Presentation at Princeon University conference on "Politics and FDI", Sept 2011

1. Do We Need to Bring the State Back In?
Politics in the
International Business Literature
Lorraine Eden
Professor of Management
Texas A&M University
leden@tamu.edu
For presentation at the conference, “The Politics of Foreign Direct Investment”
Niehaus Center for Globalization and Governance, Princeton University
September 23-24, 2011

2. Framing Questions for the Panel
• Are there blind spots in the international business (IB) literature –
does IB treat politics in host countries as exogenous to investor
strategies?
• Is the obsolescing bargain model an appropriate starting point
for analysis of the politics of FDI?
• Has research on the politics of FDI taken account of the “dark
side” of the MNE (motivations that are not welfare enhancing)?
• What questions about FDI are political scientists best situated to
answer? What questions have they overlooked?
• How does political science research inform the panelists’
research? Is there cross-disciplinary communication and/or
collaboration between PS and IB? How can this be improved?

3. My Remarks Address Three Questions
 Are there blind spots in the international business (IB)
literature – does IB treat politics in host countries as
exogenous to investor strategies?
 Is the obsolescing bargain model an appropriate starting
point for analysis of the politics of FDI?
• Has research on the politics of FDI taken account of the “dark side” of the MNE
(motivations that are not welfare enhancing)?
• What questions about FDI are political scientists best situated to answer? What
questions have they overlooked?
 How does political science research inform the panelists’
research?
• Is there cross-disciplinary communication and/or collaboration between PS and IB?
How can this be improved?

4. 1. Politics – A Blind Spot in the IB Literature?
Question: Are there blind spots in the international
business (IB) literature – does IB treat politics in host
countries as exogenous to investor strategies?
Answer: Yes and No.

5. Typical Model in International Business Research
Home Country
Characteristics
Firm Strategies
Firm Characteristics • Location
• Mode of entry Performance
• Int’l Diversification • Parent
Industry Characteristics • Product • Subsidiaries
Diversification
Host Country
Characteristics
5

6. Politics in International Business Research
Where is political
Home Country science in IB research?
• Gvt regulations
• Institutions
Firm Strategies
• Location Performance
Firm Characteristics
• Mode of entry • Parent
• Int’l Diversification • Subsidiaries
Industry Characteristics • Product
Diversification
• Political strategies
Host Country
• Gvt regulations
• Institutions
6

7. Domain of International Business Studies
• MNE activities, strategies, structures & decision-making
processes
• MNE interactions with other actors, organizations &
institutions
• Cross-border activities of firms
• Impact of the international environment on the activities,
strategies, structures & decision-making processes of firms
• Cross-country comparative studies of businesses, business
processes & organizational behavior
• International dimensions of organizational forms & activities
7

8. Domain of International Business Studies
Where is political science in the domain of IB?
• MNE activities, strategies, structures & decision-making
processes (how change in response to gvt policies)
• MNE interactions with other actors (gvts), organizations &
institutions
• Cross-border activities of firms (as affected by gvts)
• Impact of the international environment on the activities,
strategies, structures & decision-making processes of firms
• Cross-country comparative studies of businesses, business
processes & organizational behavior (national borders matter)
• International dimensions of organizational forms & activities
(how borders & gvts make local different from international)
8

9. The IB “Kindergarten” Questions: OLD
Who / Unit of Analysis • MNE - organizational form (OLI, internalization)
What? • MNEs from different countries (US, Japan, Europe)
• Born globals (JIBS 1996)
Why? Motivation • Why go abroad?
/causes • Market/resource/efficiency/SA seeking FDI
Where? Location / • What affects FDI location? (ESP factors)
distance • Political risk & FDI
• Cultural distance & FDI
How? Mode / process • Mode of entry (X vs L vs FDI) – what explains MOE
• The “swollen middle” (quasi-hierarchy)
With Whom? Alone/with • International joint ventures
Partner • Parent-subsidiary relationships
When? Timing / static • Internationalization (Johanson & Vahlne)
vs dynamic • Product life cycle
What Outcomes • Effects of FDI on host countries
happened? • Location decisions
9

10. The IB “Kindergarten” Questions: NEW
Who / Unit of • MNEs from different countries (emerging market MNEs,
What? Analysis metanationals)
• State owned MNEs
Why? Motivation • Exploration/Exploitation / Learning
/causes • Awareness/Motivation/Capability (AMC)
Where? Location / • Geography and IB
distance • LOF and Institutional distance
How? Mode / • Multiple modes
process • Intermediate modes (licensing, franchising, tech)
With Alone/with • International strategic alliances ( > 2 partners)
Whom? Partner • Outsourcing/offshoring
• Intrafirm networks
When? Timing / • Sequential FDI
static vs • Endogenous vs exogenous uncertainty – real options
dynamic • Dynamic vs static – life cycle histories
What Outcomes • Performance/Survival
happened? • Social impacts
10

