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Feeling the squeeze: why are some firms more politically active than others?

Datum:26 februari 2024
Political actors have the ability to influence and change the regulatory arena.
Political actors have the ability to influence and change the regulatory arena.

Nonmarket political strategy refers to the actions undertaken by firms to improve their organisational performance by managing the political context in which they operate. This includes a wide variety of activities such as campaign donations, lobbying, and hiring managers with political backgrounds. Such activities can be useful in gaining legitimacy and trust from a variety of stakeholders. As political actors have the ability to influence and change the regulatory arena, they necessarily play a vital role in the results and longevity of firms, especially for multinationals. Google, Vodafone, Embraer and Toyota Motors are only a few examples of multinationals that engage in nonmarket political strategy. But why do firms engage in nonmarket political strategy and why are some more politically active than others?

Two reasons may explain why and how intense firms engage with political actors. First, the international expansion may substantially boost EMNEs’ home country nonmarket political strategy. Although EMNEs have becoming drivers of international investment, international expansion of EMNEs can be a process fraught with difficulties. Unlike their counterparts from developed markets, EMNEs navigate the often uncertain legal and regulatory environments and may face sudden changes in institutional rules that could make it difficult to do activities abroad. Second, weaknesses in capital and financial markets can limit EMNEs conditions to support their international expansion projects, especially those that involve significant financial resources with long-term returns. However, political actors can offer access to financial resources and, thus, politicians who control sources of credit can become more valuable to EMNEs with fewer financial resources than to EMNEs with more financial resource.

In our study we find that as an EMNE becomes more focused on its international expansion, it tends to pursue a nonmarket political strategy in its home country. Therefore, rather than “go alone,” it can be crucial that EMNEs draw political support that will help them to deal with international expansion issues. We find that EMNEs with more knowledge and resources may be less impacted by home country institutional problems in their international expansion and, therefore, can reduce their dependence on political ties because they may have less need to intensify these ties. Therefore, the value of a nonmarket political strategy for EMNEs decreases as their capacities to deal alone with international expansion increase.

For managers, we help map nonmarket arenas and political actors for proactive as opposed to reactive nonmarket management, which is critical for dealing with key issues in the firm's international expansion. We also show that firms should equip their managers with skill sets that are very different from the more conventional commercial ones,  especially when they are operating in emerging markets. Skills sets as: a) to identify key actors and form coalitions, understanding policymaking dynamics; b) to leverage political resources, effective monitoring of the firm’s external environment to identify emerging issues; c) to communicate with other nonmarket actors in an effort to engage or mobilize and; d) to exert an ethical and a responsible conduct.

Autor: Cinara Gambirage c.gambirage rug.nl

Reference:

da Silva, J.C., Marcon, R., Parente, R. and Gambirage, C. (2023), "Feeling the squeeze: EMNEs’ international expansion as a driver of nonmarket political strategy at home", European Business Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EBR-01-2023-0030