Resource tangibility and foreign firms' corporate political strategies in emerging economies: evidence from India.
| Verfasser | Shirodkar, Vikrant |
| Posten | RESEARCH ARTICLE |
Abstract Foreign firms operating in emerging economies are increasingly exploiting and becoming dependent on locally existing intangible resources such as intellectual skills, technological know-how and reputation. Political strategies are used to absorb the external constraints associated with this external dependence. Little is known about the different types of political strategies used by foreign firms in emerging economies and the factors that determine this choice. We draw on Resource Dependence theory to argue that this choice will be influenced by the degree to which foreign firms depend on tangible vs. intangible resources. Using a sample of 105 foreign subsidiaries in India, we find that foreign firms that depend on local intangible resources are more likely to use information-based political strategies, but less likely to provide direct financial incentives to policymakers; whereas firms that depend on local tangibles are less likely to use information-based strategies. Foreign firms that depend on both tangible and intangible resources are more likely to use the constituency building strategy. Our findings enhance our understanding of the factors affecting foreign firms' political strategy in emerging economies.
Keywords Corporate political strategy * Emerging economies * Resource dependence theory * Multinational enterprises
1 Introduction
Rapid economic development in emerging economies has led to increases in the local skill bases and specialised technical know-how that multinational enterprises (MNEs) can tap into in these economies. Recent research has highlighted the competitive advantages provided by intangible resources such as intellectual capital embedded in highly skilled employees, goodwill, reputation, and relationships with other businesses (Hoskisson et al. 2000; Rettab et al. 2009; Wright et al. 2005). However at the same time, institutional development has not kept pace with the economic development in most large emerging economies. The transition from an agriculture-based socialist political economy to a market-based economy in many emerging economies has created an unpredictable 'non-market' environment that poses a potentially greater threat to foreign firms' operations, as compared to the non-market environment in developed countries (Luo 2001; Mudambi and Navarra 2003; Peng and Luo 2000). Given these uneven developments, multinational enterprises (MNEs) are on the one hand increasingly required to exploit these opportunities and tap into local talent pools in emerging economies, thereby increasing their reliance on these local resources. On the other hand, the institutional development increases foreign MNEs' reliance on reputational and legitimacy-based resources necessary to cope with the 'institutional void' in these economies (Khanna et al. 2005).
Given this complex dependence, MNEs operating in emerging economies are faced with greater pressures to manage this dependence by strategically shaping their interactions with both market as well as non-market actors, including regulators, political decision-makers, and non-governmental organisations (NGOs) (Shaffer and Hillman 2000). With regard to their interaction with non-market actors, MNEs can adopt different political strategies to manage the political environment in host countries. Existing research has provided various typologies of political strategies such as buffering vs. bridging (Meznar and Nigh 1995); and proactive, defensive, anticipatory vs. reactive strategies (Oliver and Holzinger 2008). Yet the most commonly used typology of corporate political strategies (CPS) was provided by Hillman and colleagues (Hillman and Hitt 1999; Hillman et al. 2004) who distinguished between information-based, financial incentive and constituency building type political strategies. This typology has been widely accepted and used in empirical studies on CPS (Hillman 2003; Hillman and Wan 2005; Holtbrugge et al. 2007; Puck et al. 2013; Schuler et al. 2002; Wan and Hillman 2006; Xinming et al. 2010). In this typology, the information strategy targets political decision makers by providing information through activities such as contacting policymakers and initiating discussions, commissioning research projects and reporting results to policymakers, testifying as witnesses in legislative hearings, and supplying position papers to targeted policymakers or regulatory agencies. The financial incentive strategy aims to influence policymakers by providing direct incentives as part of tactics that include contributions to election candidates or political action committees (PACs), paying politicians to speak at organisations, providing paid travel, hiring officials with government experience to work for the company, appointing (ex) government officials and (ex) politicians on the board of directors. The constituency building strategy is based on building reputation, and targets political decision makers by accumulating constituent support and exchanging public votes on particular issues. This strategy uses activities such as mobilizing grassroots, advocacy or public relations advertising in the media and building coalition with interest groups (such as social and environmental groups) (Hillman and Hitt 1999; Hillman et al. 2004). The choice among these political strategies is an important decision for foreign firms; because firms employing them have been found to have achieved various outcomes, such as for instance, favourable legislative decisions (Lord 2000), greater market capitalisation (Hillman 2005), higher equity returns (Kim 2008), higher firm value in stock markets (Goldman et al. 2009), improved financial performance (Shaffer et al. 2000), an increase in the cost of resources to rivals (McWilliams et al. 2002), and reduced exposure to risk (Puck et al. 2013).
