Session 30

Politics, Institutions, Political Risk & Global Strategy

Track G

Date: Tuesday, October 9, 2012


Time: 14:15 – 15:30

Common Ground

Room: Terrace 1


  • Jonathan Doh, Villanova University

Title: Choose Your Friends Carefully: The Influence of Home-Country Relationships on Young Firm Internationalization


  • Shameen Prashantham, China Europe International Business School
  • Julian Birkinshaw, London Business School

Abstract: While overseas relationships are known to help young firm internationalize, we know little about how a firm’s home-country relationships affect its subsequent internationalization, and the limited extant work remains inconclusive. We develop new theoretical arguments by combining social capital theory with reference group theory. This novel theorizing suggests that the impact of local ties on international expansion will vary depending on their nature. Specifically, internationalization is adversely affected by domestic relationships of a general nature but facilitated by joining a local industry “networking” industry group. Based on an empirical study of 102 Indian software firms we find support for our arguments.

Title: Getting by with a Little Help from My Friends: Does Political Affinity Lead to Lower M&A Premiums?


  • Olivier Bertrand, SKEMA Business School
  • Marie-Ann Betschinger, University of Fribourg
  • Alexander Settles, Rutgers University

Abstract: The role that foreign policy plays in M&As activity and takeover strategy is an understudied issue. Building on the fields of Strategy, International Business, and International Relations, we argue that political affinity between nation-states produces a positive environment for cross-border deals since political affinity may lead to cooperation between governments, easing the transactions of firms from each country. Using a dataset of 925 cross-border deals for the period of 1990-2008, we find that political affinity between home (acquirer) and host (target) country leads to lower bid premiums. We also show that this relationship depends on the political environment of the host country and the size of firms involved in M&As.

Title: Mapping MNE Location Choices in Response to Drug Cartel Violence


  • Li Dai, Western University

Abstract: Given that effectively reacting to risk is a central concern in strategic management, this study examines the effect of host country violence on MNEs. Specifically, I focus on the exit, relocation, and location search decisions in the context of drug cartel violence in Mexico. While exposure to violence may prompt an MNE to move, I argue that three types of costs – namely, sunk, maintenance, and switching costs – exert distinct and sometimes conflicting effects on the MNE’s location choices. While MNEs may satisfice in deciding whether to relocate when confronted with a violent context, they may optimize in deciding where to relocate so as to capitalize on any incentives to remain in the host country.

Title: Policy Risk, Political Capabilities, and the Survival of Foregin Direct Investment Projects


  • Laura Fernández-Méndez, Comillas Pontifical University
  • Esteban García-Canal, University of Oviedo
  • Mauro Guillen, University of Pennsylvania

Abstract: Policy risk in the host country has been considered as a deterrent both to incoming foreign direct investments and to the maintenance such investments there, as the exposure to arbitrary changes in regulations reduces the value of the investment. However, some recent studies have shown that firms in regulated sectors do not always avoid policy risk when expanding abroad, because these firms have capabilities that allow them to overcome the negative consequences of policy risk exposure. Building on these studies, this paper analyzes to what extent policy risk in the host country increases or decreases the probability of divesting. An empirical analysis based on survival models applied to a sample of foreign direct investments made by Spanish multinationals in regulated industries during the period 1986-2008 shows that, at least in the case of these firms, policy risk decreases the probability of divestiture.

Title: Political Risk Strategies and Electoral Institutions: Managing Contagion and Corruption


  • Karin M. Fladmoe-Lindquist, University of Utah

Abstract: Elevated political risk and contagion can have an impact on the operations and strategic choices of multinational firms. This environment is exacerbated can be further affected by the type of government and electoral institutions of the host country. This paper proposes that the use of proportional representation (PR) in elections creates elevated operating costs for firms. These elevated costs can take the form of corruption and information asymmetries and may also impact the ability of the local political institution to respond to political, social, or economic shocks and contagion. Contagion implies a sequence by which an initial political, economic or social crisis in one country spreads across multiple environments, thus increasing the importance of the response by both the national government and the multinational firm.

All Sessions in Track G...

Sun: 08:00 – 09:15
Session 129: Strategy Implementation: Global Challenges
Sun: 09:30 – 10:45
Session 130: Practicing Strategy in Transition Economies: Reframing, Rethinking and Renewing
Sun: 11:15 – 12:30
Session 131: Global Strategies in the Service Sector
Sun: 15:15 – 16:30
Session 29: Strategy and Outsourcing
Mon: 08:00 – 09:15
Session 32: The Dynamics of Internationalization
Mon: 09:30 – 10:45
Session 34: Emerging Market/Advanced Market Strategic Interactions
Mon: 13:30 – 14:45
Session 33: Internationalization, Diversification & Performance
Mon: 16:30 – 17:45
Session 35: Entry Modes, Exit and Outcomes
Session 39: Global Strategies
Tue: 08:00 – 09:15
Session 37: Subsidiary Strategy
Tue: 11:00 – 12:15
Session 41: International M&A as an Entry Mode Strategy
Tue: 14:15 – 15:30
Session 30: Politics, Institutions, Political Risk & Global Strategy
Tue: 15:45 – 17:00
Session 40: Knowledge, Innovation and Global Strategy
Session 42: A Q&A with Pilsner Urquell: Strategy from a Small Nation
Tue: 17:30 – 18:45
Session 38: Global Managers and Managing Globally

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