Extending the bargaining power model

Abstract

PurposeThis paper seeks to further develop the bargaining power model of political risk management by employing a historical case study to uncover issues not presently considered in the model.Design/methodology/approachIt first examines current political risk research, primarily focusing on the bargaining power model and then reviews a historical case study to demonstrate that the model remains incomplete. Next, both the resource‐based view (RBV) of the firm and institutional theory are examined to develop propositions to guide future bargaining power research.FindingsExamining the bargaining power model by employing a historical case study of Panton, Leslie and Company, which operated in the present day Southeastern USA during its tumultuous colonization period, not only provides an interesting historical account of how one firm managed political risk, it suggests the need to modify the bargaining power model to consider both the specific resources required for differentiation and the need to balance differentiation and conformity pressures in managing political risk. Based on what this case study reveals about the model, it is suggested that the RBV provides insights into factors that may help an multinational enterprise (MNE) maintain its bargaining power based on differentiation even under changing environmental conditions. Further, it is suggested that institutional theory highlights conditions that make it more or less necessary for an MNE to conform to host government demands, which can reduce or enhance its bargaining power, respectively. Thus, in tandem, both may provide useful insights to produce a more “balanced” bargaining power view of political risk.Originality/valueFor practitioners, the findings highlight critical considerations in managing political risk by illustrating the need to balance differentiation and conformity. In addition, this review provides propositions to guide future empirical political risk research, especially studies focusing on bargaining power issues.