we found that banks orchestrate four distinct but ethically suspect strategies-Affective, Financial, Pseudo-Attribution, and Kinship strategies.…”

The Corporate Political Activity of MNCs: Taking Stock and Moving Forward

“…Second, the political environment in each market can create significant threats for firms and negatively influence MNCs strategic options and performance, e.g., through regulatory or legal measures (De Villa et al 2015). Firms often respond to such political and regulatory pressures by using different types of corporate political activities, including engaged and non-engaged approaches (e.g., De Villa et al 2018;Nell et al 2015;Puck et al 2013). Lastly, political environments can also create opportunities for firms.…”

“…Identifying the factors that lead firms to engage in CPA, or factors that affects firms' choice of particular types of CPA, is the subject of the majority of prior studies into the CPA of MNCs. Recent research has discussed a large number of such drivers at the firm-level (De Villa et al 2018;Funk and Hirschman 2017;Lawton et al 2013a, b;Shirodkar and Mohr 2015a, b), industry-level (Lawton et al 2013a, b;Mbalyohere and Lawton 2018;Mbalyohere et al 2017;Schuler 1996) or country/institutional-level (Banerjee and Venaik 2018;Choi et al 2014;Holtbruegge et al 2007;Sojli and Tham 2017;Zhang et al 2016). Given the nature of MNCs, however, we perceive a need for more research specifically into the idiosyncrasies of firm contexts and into how these contexts interact with firm-level drivers of firms' choice of political strategy in different markets.…”

“…While some of the papers in this focused issue contribute to this endeavor, more work is needed. In particular, the research stream connecting MNC behavior in foreign markets to home country characteristics (see, for instance, Cuervo-Cazurra 2006;Cuervo-Cazurra and Genc 2008;De Villa et al 2018;García-Canal and Guillén 2008;Holburn and Zelner 2010;Luo and Wang 2012;Meyer et al 2018;Stoian and Mohr 2016) suggests that this could be a fruitful avenue for future research. For instance, it may be worth exploring how the political resources and capabilities which an MNC has built in its home country, affect the nature and focus of its international strategies.…”