The Impact of Host-Country Political Risk on Multinationals’ political Strategy Development

Abstract

The paper investigates how high levels of political risk in a host market’s institutional context influences MNE subsidiaries’ corporate political activity (CPA) strategy. Existing studies have found that subsidiaries facing high-risk contexts prefer a non-engaged approach to CPA, by exercising ‘no exit’ and ‘no voice’ strategies. Based on interviews with business leaders in post-socialist Hungary – a context characterised by high political risk – we present contradictory evidence. We find that subsidiaries – do not limit their strategic responses to non-engagement but use a variety of different engaged and non-engaged strategies to maintain their position in the high-risk host market, but these strategies differ from the traditional ‘voice’ strategies used in low-risk contexts. The paper identifies five different strategic choices: 1. Active responsiveness, 2. Passive responsiveness, 3. A non-responsive strategy of ‘dormancy’, 4. Restructuring to avoid being ‘bought up’ or pushed out of the market and 5. Exit, when firms leave the country. We theorise about the determinants of non-market strategic choices in high-risk environments and suggest that existing theories need to be expanded by applying an institutional legitimacy perspective to political risk.