To engage or not to engage with host governments: Corporate political activity and host country political risk

Research summary: We analyze how a host market’s institutional context can influence a multinational enterprise’s (MNE’s) senior management’s choice and deployment of corporate political activity (CPA). First, we argue that a non-engaged approach to CPA is likely to be chosen when senior management perceives high host country political risk, arising not only from host country political institutions, but also from the distance between home and host government relations. Second, we propose that the deployment of this approach can require active adaptation through four political strategies: low visibility, ensuring a minimal degree of general attention from other actors; rapid compliance, entailing high speed actions to obey the rules; reconfiguration, involving rearranging the MNE’s structure and processes for competitiveness; and anticipation, implying the prediction of public policy and analysis of interest groups to anticipate responses. Managerial summary: Senior managers of multinational enterprises often examine when and how to engage, or not to engage, with host governments. We argue that senior managers are likely to choose to evade engagement with a host government when they perceive high host country political risk, not only through public political risk ratings, but also via their home and host government relations. We show that this choice can require senior managers to lead active adaptation through four strategies: low visibility, enabling the MNE to operate under the radar of host governments; rapid compliance, entailing high speed actions to obey the rules; reconfiguration, involving rearranging the MNE’s structure and processes for competitiveness; and anticipation, implying the prediction of public policy and analysis of interest groups to anticipate responses.