Political Schemas and Corporate Political Activities During Foreign Market Entry: A Micro-process Perspective.

VerfasserElsahn, Ziad F.
PostenRESEARCH ARTICLE - Report - Statistical data

1 Introduction

The role of governments in shaping the market environment has long been recognized in the management and international business (IB) literatures (Baron 1995; Boddewyn and Brewer 1994). Through their policies, governments can influence firms' competitive advantages (Kim 2008) and they therefore represent a major source of uncertainty (Hillman and Wan 2005). IB scholars have emphasized the importance of the political environment to multinational enterprise (MNE) operations (Rugman and Verbeke 1993; Vernon 1971). Accordingly, many scholars have argued that MNEs seek to respond strategically instead of passively conforming to their institutional environment to acquire legitimacy in foreign markets (Boddewyn and Brewer 1994; Kostova et al. 2008; Oliver 1991). MNEs engage in corporate political strategy, which entails actions directed towards the socio-political environment to reduce uncertainty and gain legitimacy from non-market actors (Baysinger 1984; Doh et al. 2012; Hillman and Wan 2005).

Research on MNE operations in emerging countries has highlighted the challenges that MNEs face because of the uncertainty of the institutional and political environment (Henisz and Zelner 2003a; Luo 2001; Puck et al. 2013). These emerging markets are undergoing processes of institutional transition whereby changes in the formal and informal rules of the game can prove challenging to business firms in general and MNEs in particular (Peng 2003; Wright et al. 2005). An exclusive focus on market capabilities might not be sufficient to navigate this uncertain terrain, rather, as Li et al. (2013) argue, MNEs need to develop "market-political ambidexterity" which is defined as "firms' dynamic capabilities to manage influences from both markets and governments simultaneously" (Li et al. 2013, p. 206). In response, MNEs seek new approaches to new market entry by aligning their strategies with prevailing policies in emerging markets, and the skills of corporate political activity--together with the organizational processes in which they are embedded, are assuming more importance in international firms (Henisz and Zelner 2003b; Lawton et al. 2013b).

The process of managing the political environment implies corporate political activities (CPA) such as lobbying (Hillman and Hitt 1999), business diplomacy (Henisz 2014; Saner et al. 2000; Westermann-Behaylo et al. 2015), and political corporate social responsibility (Mena and Palazzo 2012; Scherer et al. 2016) by firms in managing their interactions with political actors. However, most scholarly conversations in this field (cf., Hillman et al. 2004; Mellahi et al. 2016) take a macro perspective in explaining firms' political behaviour, focusing on external institutions or internal organizational structures as predictors of political strategy outcomes. Such accounts often portray firms as black-boxes and thus we know relatively little about the micro-foundations of political strategy development (Felin et al. 2015) by MNE actors. A focus on micro-foundations pertains to explaining how management action, which is constituted by managers' shared cognitive orientations (Boddewyn 1975) and mental schemas (Lawton et al. 2013b), leads to the enacting of different patterns of political activities and the development and deployment of different political capabilities and resources.

Our study thus addresses recent calls to provide an explanation for aggregate concepts such as capabilities and political strategy by explicating their constitutive micro-processes (Felin et al. 2015). Our paper addresses this gap in the literature by presenting a theory-building study that models how MNEs utilize CPA to manage their relationships with foreign host governments during the market entry process. Our qualitative approach allows us to provide a rich analysis of the interrelations between MNE managers' political schemas, their CPAs, and the political capabilities and resources which they develop and deploy during these activities. Our analysis highlights the role of previous international experience in shaping political schemas and the development of political knowledge and capabilities. We also show the role played by managerial actions in developing certain organizational processes which allow for the recombination and sharing of new and existing political knowledge. This is in line with recent perspectives in the dynamic capabilities literature which emphasize both evolutionary and learning processes and the role of managers in shaping these processes (Augier and Teece 2009; Lawton et al. 2013b; Lovas and Ghoshal 2000; Salvato 2003). Specifically, our aim is to: (1) identify MNE actors' shared mental schema which represent their beliefs and assumptions on how to deal with foreign governments; (2) explicate the activities enacted by MNE actors during their interactions with foreign governments; (3) identify the enabling structures, whether internal political capabilities or external political resources, which enable MNE actors to perform their political activities.

