Corporate political activity : a comparison of local and foreign company strategies

Abstract

Corporate political activity (CPA) refers to the actions firms undertake to influence government policy in order to create a favourable environment for their business. Emerging markets are currently a strategic focus area for growth, especially for multinational enterprises (MNEs). In these emerging markets, MNEs stand to benefit from greater access to traditional resources but face a liability of foreignness (LOF), whereas local companies benefit from local understanding, protectionism and social embeddedness. This research attempts to discern whether these factors translate to a difference in corporate political strategy in local and foreign firms. The survey responses of 107 senior managers and executives of healthcare companies in South Africa provided valuable insights into corporate political strategy and perspectives regarding regulatory uncertainty. Although there is general alignment in the CPA of both groups, the research revealed that foreign companies are more proactive in their endeavours. Overall there was also considerable commonality in the strategic adoption under uncertainty for both groups of companies, however local companies are more likely to adopt an avoidance strategy and withdraw from uncertain markets. Companies with higher turnover are more proactive and relational in their approach to CPA. Foreign companies appear to have successfully overcome the Liability of Foreignness (LOF) in this setting through various actions and this provides useful learnings. A schematic model interpreting the research findings is supplied. Other insights for policy-makers and managers are provided and recommendations for further research are delivered.