International Business Review 28 (2019) 101498 Contents lists available at ScienceDirect International Business Review journal homepage: www.elsevier.com/locate/ibusrev Analysing corporate political activity in MNC subsidiaries through the T integration-responsiveness framework ⁎ Shantanu Banerjee , Sunil Venaik, Paul Brewer University of Queensland Business School, Brisbane, QLD, 4072, Australia ARTICLE INFO ABSTRACT Keywords: Our study applies the well-known, market-strategy focussed integration-responsiveness (IR) framework and ex- MNC subsidiary tends it to incorporate the non-market corporate political strategies of MNC subsidiaries. We find government Corporate political activity regulation and the market strategies of integration and innovation have positive relationships with MNC subsidiary Integration-responsiveness political activities. Interestingly, whereas the market strategy of innovation has a positive effect on subsidiary Performance performance (but not on legitimacy), the non-market corporate political activities undertaken by MNC subsidiaries Legitimacy enhance subsidiary legitimacy (but not subsidiary performance). In addition, both market innovation and non- market subsidiary political activities are useful tools to gain favourable government decisions. Overall, our study incorporates both market and non-market strategies within a single overarching IR framework, and highlights their complementary role in achieving the twin goals of performance and legitimacy respectively. 1. Introduction Moodley, 2015). These advances represent a welcome rebalancing of the market/non-market strategy divide in IB research towards the Multinational corporations (MNCs) are central to international latter, which has historically received less attention than the work done business (IB) and globalisation (Dunning, 1993) and hence a key area of to assess market behaviour (Baron, 1995a). IB research. In the development of MNC theory, much progress has been Of course the MNC-political interaction covers a wide range of made in understanding the MNC’s motivation (e.g. Dunning, 1988), its theories, concepts and relationships, including government conditions decision making process (e.g. Johanson & Wiedersheim-Paul, 1975), placed on MNC operations (Doz & Prahalad, 1980; Hadjikhani, Lee, & the role of firm specific advantages (e.g. Hymer, 1976) and foreign Ghauri, 2008; Holtbrügge, Berg, & Puck, 2007), competition between direct investment (FDI) outcomes in both firm and national terms (e.g. MNCs and government (Luo, 2004), and disinvestment challenges Buckley & Casson, 1976). But in recent decades there have been calls (Sachdev, 1976). But linking these disparate issues, and concomitant for in-depth comprehension of the role of politics in MNC behaviour. relationships between governments and MNCs, is their sensitivity to Kobrin (1979, p. 69), for example, asserts at a general level, that initiatives by the MNC to affect policy outcomes. Such efforts byfirms “politics largely determines the framework of economic activity”. to shape public policy in their favour are known as corporate political Boddewyn (1988), more specifically to IB, argues for inclusion ofpo- activity (CPA) (Hillman & Wan, 2005) and in this respect CPA can be litical policy and associated activity in the development of MNC theory. seen as an overarching phenomenon in MNC-politics theorising. In In a similar vein, Baron (1995a) and Zhao, Fisher, Lounsbury, and practice, CPA is not only widespread but also quite contentious Miller (2017) call for a holistic understanding of firm strategy in- (Lawton, McGuire, & Rajwani, 2013) and there are understandable tegrating both the market and non-market domains. All these per- concerns on the part of some regarding these activities. Others argue spectives are particularly relevant in the modern era of globalisation that business plays an important role in working with government to where corporate and political interests are intertwined (Hansen & generate positive outcomes for society as a whole (Dahan, Hadani, & Mitchell, 2000) and where governments control the rules of FDI and Schuler, 2013). These debates on CPA, together with its growing fre- determine the level and type of political risks in their jurisdictions. In quency and the increasingly vital function of the private sector in the response to these calls, there is now a recognition in the literature of the global economy, have driven considerable research interest in the CPA important role of national politics in MNC behaviour and vice versa phenomenon over recent decades (Okhmatovskiy, 2010). (Boddewyn & Brewer, 1994; Shirodkar & Mohr, 2015a; Wöcke & The growing role and significance of CPA is widely accepted inthe ⁎ Corresponding