Despite a growing interest in firms' political strategies in emerging economies (Holtbrugge et al. 2007; Puck et al. 2013; Xinming et al. 2010), research in this particular context remains limited. Prior research on the political activities in emerging economies has been particularly interested in the creation and management of informal ties to politicians (Li et al. 2008a, b; Luo 2001; Peng and Luo 2000; Sheng et al. 2011) and the creation and exploitation of family or other social networks (Dieleman and Boddewyn 2012). This focus on ties as a dominant form of institutional linkage has been due to differences in the political environment that differentiates the political actions of firms in emerging economies from those in developed countries (Gao 2006). Yet we suggest that recent institutional developments in emerging economies have increased the scope and pressure on foreign firms to go beyond the development of ties and adopt additional/other types of political strategies. Furthermore, the exploitation of ties and relationships to external stakeholders in influencing government policy in emerging economies has been recently linked to corruption (Lawton et al. 2013). Studies in China have shown that the value accrued from political connections may not always be positive in the long term (Li et al. 2008a). In Indonesia, political connections to the Suharto regime became a liability for firms in the post-Suharto era (Dieleman and Boddewyn 2012; Fisman 2001). Similarly in Central America, a foreign firm's connections to influential local firms turned into a liability as local institutions developed (Bucheli and Kim 2012). Reflecting this change in emerging economies, and given the existence of a wider typology of political strategies such as those provided by Hillman and Hitt (1999), we expect such strategies to become of increasing importance for foreign firms in emerging economies, as seen in some recent research (Holtbriigge et al. 2007; Puck et al. 2013; Xinming et al. 2010).
In order to explain firms' choice of political strategies, scholars have predominantly drawn insights from the resource based view, institutional theory and resource dependence theory. Based on the resource based view (Wernerfelt 1984) various scholars have suggested that firms with resources such as reputation and credibility have shown comparatively greater use of information and constituency building strategies because firms possessing these resources are more likely to be heard by the government (Hillman 2003; Hillman and Wan 2005; Wan and Hillman 2006). Films with greater slack monetary resources, such as those that paid higher compensation to its CEOs, were found to use the financial incentive option to a greater extent (Kim 2008). In international settings, scholars have also drawn insights from the institutional theory (DiMaggio and Powell 1983) to suggest that specific host-country characteristics such as 'corporatism' are likely to affect foreign MNEs' choice political strategies (Hillman 2003; Hillman and Wan 2005). Recently scholars have also investigated the role of regulatory uncertainties and the moderating effects of institutional distance on foreign firms' relationship building efforts in transitional host countries (Mondejar and Zhao 2013).
Finally, the resource dependence theory (RDT) (Pfeffer and Salancik 1978) has been popular in explaining the determinants of political strategies of firms in international settings (Blumentritt and Nigh 2002; Hillman and Wan 2005; Meznar and Nigh 1995). RDT suggests that in order to survive organisations depend on access to resources held by external actors and that the constraints associated with this external dependence can be absorbed through different mechanisms, including political strategies (Hillman et al. 2009). RDT has thus been argued as a promising, yet still underexploited theory for the analysis of firms' political strategies (Hillman et al. 2009). More specifically, we suggest that RDT allows researchers to account for both firm-level as well as institution-level factors that drive foreign firms' political strategies...
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