The contingent effect of political ties on post-entry performance

Abstract

PurposePolitical ties are critical for multinational enterprises’ (MNE) survival and success. However, the effect of political ties is not monotonic. The purpose of this paper is to look into the contingent effect of political ties on MNEs’ post-entry performance.Design/methodology/approachBased on survey data collected from 416 foreign subsidiaries operating in China, which was combined with several secondary data sources, this study examined the three-way interaction of political ties, entry mode and industry restriction.FindingsThe findings support the hypotheses that the impact of political ties on firm performance is contingent on firms’ ownership-based entry modes and industry restriction. In particular, the impact of political ties is stronger for joint ventures (JV) in less restricted industries and wholly owned subsidiaries (WOS) in more restricted industries.Practical implicationsPolitical ties have different effects on WOS and JV. While in general political ties have a stronger impact for JV than for WOS, their impacts on both parties vary on industry restriction. Managers should consider ownership structure as well as industry restriction when making non-market strategies and decisions.Originality/valueBy analyzing the impacts of intra-organizational and market environmental factors, this study provides a fine-grained view of foreign firms’ non-market strategy in China from a post-entry performance perspective.