author. E-mail addresses: [email protected] (S. Banerjee), [email protected] (S. Venaik), [email protected] (P. Brewer). https://doi.org/10.1016/j.ibusrev.2018.04.001 Received 9 August 2017; Received in revised form 3 April 2018; Accepted 6 April 2018 Available online 30 April 2018 0969-5931/ Crown Copyright © 2018 Published by Elsevier Ltd. All rights reserved. S. Banerjee, et al. International Business Review 28 (2019) 101498 developed economies, e.g., USA and EU, in the real world of practice, subsidiary market strategy and non-market CPA strategy. Also, whilst across a range of industries. In Australia too, media reports “mining CPA generally is assumed to be aimed at improved performance of the magnates … enjoyed favourable government concessions; CEOs of su- firm, results of empirical studies in this respect are mixed(Hadani & perannuation funds … benefitted from government guarantees …; Schuler, 2013; Rajwani & Liedong, 2015) and await empirical closure banking and finance CEOs … received government guarantees andfa- (Hadani, Bonardi, & Dahan, 2017). This ambiguity, together with the vourable legislation; and – the largest group of all – property developers key role of government in national economic activity, means it is en- … rely on rezoning and other favourable political decisions.” tirely plausible that there are multiple outcomes sought and resulting (ABCNews, 2015). from subsidiary CPA, including, for example, legitimacy and favourable Although, as we have noted, the political aspects of MNCs and CPA government decisions (Baysinger, 1984). These unresolved issues lead in general management have both separately attracted strong recent us to examine the following research questions: (1) how do the sub- research interest, the intersection of MNC subsidiaries and CPA is re- sidiary environment and subsidiary market strategies affect subsidiary latively recent and rare (Hillman & Wan, 2005), especially outside the CPA; and (2) what are the subsidiary level outcomes resulting from North American and European contexts (Rajwani & Liedong, 2015). CPA. By answering these questions we extend the market strategy-based Evidently, researchers “are less inclined to develop theoretical tools for IR theory to include the non-market CPA phenomenon, and address further understanding of the MNCs’ socio-political behaviour” (Hadji- Baron’s (1995a) call to integrate market and non-market strategies khani et al., 2008, p. 912), leading to calls for more research into how within a single framework. firms develop and exploit political resources in international environ- The rest of the paper is organized as follows. The next section pre- ments (De Villa, Rajwani, & Lawton, 2015; Mantere, Pajunen, & sents a brief review of the CPA literature and identifies the gaps that we Lamberg, 2009). This is notable, because MNC market strategy research address in our study. We next discuss the well-known market-strategy has broadened in its analysis over recent decades, from nations to the based integration-responsiveness framework, and adapt and extend it to MNC and ultimately to the individual subsidiaries of MNCs incorporate non-market subsidiary CPA strategy that is the focus of our (Birkinshaw, Hood, & Jonsson, 1998). However, non-market strategy study. We draw on the literature to develop our theoretical model and (CPA) research in IB remains primarily directed at the corporate level hypotheses linking subsidiary CPA with its antecedents and outcomes. (Lawton, McGuire et al., 2013) and subsidiary level CPA has only re- In the subsequent section, we discuss our research method, including cently been the subject of some emerging theoretical and empirical the sample from a mail survey of MNC subsidiaries in Australia, the study (Banerjee & Venaik, 2017; Hillman & Wan, 2005; Shirodkar & operational measures, and our analysis using the partial least squares Mohr, 2015a). This is puzzling as MNC subsidiaries operate in varied approach. Finally, we present our empirical results and discuss its im- conditions and are exposed to large variations in their business en- plications in the context of extant IB and CPA theory and suggest out- vironment that might conceivably affect both their market and non- standing issues that are worthy of further investigation. market activities (Zaheer, 1995). In such complex settings subsidiaries may engage in non-market strategies such as CPA to seek important 2. A review of literature on CPA in IB objectives such as legitimacy and favourable government decisions that cannot be obtained through market activities alone (Wöcke & Moodley, Earlier research into CPA has understandably focused on domestic 2015). We conclude that, in the face of a continuing strong research firms and their interactions