Host-country risk, corporate political strategies and the subsidiary performance of South African multinationals in wider Africa

Abstract

One critical aspect of a multinational's (MNE) non-market strategy is its political strategy ð€‚± the management of a firm's political capabilities and actors to influence public policy outcomes. Research on corporate political strategies has, over the years, focused on its local application in institutionally stable developed environments. Existing literature suggests that political strategies are essential for firm performance. However, there is a dearth of studies that empirically examine the mechanisms through which they affect performance within weak institutional environments. Coupled with the paucity of research in weak institutional environments, is an absence of literature exploring the influence of informational, financial and constituency building relational political strategies on performance across borders. The thesis employs a dynamic capability perspective and an institutional approach to examine the role of corporate political strategies of emerging economy MNEs performance in South-South foreign direct investment (FDI). I employ a concurrent mix of quantitative and qualitative methods to interrogate the phenomenon. The qualitative content analysis of annual reports uniquely maps out the political strategy landscape for South African MNEs in their home country and the primary data survey of subsidiary executives examines the relationship between access (informational and financial) and relational (constituency building) political strategies on their subsidiary performance in the politically risky host environments of sub-Saharan Africa. I find that increased use of access political strategies has a negative effect and increased use of relational political strategies a positive effect on subsidiary performance. When both are combined, increased use of access political strategies increases the positive effect of relational political strategies on subsidiary performance. The thesis also interrogates the moderating influence of host-country risk on the corporate political strategy- subsidiary performance nexus and find that the higher the political risk, the stronger is the positive influence of relational strategies. The research contributes to the corporate political strategy literature by interrogating the political strategies MNEs employ to influence their performance in risky host environments. It extends the scholarship on dynamic political capabilities by linking actionable proactive and defensive political strategies to subsidiary performance in weak institutional environments. It presents novel findings in mapping out the corporate political strategy landscape of an emerging economy's MNEs and interrogating the relationships discussed in uncertain and risky institutional environments. MNE practitioners can leverage the findings to operate more efficiently in risky political environments. The research thus assists in adapting extant corporate political strategy literature to a framework that can accommodate the weak institutions of environments such as sub-Saharan Africa.