Our study addresses recent calls which emphasize the need to understand managerial actions when interacting with nonmarket actors (Lawton et al. 2013a, b). As highlighted by Hillman et al. (2004), the organizing processes related to CPA have been largely neglected in the literature and research is needed that contributes to "efforts to better understand internal procedures and routines related to effective implementation of CPA" (Hillman et al. 2004, p. 846). By focusing on these processes, we extend the discussion on the organizing of political capabilities in MNEs by showing how actors leverage and deploy political resources to develop and manage their relationships with nonmarket actors (Lawton et al. 2013b). We address the follow research questions:

* What are MNE actors' shared political schema which represent their assumptions and heuristics regarding how interactions with foreign governments should be approached?

* What kinds of corporate political activities are conducted by actors in the light of these shared schemas?

* What are the enabling structures which are deployed to perform such activities?

Our paper proceeds as follows: First we review recent literature on corporate political activity (CPA). We then discuss the context and methods of our research. We present our empirical findings and the two approaches to CPA which emerged from our analysis. We conclude with directions for future research.

2 Theoretical Background

2.1 Corporate Political Activities

Nonmarket strategy pertains to firms' attempts at managing their socio-political environment to improve their performance (Lux et al. 2011). There are two related strands of nonmarket strategy research (Mellahi et al. 2016). The first is political corporate social responsibility which entails attempts by a firm to engage in the provision of a social good, which allows it to enhance its performance (Mellahi et al. 2016). In that sense, firms are considered as political actors (Scherer et al. 2016). The other stream, CPA, refers to firms' attempts to manage or influence their political environment to achieve their interests (Hillman and Hitt 1999) through interacting with nonmarket actors such as politicians, governmental agencies and non-governmental actors (NGOs). Nonmarket strategies are primarily directed toward the socio-political environment, however, as Baron (2005, p. 2) highlights, they take place "in conjunction with markets and private agreements". The challenging institutional environment in which MNEs operate makes political activities instrumental in achieving legitimacy in foreign markets (Keillor and Hult 2004). Political activities entail "the efficient design of all relations with political stakeholders that may affect the operations of a company in a positive or negative way in order to achieve competitive advantages" (Welge and Holtbrugge 2006, p. 312, cited in Holtbrugge et al. 2007). Different approaches to political strategies have been proposed by scholars (Boddewyn and Brewer 1994; Hillman and Hitt 1999; Oliver and Holzinger 2008; Wocke and Moodley 2015). Hillman and Hitt (1999) propose three types of political strategies: Information strategy, financial incentive strategy, and constituency building strategy. Researchers have also identified different political tactics which can be employed by MNEs to achieve their objectives, such as lobbying, government relations, campaign contributions, and public relations (Baysinger 1984; Lawton et al. 2013a).

Building on the categorizations developed by Hillman and Hitt (1999), several scholars have examined the antecedents and consequences of different approaches such as relational versus transactional (Schuler et al. 2002; Sun et al. 2012), and the adoption of different strategies by MNEs in developed and emerging countries. Puck et al. (2013) examined the efficacy of political strategies in emerging markets and the moderating role of firm visibility. They concluded that the political strategies used in previous research were partially applicable, reflecting the changing socio-political landscape in emerging markets. Shirodkar and Mohr (2015) investigated the factors that lead MNEs in India to rely on transactional or relational approaches. Using a resource-dependency view, they find that when local resources are critical for subsidiaries' operations, they tend to rely on a relational approach.

While the literature on CPA has enhanced our understanding of the antecedents and consequences of political activities at the institutional, industry, and firm level (cf., Lux et al. (2011) and Lawton et al. (2013a) for recent reviews), still little is known about the organizational processes and activities through which political actions unfold (Lawton et al. 2013b). Thus, while many studies have investigated the antecedents and consequences of relational and transactional approaches, and the...

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