Resource Tangibility and Foreign Firms’ Corporate Political Strategies in Emerging Economies: Evidence from India

Abstract

Foreign firms operating in emerging economies are increasingly exploiting and becoming dependent on locally existing intangible resources such as intellectual skills, technological know-how and reputation. Political strategies are used to absorb the external constraints associated with this external dependence. Little is known about the different types of political strategies used by foreign firms in emerging economies and the factors that determine this choice. We draw on Resource Dependence theory to argue that this choice will be influenced by the degree to which foreign firms depend on tangible vs. intangible resources. Using a sample of 105 foreign subsidiaries in India, we find that foreign firms that depend on local intangible resources are more likely to use information-based political strategies, but less likely to provide direct financial incentives to policymakers; whereas firms that depend on local tangibles are less likely to use information-based strategies. Foreign firms that depend on both tangible and intangible resources are more likely to use the constituency building strategy. Our findings enhance our understanding of the factors affecting foreign firms’ political strategy in emerging economies.