Engaging Stakeholders Through Corporate Political Activity: Insights From MNE Nonmarket Strategy in an Emerging African Market

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Abstract

As interest increases in the political engagement between multinational enterprises (MNEs) and emerging economy host governments, less is known about wider MNE stakeholder engagement and the development of nonmarket capabilities in institutionally fragile environments. This study investigates how MNEs engage stakeholders through corporate political activity (CPA) during the pro-market reform of Uganda's electricity generation sector. Data is collected through semi-structured interviews, archival materials and fieldwork notes, and is analyzed using an NVivo-supported grounded analytic method. We find both proactive and reactive leveraging of CPA to manage diverse stakeholders. We argue that the host government remains the most important political stakeholder in the early phases of reform, but changes in institutional and political environments necessitate strategic adaptations as the reform process progresses. These adaptations include the need for local engagement and the accommodation of multi-level stakeholder pressures. Our findings contribute to an understanding of corporate political capabilities in Africa's emerging markets, and illustrate how these capabilities can be strategically leveraged to effectively manage diverse stakeholders.

Introduction

This study seeks to establish the extent to which both emerging market multinational enterprises (EMNEs) and advanced market multinational enterprises (AMNEs) leverage corporate political activity (CPA) as a tool to achieve their stakeholder-oriented nonmarket strategic objectives in African markets. CPA is defined as all MNE activities aimed at influencing governmental regulations and policies in the MNEs' favor (Bonardi, 2011; Hillman et al., 2004; Lawton et al., 2013). The country context of the study is Uganda, which was a pioneer of pro-market reforms in Sub-Saharan Africa (SSA) (Kasaijja, 2015; Kuteesa et al., 2010; Mawejje et al., 2012; Robinson, 2007). Uganda's relative political stability in the past three decades has made it attractive for investigating MNEs in the region, especially in highly regulated industries such as electricity, oil and gas, and telecommunications. Furthermore, it has emerged as a springboard for MNEs in venturing into politically and institutionally more fragile markets in the region (Mbalyohere et al., 2017). Increasingly, it has also hosted international aid programs intended to support nation-building and state stabilization interventions, especially in South Sudan and the Democratic Republic of the Congo (DRC).

In the context of early experiences with emerging institutionalization and the broader strategic implications of pro-market reforms, there is also a need to understand how CPA supports effective MNE stakeholder engagement (Baines and Viney, 2010; Windsor, 2007). Such an understanding could, in turn, help to not only explain the strategic choices of actors on both sides of the MNE-government relationship, but also the underlying political capabilities involved. Consequently, there would be insights into how these capabilities shape the stakeholder relationships that are critical to MNE performance in these fragile contexts. As market reforms in most of Africa are generally at early, albeit important, stages of economic development, and the associated market institutions are not yet fully functional, nonmarket strategies, particularly CPA, assume more importance. The stakeholder perspective around this reality equally assumes greater weight. This is especially so considering that the application of stakeholder theory to both AMNEs and EMNEs in SSA is currently limited. Our use of stakeholder theory and CPA in this study draws on an instrumental interpretation (Donaldson and Preston, 1995; Jones and Wicks, 1999) that identifies salient stakeholders and informs the shaping of policy and institutions.

The study advances propositions that are empirically grounded in Uganda's pro-market reforms. It further suggests that some Ugandan experiences are gradually being exported to other emerging countries, therefore offering a tentative case for generalizability. Our research question is consequently framed as follows: How, and to what extent, do MNEs in newly emerging markets undergoing pro-market reform, leverage CPA to engage key stakeholders? We take the understanding of politically-oriented stakeholdership beyond a classical horizontal dimension that addresses one level (usually central government), and infuse it with a vertically-oriented multilevel stakeholder awareness. Such a perspective gives the study a local, national, and continental institutional perspective, which amount to the vertical dimension. To support the core stakeholder perspective, the study also draws on grassroots community engagement, adaptation to Africa as a political market, and the accommodation of emerging institutions.

The study specifically contributes to theory by demonstrating how EMNEs and AMNEs, investing in emerging markets, create and deploy political capabilities to engage with diverse stakeholders. In doing so, choices are made about priorities, pro-activeness versus reactiveness, and responses to political and institutional change. A criticism of stakeholder theory is that it helps to identify stakeholders and their characteristics but fails to illuminate the processes involved in their effective management (Ackermann and Eden, 2011). We illustrate that CPA is a tool that MNE managers, especially in politically and institutionally fragile, but high-growth markets, can deploy to more strategically manage diverse stakeholders. The improved management of and relationship with these often challenging stakeholders is based on political capabilities that MNEs can variously deploy. Such capabilities are especially useful in developing and managing informal relationships, something of core importance to the cultural and informal institutional contexts of these developing markets. Since the development of such capabilities is further based on processes of bundling of specific resources to create these capabilities, this contributes to addressing Ackermann and Eden's (2011) criticism.

We also contribute by demonstrating that managerially-oriented, rather than organizationally-oriented, political capabilities are decisive in engaging with these stakeholders. A major reason is that such capabilities are better suited to building and managing the informal relationships that emerge.

The paper next proceeds to synthesize the extant literatures and to clarify the theoretical context and the contribution of the study. Specifically, we use a CPA perspective to frame and explain how diverse MNEs deploy political capabilities to engage multi-level stakeholders in fragile markets undergoing pro-market reforms. This is followed by an explanation of the research methodology prior to presenting the findings and discussion.

Section snippets

Theoretical background

In this section, we examine extant literatures to establish the status of research on nonmarket strategy in emerging markets, with particular focus on CPA and its associated political capabilities. Stakeholder theory perspectives provide a secondary theoretical lens that nuances the examination, and hones our understanding of CPA and political capabilities in these often institutionally and politically fragile contexts. Consequently, the scene is set for challenging and recontextualizing

Findings

Two overarching categories that emerged from the data analysis are deployed as a framework for summarizing the findings: a generalist perspective and a regulatory/policy-making perspective. It is this body of evidence that informs the discussion in the paper.

Strategic stakeholder engagement

Considering the social, political, and economic changes that have engulfed Africa in recent decades, strategic stakeholder engagement patterns were also evolving. Key stakeholder demands were becoming ever more sophisticated and there was a growing potential for conflict. Due to their heterogeneous backgrounds and strategic orientation, the cases in the study correspondingly depicted both similarities and differences in approach to stakeholder engagement. Our propositions reflect this

Limitations and future research

Despite the new insights our study provides, it also has limitations that can form the basis for future research. Firstly, the study was based on one industry – the electricity industry. It would strengthen the case for generalization if similar studies were conducted in other industries that have also experienced pro-market reform in Africa. Furthermore, within the electricity industry, the generation sub-sector was the primary consideration. It would add a more holistic perspective if the

Conclusions and contributions

Our study contributes to the CPA research domain, and particularly the interface with stakeholder theory. More specifically, it illuminates corporate political capabilities that find expression at multiple levels of strategic stakeholder engagement (Luo and Dong, 2013; Windsor, 2007). Consequently, there is a heterogeneity of behavior by MNEs in responding to these diverse stakeholder constellations that supersede predominantly horizontal perspectives in extant literatures. The heterogeneity is

Managerial relevance

Considering the increasing importance of new frontier markets like Uganda to global inward FDI flows, the insights that have been raised in this study are of strategic importance to managers. Firstly, managers of MNEs entering such markets can benefit from a greater understanding of the managerially-oriented political capabilities that are most conducive at the early stages of pro-market reforms. This also involves an understanding of how to adapt such capabilities along the path of reform. The

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