Political Connections and Business Strategy in Dynamic Environments: How Types and Destinations of Political Ties Affect Business Diversification in Closed and Open Political Economic Contexts

Abstract

Research summaryThis article studies how the strategic benefits of political ties change as a closed political‐economic system opens, focusing on types and destinations of connections between business leaders and political actors. We examine how formal and informal ties (types) to party leaders, government officials, and elected legislators (destinations) facilitated diversification by business groups in Taiwan between 1986 and 1998. During this period, Taiwan underwent political and economic liberalization that led to changes in tie accountability, public scrutiny, and diffusion of power over resources. We show that formal position interlocks with dominant party or senior government officials provide greatest benefits in a closed political‐economic system, while informal social ties to a wider range of political actors, particularly legislators, provide greater benefits as the system becomes more open.Managerial summaryAs a closed political economy becomes more open, the types and destinations of political ties that generate strategic benefits for firms change. In closed markets, the greatest benefits arise from formal ties to central political leaders. In more open markets, the benefits shift to informal ties with a broader range of political actors, including legislators. We demonstrate the change in targets for strategic benefits by studying how political ties influenced business diversification in Taiwan as the country moved from closed markets in the 1980s to more open markets in the 1990s. Copyright © 2016 Strategic Management Society