Is your playing field unleveled? U.S. defense contracts and foreign firm lobbying

Abstract

Research Summary Prior research in political strategy shows that political capital is critical in achieving desirable nonmarket strategy outcomes. Less attention has been paid to the fact that firms vary in their ability to acquire political capital. Foreign firms, which typically suffer from the liability of foreignness, have difficulty acquiring and strengthening political capital in a host country. Drawing on the literatures on political capital, the liability of foreignness, and certification, I argue that relying on outside political capital—that is, hiring outside lobbyists—helps foreign multinational enterprises (MNEs) achieve better nonmarket outcomes, thanks to outside lobbyists' certifying role as political insiders. Empirically, the study examines U.S. Department of Defense weapons‐system prime contracts awarded to 20,301 U.S. and foreign‐owned defense contractors from 1998 through 2006. This study has theoretical and practical implications for studies on political capital, international business, and nonmarket strategies. Managerial Summary Political capital is assumed to be critical in nonmarket strategy to achieve positive firm outcomes, particularly in industries where political and regulatory players play an important role. However, due to certain industry or firm characteristics, some firms are at a disadvantaged position in acquiring and consolidating the political capital they need. In this research, I argue that one of the factors creating such disadvantage is foreignness. The results indicate that for those foreign firms with a liability of foreignness, relying on outside lobbyists is beneficial to overcome the disadvantages and to achieve better nonmarket outcomes because outside professional lobbyists can ease information flows between political and regulatory players and foreign firms through their trustworthiness as political insiders.

Navigating cross-border institutional complexity: A review and assessment of multinational nonmarket strategy research

“… For instance, lobbying has been one of the most widely studied corporate political action initiatives in the US context. However, the keyword search in our database results in only 11 papers on cross-border corporate lobbying (e.g., Barron, et al, 2017 ; Kim, 2019 ; Weil, 2018 ). On the other hand, we suspect that a significant number of multinational CPA articles (especially those that explore political ties and MNE–host government relationships) do cover MNE “lobbying” activities, but they simply do not use this terminology.…”

State Agency Discretion and Entrepreneurship in Regulated Markets

“…Our supplemental analyses also speak to the effectiveness of firms’ political activities (Mizruchi, 1992; Ridge, Ingram, and Hill, 2017; Kim, 2019). Recent research has questioned whether simple measures of numbers of lobbyists or campaign contributions are sufficient to explain outcomes for firms (Hill et al, 2013).…”

Foreignness research in international business: Major streams and future directions

“…Eden and Miller (2004) break LOF down into three categories: unfamiliarity, discrimination, and relational hazards, which clearly align with the social, political, and institutional aspects of LOF. A lack of legitimacy, coupled with information asymmetry and economic nationalism in host countries, gives rise to a lack of trust in foreign firms and sometimes discrimination against them (Baik et al, 2013;Elango, 2009;Kim, 2019;Kim & Jensen, 2014;Krug & Hegarty, 2001;Li, 2008;Li, Poppo, & Zhou, 2008;Obadia, 2013;Wu & Salomon, 2017).…”

“…Beyond economic calculations, sociological perspectives stress social and relational context as a driver of LOF. The social capital/network perspective emphasizes the lack of embeddedness of foreign subsidiaries in local networks (Mezias, 2002a(Mezias, , 2002bJohanson & Vahlne, 2009;Kim, 2019) and the need to develop ties with host-country stakeholders to alleviate the relational hazards of LOF (Rangan & Drummond, 2004;Li et al, 2008;Guo et al, 2018;Valentino et al, 2018). Since Zaheer's (1995) original empirical study, other ones have found that LOF is likely to have a negative impact on MNE performance.…”