The role of home country political resources for Brazilian multinational companies.
| Autor | Bazuchi, Karina Regina Vieira |
| Cargo | Report |
Introduction
This paper aims to analyze the interactions between home country governments and Developing Country Multinational Companies (DMNCs). Building on evidence from the Brazilian political environment and Brazilian multinationals, we uncover the mechanisms of government influence in the internationalization process of domestic companies and firms' political strategic responses to shape public policy process. The research seeks to contribute to a growing body of studies oriented towards understanding DMNCs' international insertion. DMNCs have been shown to have different strategic choices that can be explained by their context, country of origin, industry and size (Ramamurti, 2012). We intent to explore how the political component embedded in international business activity has an influence in such choices and impacts DMNC entrance in new markets, a subject that has been only marginally discussed by International Business (IB).
Recent interest in understanding the internationalization of DMNCs was motivated by a systemic change in global FDI flows. In 2010, developing and transition economies share of global FDI outflows increased to 28%, up from 15% in 2007 (United Nations Conference on Trade and Development [UNCTAD], 2011), while during the 1980's DMNCs accounted only for shares between 3 to 9.6 % of world outward FDI. Furthermore, DMNCs have special particularities that influence their international strategies. They are generally state-owned or recently privatized companies organized in business groups, which together accounted for a third of the emerging world's foreign direct investment in the period of 2003-10, according to data from UNCTAD (2012); they have adopted distinctive approaches to internationalization (Goldstein, Bonaglia, & Mathews, 2006); and developed a symbiotic relationship with governments (Schneider & Soskice, 2009). Thus, FDI outflows from developing countries should be understood considering contextual factors such as high levels of government involvement, industry structures, ownership patterns, and business law enforcement (Wright, Filatotchev, Hoskisson, & Peng, 2005).
Despite the fact that the political environment is pointed out as a constrainer or supporter of DMNCs strategies, only anecdotal information exists about how, and through which mechanisms, the interaction between DMNCs and governments occurs. This paper fills this gap by providing an in-depth analysis about the mechanisms of interaction between multinationals and home country governments based on evidence from Brazil, a democracy with a history of both developmental and liberal governments. First, it investigates the influence of the Brazilian government as a driver of the international expansion of domestic firms in both entry and consolidation phases in the foreign market. Second, our research focuses on the political component of multinational corporations' (MNCs) strategies, incorporating firms as actors not only constrained by the political institutional environment, but also able to influence policy outcomes. Most IB studies take institutions for granted or only as constraint factors, focusing on how MNCs can mitigate political risk when host countries impose fiscal and regulatory reforms or restrictions to finance mechanisms (Henisz, 2000; Holburn & Zelner, 2010). In fact, in developing countries, political activity is an alternative corporate strategy to overcome lack of market institutional support. While Corporate Political Activity (CPA) and IB streams together provide a broad perspective of international business- government interactions, there is a great need for a better integration of the two literatures (Blumentritt & Night, 2002). Studies about MNE-government relations tend to stand by themselves, without attempting to integrate explicitly into MNC theory (Boddewyn, 1988).
To examine the mechanisms of DMNCs-government interaction we first present a brief review about the role assigned to home country governments on IB research and the literature about corporate political strategy. We also point to the relevance of industrial and foreign trade policies in shaping the importance that political connections have gained in the case of DMNCs. We then describe our research methodology, our study sample and our main findings, proposing constructs to classify DMNC-home country government mechanisms of interaction. Finally, we present our conclusion and discuss evidence that suggest an association between DMNCs political behavior and above average benefits from home country government.
DMNCs and the Role of the Home Country Government
Governments meaningfully affect firms' performance, operations and governance, and the market environment in which they compete (Marcus, Kaufman, & Beam, 1987) because of the way they distribute the burdens and benefits among firms. As Boddewyn (1988) stressed, non-market actors, such as governments, support market transactions through power and other noneconomic sanctions and, therefore, need to be accounted for in the IB perspective. Governments can subsidize financial resources, create and enforce jurisdiction on hostile acquisitions, release public tenders and own effective controlling interest in corporate entities, as in state-owned companies and sovereign funds, facilitate MNCs' market access, dialogue with foreign governments and international organizations, and even impose barriers to the transfer of factors of production and ownership control. They are aware that through MNCs they develop the ability to connect the local economy to the outside world (Luo, 2004) and can implement public policies, such as industrial and foreign policy.
In many emerging economies, globalization and an exogenous increase in the portion of the economy that was exposed to international competition have induced changes in economic preferences and market and political power reorganization. Although exogenous forces have spread market reforms an d an increase in internationalization levels in many countries, policy outcomes can only be explained at a country specific level. This is because differences in actor's preferences are not directly reflected as changes in domestic policies; they are mediated by institutions (Garret & Lange, 1995).
Since it is our interest in this paper to understand domestic policies that support firm internationalization, it is necessary to look at both the political conflict shaped by the preferences of different actors, weighted by their market power and their propensity for collective action and the role of extant political and macroeconomic institutions of a country.
Garret and Lange (1995) support that governments' responsiveness to changes in domestic preferences will vary significantly according to institutional arrangements, considering regime type (how easy is to challenge the policies of the incumbent government), the level of government dependence on the core group that support the status quo, the number of veto points in the political system (inversely correlated) and the level to which authority over policy rests in the hands of independent bureaucratic agencies.
One of the most interesting features that characterized the DMNC internationalization process is the involvement of developing country governments that support international activities of firms from their country (Sargent & Ghaddar, 2001). This involvement responds to historical paths that are not shared by their developed country counterparts. As presented by Gammeltoft, Pradhan, and Goldstein (2010) in the special issue of the Journal of International Management, in emerging economies.
Central and local governments play a larger and more active role in the economy, and firms tend to be more attuned to government priorities and preferences. Government support also provides emerging economy firms with privileged access to certain inputs, preferential financing, subsidies and other support (p. 1). For instance, researchers divide the expansion of emerging multinationals into three different periods. In the first wave of internationalization, governments from emerging countries relied on import-substitution policies (Lall, 1983) and consequently stimulated production directed at the domestic market. The second wave, dominated by Asian firms, was defined by export-oriented industrialization, which targeted the creation of large players that could seek previously unavailable assets and markets, allowing local firms to build their international competitiveness (Rasiah, Gammeltoft, & Jiang, 2010). This second wave led to the growth of many of the central actors of the third wave of Internationalization, (Rasiah et al., 2010), which brought more market power (especially for firms trading in natural resources).
Industrial and trade policies were key drivers for the increase in OFDI coming from these nations (Rasiah et al., 2010). Governments had a special interest in capturing the benefits that can result from OFDI and in regulating the way in which these policies affected their internal positioning. This resulted in a number of protectionist policies in Asia and Latin America, that for the latter represented the surge of organized sectors of production safeguarded by tariff walls (Etzkowitz & Brisolla, 1999).
In our view, the case of Brazil is representative of many emerging economies as it shares many of the steps that came into defining a policy agenda. Specifically Brazil places a lot of importance in its industrial policies as part of its effort to become a player in the international arena (1 & 5). The government has had an important involvement in the creation of policies that support sectors deemed strategic, such as the automotive and petrochemical industries (Shapiro, 1994) and currently holds an ownership position in many of the most internationalized DMNCs in the country (6).
In reality, policy changes come as part of an effort to adapt emerging economies' procedures...
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