The Role of Non-market Strategies in Establishing Legitimacy: The Case of Service MNEs in Emerging Economies.

VerfasserRodgers, Peter

1 Introduction

Academic debates on how multinational enterprises (MNEs) internationalise their operations (Cuervo-Cazurra 2016; Fortwengel 2017; Regner and Edman 2014), through foreign direct investment (FDI) and non-market strategies have focused predominantly on manufacturing and natural resource extraction firms. This is surprising given the fact that, comparing the 1990-1992 and 2010-2012 periods, global inward FDI within the service sector had grown by almost 908%, compared to 491% in the manufacturing sector (UNCTAD 2014). In general, MNEs are considered important players given their global influence and the activities in which they are confronted with a range of issues, stakeholders and institutional contexts, in both home and host countries (Kolk and Van Tulder 2010). Furthermore, recently, scholars have increasingly recognised the potential for MNEs to be not only part of the problem, but also perhaps part of the solution, with corporate social responsibility (CSR) activities being seen as having long-term implications for the international business (IB) realm (Fetscherin et al. 2010; Jamali et al. 2017; Park et al. 2014; Pisani et al. 2017; Preuss et al. 2016).

While a stream of studies on MNEs based on the service sector has emerged (Gleich et al. 2017; Kundu and Lahiri 2015; Kundu and Merchant 2008; Stevens et al. 2015), the extant IB literature has failed to keep pace with the growth of the service industries (Jaklic et al. 2012) and their associated processes of internationalisation over recent years. A decade ago, Kundu and Merchant (2008, p. 376), noted that "the challenge lies ahead in the development of theories of service multinational enterprise to explain the intricacies of service firms". This challenge remains. There has been a dearth of research examining the ways in which service MNEs use non-market strategies (Contractor and Kundu 1998; Ghauri et al. 2014) in order to navigate the constraints placed on their business activities by turbulent and often uncertain institutional contexts (De Villa et al. 2018). This encompasses how they sustain the business micro-aspects of the corporate political activities (CPA) connected with corporate social responsibility (CSR) actions in their host countries (Saka-Helmhout and Geppert 2011; Stevens et al. 2016). Whilst the literature on non-market strategies has often been separated into the domains of CSR (Aguinies and Glavas 2012) and corporate political strategy--i.e., corporate political activity (CPA) (Lawton et al. 2013)--this article seeks to respond to calls advocating a better understanding of the interconnectivity between these two lines of intellectual enquiry (Frynas and Stephens 2014; Frynas et al. 2017; Rodriguez et al. 2006). This article seeks to address the gap in the extant literature on Service MNEs by examining the dynamics of in situ operations in relation to CPA and CSR; to do so, it focuses on Ukraine as an emerging economy context.

This article responds to calls for the examination of the effectiveness of political strategies in different contexts (e.g., Cuervo-Cazurra 2016; Lawton et al. 2013a, b; Mellahi et al. 2016; Meznar and Nigh 1995) and, in particular, in the context of emerging economies (Doh et al. 2012; Hadjikhani et al. 2012). Whilst research on CPA has focused predominantly on firms located in the USA (Mattingly 2007) or in Western European countries (Hadjikhani and Ghauri 2001; Hillman and Wan 2005; Jimenez 2010), there is a clear need for more research on how firms entering emerging economies utilise forms of CPA (Puck et al. 2013). In such markets, firms face greater liability of foreignness due to the state of the institutional environments, which are in a state of flux (e.g., Hadjikhani et al. 2012; Luo et al. 2002; Zaheer 1995). As Kostova et al. (2008) highlighted, differences in the institutional environments confronting foreign firms are likely to impact on the latter's political strategy success in developed and emerging economies. Despite the existence of studies on the importance of political stakeholders in emerging markets such as in China (Li et al. 2008), India (Elg et al. 2015) and in Russia (Okhmatovskiy 2010), there remains a dearth of empirical studies on lesser studied emerging economies--a case in point being Ukraine. While, in developed market economies, CPA focuses primarily on influencing, shaping, preventing, or gaining an early understanding of the regulatory developments affecting a firm's market strategies (Doh et al. 2012; Lawton et al. 2013a; Jiang et al. 2015), in emerging market settings, firms often use CPA to offset any institutional voids (cf. Khanna and Palepu 2010). Our article's empirical focus on Ukraine, an emerging economy in which the institutional framework remains fluid or void (Puffer et al. 2010), enables us to explore not just the strategic effects and outcomes of non-market strategies (Boddewyn 2016), but, importantly, also the mechanisms and processes pertaining to corporate political activities within these emerging economies. It also enables the exploration of the linkages between notions of CSR and CPA within such institutional environments (Demirbag et al. 2017).

