Heterogeneity in Political Capital: U.S. Defense Contracts and Lobbying Strategies

Abstract

Prior research shows that political capital is critical in business-government relations to achieve desirable nonmarket strategy outcomes. Less attention has been paid to the fact that firms vary in their ability to build and acquire political capital. In particular, foreign multinational enterprises (MNEs), which typically suffer from the liability of foreignness, have more difficulty acquiring and strengthening political capital in a host country. However, we know little about how foreign MNEs, which have inherent disadvantages, acquire and use political capital or about whether they achieve their strategic goals through their nonmarket strategies. Drawing on the literatures on political capital and the liability of foreignness, I argue that foreign MNEs can acquire political capital and achieve better nonmarket outcomes by hiring outside lobbyists than by using internal lobbyists. Using U.S. government defense prime contract award data, I find that hiring outside lobbyists helps foreign MNEs achieve higher contract amounts; this outcome is driven by hiring more experienced lobbyists. This study has theoretical and practical implications for studies on political capital, international business, and nonmarket strategies.