The Impact of Host-Country Political Risk on Multinationals’ Political Strategy Development

34 Pages Posted: 17 May 2019

See all articles by Dorottya Sallai

Dorottya Sallai

University of Greenwich

Gerhard Schnyder

Loughborough University London - Institute for International Management; University of Cambridge - Centre for Business Research; King's College London

Date Written: April 18, 2019

Abstract

The paper investigates how high levels of political risk in a host market’s institutional context influences MNE subsidiaries’ corporate political activity (CPA) strategy. Existing studies have found that subsidiaries facing high-risk contexts prefer a non-engaged approach to CPA, by exercising ‘no exit’ and ‘no voice’ strategies. Based on interviews with business leaders in post-socialist Hungary – a context characterised by high political risk – we present contradictory evidence. We find that subsidiaries – do not limit their strategic responses to non-engagement but use a variety of different engaged and non-engaged strategies to maintain their position in the high-risk host market, but these strategies differ from the traditional ‘voice’ strategies used in low-risk contexts. The paper identifies five different strategic choices: 1. Active responsiveness, 2. Passive responsiveness, 3. A non-responsive strategy of ‘dormancy’, 4. Restructuring to avoid being ‘bought up’ or pushed out of the market and 5. Exit, when firms leave the country. We theorise about the determinants of non-market strategic choices in high-risk environments and suggest that existing theories need to be expanded by applying an institutional legitimacy perspective to political risk.

Keywords: Business-government relationships; Political strategies; Non-market strategies; Political risk, corporate political activities (CPA)

JEL Classification: P16, P26, H13

Suggested Citation

Sallai, Dorottya and Schnyder, Gerhard, The Impact of Host-Country Political Risk on Multinationals’ Political Strategy Development (April 18, 2019). Available at SSRN: https://ssrn.com/abstract=3374216 or http://dx.doi.org/10.2139/ssrn.3374216

Dorottya Sallai (Contact Author)

University of Greenwich ( email )

Old Royal Naval College
30 Park Row
London, SE10 9LS
United Kingdom
+44(0)2083319198 (Phone)

HOME PAGE: http://www.linkedin.com/in/dorottyasallai

Gerhard Schnyder

Loughborough University London - Institute for International Management ( email )

Lesney Avenue
Here East
London, E15 2GZ
Great Britain
+44 (0)20 3805 1360 (Phone)

University of Cambridge - Centre for Business Research ( email )

Judge Business School Building
Cambridge, CB2 1AG
United Kingdom
++44 (0)1223 765325 (Phone)

HOME PAGE: http://www.cbr.cam.ac.uk/people/research-associates/gerhard-schnyder/

King's College London ( email )

150 Stamford Street
London, SE1 9NN
United Kingdom
++44 (0)20 7848 4633 (Phone)

HOME PAGE: http://www.kcl.ac.uk/schools/sspp/mgmt/people/academic/schnyder/

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