Furthermore, while recent years have witnessed a growth in research on the corporate political strategies of foreign invested firms (Hillman and Wan 2005; Mondejar and Zhao 2013; Zhang et al. 2016), much of this attention has focused on negotiations between MNEs and host governments at the point at which the former enter a country, with a disproportionate lack of attention given to the post-entry political strategies and tactics in which firms engage (Hillman and Wan 2005; Rodriguez et al. 2006; Tasavori et al. 2015). Thus, this article provides novel insights in relation to the latter and directly responds to the objective of this Call for Articles to examine how in situ Service MNEs use CPA, connected with embedded CSR, to drive forward their business operations in different market contexts.

This article extends our understanding of mechanisms in organizational research (Anderson et al. 2006) by arguing that the corporate political activities of in situ Service MNEs are the product of entwined micro-level business-state relations. From a theoretical standpoint, our article argues for the need to move beyond focusing too heavily on macro-orientated market competition perspectives (Whittington 2012), providing, instead, theoretical frameworks that embrace and engage with how state capacity, in a variety of different contexts, impacts on firms' strategic (micro-) choices. Rather than government influences being in decline (Khanna and Yafeh 2007; Puffer and McCarthy 2011), our findings demonstrate how, in the case of Ukraine, state capacity continues, in divergent ways, to influence specific non-market behaviours, and necessarily impacts upon the lived experiences of MNEs in such contexts. Against the backdrop of the above gaps, this article addresses the following research question:

How do mechanisms of in situ/post-entry Service MNEs CPA and CSR activities interact at the micro-level, and with what implications, contextualised in the non-Western European emerging economic context of the Ukraine?

This article is structured as follows. Firstly, we discuss the theoretical and contextual background to the study, bringing together Service MNC CPA, non-market and CSR literature within the business and management discipline. We then briefly outline the state-business relations in Ukraine. Next, the article outlines the methodology developed and employed by the study, which is followed by the presentation of our data and findings. We conclude the article with a discussion of the resultant insights, and of the implications and limitations of the findings.

2 Conceptual Background

2.1 Non-market and CSR Strategies

The study of strategy has focused primarily on the supra level of the competitive aspects of firm activities and behaviours (Bartlett and Ghoshal 2002). In consequence, the strategic literature has dedicated less attention to micro-practices (Jarzabkowski 2005) or to the institutional environment that shapes competitive strategy (Marquis and Raynard 2015). Thus, the development of an understanding of firm interaction in relation to institutional context(s) has formed the primary unit of analysis and shaped the burgeoning literature on 'non-market' strategies (Lux et al. 2011). The navigation of differing institutional and cultural contexts and non-market aspects constitutes an increasingly critical aspect of firm behaviours. Lawton et al. (2013a) signalled that the work on CPA that adopts a functionalist perspective tends to cast the firm's environment as "apolitical" and "primarily concerned with regulatory compliance", thus neglecting a multi-faceted, fine-grained, culturally contextual or more granular study of the domain (Demirbag et al. 2017).

At the broad level, the aim of non-market strategies and associated firm behaviours is generally to improve firm performance by "managing the firm's institutional context" (Lux et al. 2011, p. 225). Thus, non-market strategies influence firm behaviours such as market entry choices (Elsahn and Benson-Rea 2018; Mellahi et al. 2016; Tasavori et al. 2015). Research on non-market activities tends to assume that firms are able to make choices about how, when, and why to engage in non-market strategic activities (Holburn and Vanden Bergh 2008). However, this may not be applicable to all context as activities such as, for example, CSR have been signalled as highly contextual (Crotty 2016; Demirbag et al. 2017). It is thus important to conduct studies that develop such contextualisation.

Furthermore, the functional perspectives of non-market strategies argue that CPA activities targeted at formal institutions generally work to ensure the mitigation of unfavourable policy changes (Henisz and Zelner 2012) and, with informal institutions, the imposition...

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