This course explores the ways firms overcome challenges when operating globally. The global economy is characterized for its high complexity and uncertainty. Corporations trying to succeed in the global economy need to develop different types of strategies depending on where they are conducting business or what type business they are in. Students taking this course will learn how to determine the best strategy to follow when expanding globally, the advantages and disadvantages of those strategies, and the appropriate responses to external pressures. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
Political Strategies of Multinational Corporations
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From the course by University of Illinois at Urbana-Champaign
Global Strategy II: Doing Business in The Global Economy
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University of Illinois at Urbana-Champaign
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Course 4 of 7 in the Specialization Global Challenges in Business
From the lesson
Module 4: How Do Multinationals Strategize in an Increasingly Complex Political Environment?
When operating globally, managers need to carefully analyze the political environment and develop strategies to deal with issues such as instability, xenophobia, or nationalism. This module explores the options firms have when dealing with political uncertainties, the type of analysis they need to conduct, and the political strategies they can develop.
Meet the Instructors
Marcelo BucheliAssociate Professor
Department of Business Administration, College of Business
Given the uncertainties in the global political world and
the tools that we have talked about on how to analyze these uncertainties,
now we will move on to describe and understand
some possible strategies that firms can
develop in order to deal with these uncertainties.
Let's go back to
John Chipman and some of the strategies that he
proposes to deal with the political uncertainty in the global world.
The first one is to own your own foreign policy.
What does this mean?
Firms can no longer just trust
their government as being the one managing the foreign policy that affects them.
Some firms have gone as far as creating their
own kind of like Foreign Ministers or Department of State.
Let's look at ExxonMobil.
ExxonMobil has its own diplomatic corps,
its own intelligence gathering organization
and does it independently of what its home country,
the United States, does.
And in this way,
firms can be prepared to react, because sometimes,
actually firms might know better what is going on in
that particular country than their own government or their own diplomatic corps.
When talking about developing your own foreign policy,
we just don't mean gathering information and understanding the world,
but actually a more proactive thing,
like developing foreign policy that can be independent from your own country.
Let's look at one of the examples that Chipman has used to develop this idea.
The case of Ren Zhengfei,
the founder of Huawei Electronics in China.
He was a member of the People's Liberation Army
and was seen as somebody closely linked to the Chinese Communist Party,
something that many, particularly in the United States,
saw as a threat.
Many people started thinking,
is he actually an agent of the Chinese Communist Party?
This is something that led this entrepreneur to distance himself openly,
as much as he could,
from the People's Liberation Army and the Chinese Communist Party.
Similarly, some corporations, American corporations,
in the world sometimes are in this juncture about, OK,
there's this foreign policy of my country in the areas of the world where I operate.
Again, developing your own channels of contacts with the governments,
that are independent from the ones that your home country develops,
can be something that can protect you from these uncertainties.
A second strategy is the development of a transnational character.
Some firms are way too related to a particular country,
say something like McDonald's,
everybody knows it comes from the United States.
As long as this is not a problem,
or as long as this is almost an asset, that is good.
But sometimes this can be a liability for things that are out of your control,
which also relate to the previous point of developing your own foreign policy.
Let's look at the French retail firm Carrefour,
one of the largest in the world,
operating all over the place.
One of their main places in which he'd operated is China.
Now in the year of 2008,
there was a conflict between China and the French,
because of some declarations of France about Tibet and about China's internal policies.
Now, this generated a lot of backlash in China and many people actually started
demonstrating against Carrefour and actually calling for a boycott of Carrefour.
This lead Carrefour leadership to think maybe we should try to
decrease any kind of relationship between us and
France and develop something that is more local or more transnational,
so that people in China see us as almost Chinese,
or people in Mexico, or Mexicans,
as Mexicans and on and on.
So, we find these efforts for the case of Carrefour,
in particular in China,
tries to distance itself from its home country.
Let's look at another example.
The British oil corporation BP.
BP used to stand for British Petroleum.
Now, this is a name that of course relates this firm directly to its home country.
Now because of our legacy and the history of imperialism and all these kinds of things,
having the name of British in global operations,
particularly in places like the Middle East or some areas on
Latin America or in Africa, was problematic.
So at some point, the firm decided that its name was going to be BP.
BP not standing as for something, but just BP.
And it went even beyond that,
because many times under its logo its it wrote "beyond petroleum".
So not only was it not British anymore,
but it was even more ecologically driven and
the symbol resembles more like a flower or some flower rather than an oil field.
So this is something that a company it used to be called in the past Anglo-Persia,
which had an extremely imperialistic overtone,
the British Petroleum still had this perception and then by BP, little by little,
new generations of people do not really know exactly where
this company is coming from and this is something for a country like Britain,
so involved in foreign politics for so long,
is something that is helpful.
A third strategy that firms can follow is
one of diversification of their political connections.
This relates to something that we mentioned before,
like the case of Hosni Mubarak,
the case of Muammar Gaddafi.
But in general, this applies not only for authoritarian regimes,
but in general it's good to diversify these connections with different stakeholders.
Not only being linked,
or especially being perceived as linked,
to one politician or one political party,
maybe to several political parties, civil organizations,
even NGOs for instance,
NGOs worried about human rights or the environment,
or these kinds of things.
