MNE Political Connectedness and Political Competition: Vodacom Mozambique

• In Event: Political Connections and Policy Influence

Abstract

The importance of the political context for MNEs has long been recognized in IB . MNEs creating subsidiaries in foreign environments need to build local legitimacy in order to ensure the support of crucial stakeholders, such as the host state. Effective corporate political strategies help the MNE to develop connections, influence policy and safeguard investments, thus mitigating political risk.
The widespread recognition of the importance of political context for the MNE notwithstanding, IB has by and large stuck to a fairly narrow interpretation of corporate political strategy. Research has either focused on firm-level strategies to deal with the risks and constraints emanating from the political arena, or on attempts by MNEs to pro-actively to influence the local state’s policies . The role of MNEs as potential participants in the political game has largely been ignored. The political dimension of corporate political strategy is missing.
We define politics as the competition over power, resources and interests between people or groups. Following this definition, the political context is not a variable, but a process of rival agents rising in- and out of dominance. MNEs’ political strategies play a role in this process, as firms’ responses to the actions of other political agents leave an imprint on the balance of power.
Recognizing the political dimension has two consequences. First, it highlights the trade-offs in connecting to competing groups. In contrast to economic competition, politics is a zero-sum game. Aligning oneself with one group often implies forsaking the support of another. Similarly, maximizing broad societal legitimacy may come at the expense of connectedness to particular political elites and vice versa.
Second, recognizing the political nature of connectedness highlights that the relation between firm and political environment is symbiotic. Firms seeking support from political agents provide resources to these agents in return, allowing the latter to compete more successfully in the political contest. Thus, firms both respond to the political environment and help shape its ongoing evolution .
This paper develops an integrative theoretical framework to explain when subsidiaries seek local political connectedness, enriching institutional IB theory with an evolutionary political-economic perspective. In this framework, the decision to forge ties to local politicians is a function of the interplay between the internal needs of the subsidiary firm, determined by its stage of development, and the evolution of the external environment to which the firm’s actions contribute. Specifically, we argue that subsidiaries weigh the political risks that may arise from low political connectedness in each stage against the risks of ending up connected to the losers of the political game. Firms invest in political connectedness when their internal necessity is strong and the distribution of political power is predictable. Whenever the likelihood of ‘betting on the wrong horse’ is high or the firm’s dependence on political support is relatively low, firms prefer to invest in broad, societal legitimacy instead. This decision changes over time as both the internal needs of the firm evolve, and the political environment responds to the actions of the firm. By infusing economic resources into the political game, firms are both advantaging some agents over others and raising the stakes of political competition in general. Increased political connectedness thus has consequences for subsequent stability and predictability of the political setting, which feeds back into the decision-making of the firm.
We illustrate this argument with a case-study of the entrance of Vodacom SA in Mozambique and the subsequent development of its local subsidiary. We show that Vodacom’s Mozambican arm from the beginning struggled to balance competing pressures from the local political setting, Mozambican society, and the home context. We explain how the evolution of Vodacom Mozambique’s choices in this struggle was both a function of its own evolving needs—from entry, to building market power, to exploitation of market power—in a changing political context, and was feeding back into the political evolution of Mozambique.
This paper makes several contributions. First, it embeds the literature on political risk and political connections in IB within a broader institutional perspective, theorizing political connectedness as a strategy to address regulatory pressures and gain legitimacy in the host context. Second, it adds an evolutionary political-economic perspective to this project, highlighting the symbiosis between MNE behavior and the political process in the host society. Thirdly, we illustrate our argument by analyzing a case of South-South MNE activity, which is a relatively understudied.

Authors

• Robbert Maseland, University of Groningen

• Magdalene Silberberger, Witten/Herdecke University

• Joachim Zweynert, Witten/Herdecke University