So, in the end this requires a lot of effort.
But the point is to build a coalition.
I mean and to build really a political coalition that is
widespread and is not just dependent or linked to one movement,
one political party or even worse, one politician.
A forward strategy that sounds a little bit obvious,
but it's often forgotten because of
the obsession on the bottom line by many multinational corporations,
in the short term bottom line,
is just do not sabotage yourself.
I mean do not do things that in the short term might be useful economically speaking,
but might be hurtful politically speaking in the long term.
I mean, a bad political decision - the consequences outlive
the decision for much longer time sometimes than a bad economic decision.
Let's look at some of the examples that Chipman used in his classic HBR article.
Let's look at the example of the mining firm Anglo Corporation from Britain,
in Chile, in the 2000s.
At some point, Anglo wanted to sell some of its share and
its interests in Chile and it opened this to the market.
The Chilean government was highly interested and made
a bid and showed its interest on buying that.
In the end, Anglo chose for the highest bidder,
which was a group of Japanese investors.
Now OK, that made sense economically speaking,
the price offered by the Japanese investors
was higher than the one by the Chilean government.
Now the Chilean government was not offering a ridiculously low price.
It was just lower than the one offered by the Japanese investors.
Yeah, Anglo made a profit,
but the political cost was huge.
It was horribly criticized in the Chilean parliament,
the Chilean media went against the firm,
and all of a sudden it was seen as kind of like
foreign devil that was exploiting the country,
by more people than the ones that had thought these beforehand.
So, thinking in the bottom line we all know is what managers do,
but in the long term politics matter,
as we've insisted a lot in this course and this is a kind of
maneuver that is not wise when taking into account long term operations.
Another strategy when entering a country or continuing operations in that country,
is the alignment with the government agenda.
Sometimes there are more things that we have in
common as corporations with governments than we think.
And when there is this alignment,
this is something and that when
these alignment affects positively speaking different stakeholders,
this is certainly something that would benefit our corporation, politically speaking.
Let's look at the example of Lever,
the Dutch-British corporation in sub-Saharan Africa.
For several years, many governments in several sub-Saharan African countries,
thought about ways to improve the health of their people.
One very simple way to improve the welfare of
people is by following certain extremely simple habits,
that have very long term and powerful effects.
One of the simple habits is washing your hands before eating.
As we know, eating with dirty hands is
a very good way for germs to spread and disease to spread and these kinds of things.
So many governments started promoting the washing of hands by firms.
Lever came and joined this government effort by using its resources
in conjunction with the government to make these big campaigns about washing your hands.
So, it was something in which UNICEF participated,
the local governments participated and Lever participated as well.
Who is going to oppose something that just improves healthcare of people.
So this is something that, of course,
you promote people to wash their hands and you need soap.
Who is, who are they going to buy this soap from?
The Lever was going to offer the soap.
So this is something in which there was an alignment between economic goals,
social goals, and even humanitarian goals of the government,
between the multinational and the government.
This is something that certainly would decrease hostility against
the corporation and would make its operations more acceptable and even positive.
So, look at what the government agendas are,
because maybe there might be something there that actually aligns with
the corporation's strategies and both sides can benefit, politically speaking.
When developing these strategies,
firms can study what we can call
their political ownership location and internalization advantages.
Ownership advantages, politically speaking,
they can be your connections at the highest level with the home country,
the knowledge or access to information about the political situation in other places,
particularly if you have developed this knowledge in-house.
That is why I started with websites that are publicly available,
but corporations that take this seriously,
need to develop their own metrics and their own strategy to learn how countries are,
politically speaking, and to contact those experts on these countries.
Now the location advantages, politically speaking,
are also those related to
the relationship between your home country and the host country.
The Venezuelan government, in the 2000s,
expropriated a large number of firms,
including multinational corporations, but the target was not always the same.
It was better to be a Brazilian corporation,
or a Russian corporation,
or a Chinese firm, than an American or Western European one.
So this is something like OK,
you can see a government that expropriates,
but who are they expropriating here?
These are elements in which a location advantage,
a location political advantage,
can be analyzed and internalization of politics.
This means OK, approaching those who know about the political processes in
a particular country and again developing your own political and foreign policy,
your own foreign policy.
So these are things in which we can relate the previous framework with
also this reality of the political reality of the world.
So let's wrap up this class about the political environment,
the global political environment.
Markets are uncertain, politics are uncertain,
markets and politics affect each other.
No manager operating at the global level can afford to
ignore politics and the paths politics can take.
We explained some ways to analyze that,
to zoom in and out the analysis of countries and their regions,
and particular strategies, firms can develop around that.
All these strategies are on the idea of also developing
either global value chains or entering markets using different types of strategies,
that we explored in the past.
The entry strategies that we explored are of course linked to the political reality.
And this is something, one final message,
that we need to have clear for this course.
In this course we explored this uncertain,
crazy, but exciting global world in which firms operate.
There are tons of opportunities,
and lots of risks and challenges.
I hope in this course we were able to understand some general elements about
the risks and challenges and opportunities of this global world.
It is under attack in many ways but that doesn't
mean we need to stop thinking about operating globally.
So I hope you guys found this fruitful learning experience
and that you are even more looking forward to
engaging in businesses in this global world.
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