11. POLITICAL SCIENCE IN IB RESEARCH: BLIND SPOTS?
OLD IB QUESTIONS
• Political risk and IB
• Sovereignty at Bay
• Obsolescing bargain model of MNE-state relations
• Government regulation of FDI
NEW IB QUESTIONS
• Political strategies of MNEs
• Impact of political violence on MNE strategies & performance
• How MNEs cope with public corruption/bribery
• State owned multinationals
• Regional multinationals
• Varieties of capitalism
• Institutional distance, MNE strategies & performance
11

12. Recent IB Papers examining political capability/connection/strategy
• Holburn, G. L. F., & Zelner, B. A. 2010. Political capabilities, policy risk, and
international investment strategy: Evidence from the global electric power
generation industry. SMJ, 31(12): 1290-1315.
• Feinberg, S. E., & Gupta, A. K. 2009. MNC subsidiaries and country risk:
Internalization as a safeguard against weak external institutions. AMJ,
52(2): 381-399.
• Chen, C. J. P., Ding, Y., & Kim, C. F. 2010. High-level politically connected
firms, corruption, and analyst forecast accuracy around the world. JIBS,
41(9): 1505-1524.
• Sun, P., Mellahi, K., & Thun, E. 2010. The dynamic value of MNE political
embeddedness: The case of the Chinese automobile industry. JIBS, 41(7):
1161-1182.
• Ma, X., & Delios, A. 2009. Host-country headquarters and an MNE's
subsequent within-country diversifications. JIBS, 41(3): 517-525.

13. Recent IB Papers using an MNE-state bargaining perspective
• Nebus, J., & Rufin, C. 2010. Extending the bargaining power model:
Explaining bargaining outcomes among nations, MNEs, and NGOs. JIBS,
41(6): 996-1015.
• Hennart, J.-F. 2009. Down with MNE-centric theories! Market entry and
expansion as the bundling of MNE and local assets. JIBS, 40(9): 1432-1454.
• Eden, Lorraine, Stefanie Lenway and Douglas Schuler. 2005. From the
Obsolescing Bargain to the Political Bargaining Model. In Robert Grosse
(ed.) International Business-Government Relations in the 21st Century.
Cambridge, UK: Cambridge University Press.

14. Recent IB Papers on war/terrorism/corruption and FDI
• Czinkota, M. R., Knight, G., Liesch, P. W., & Steen, J. 2010. Terrorism and
international business: A research agenda. JIBS, 41(5): 826-843.
• Li, Q., & Vashchilko, T. 2010. Dyadic military conflict, security alliances, and
bilateral FDI flows. JIBS, 41(5): 765-782.
• Lee, Seung-Hyun, Kyeungrae Oh and Lorraine Eden. 2010. Why do firms
bribe? Insights from residual control theory into firms’ vulnerability and
exposure to corruption. Management International Review, 50: 775–796.

15. Recent IB Papers using an institutional approach
• Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. 2009. Institutions, resources,
and entry strategies in emerging economies. SMJ, 30(1): 61-80.
• Spencer, J., & Gomez, C. 2011. MNEs and corruption: the impact of national
institutions and subsidiary strategy. SMJ, 32(3): 280-300.
• Chan, C. M., Makino, S., & Isobe, T. 2010. Does subnational region matter? Foreign
affiliate performance in the United states and China. SMJ, 31(11): 1226-1243.
• Luo, X., Chung, C. N., & Sobczak, M. 2009. How do corporate governance model
differences affect foreign direct investment in emerging economies. JIBS, 40(3):
444-467.
• Chen, D., Paik, Y., & Park, S. H. 2009. Host-country policies and MNE management
control in IJVs: Evidence from China. JIBS, 41(3): 526-537.
• Oh, C. H., & Oetzel, J. 2011. Multinationals' response to major disasters: how does
subsidiary investment vary in response to the type of disaster and the quality of
country governance? SMJ, 32(6): 658-681.
• Miller, S.R., D. Li, L. Eden and M. Hitt. 2008. Insider Trading and the Valuation of
International Strategic Alliances in Emerging Stock Markets. JIBS¸ 39.1.

16. Conclusion
Question 1: Are there blind spots in the international
business (IB) literature – does IB treat politics in host
countries as exogenous to investor strategies?
Conclusion/Answer:
 Yes – most IB researchers look at impact of gvt
regulations on firm strategy – the state is
exogenous to the model.
 No - some researchers “bring the state back
in”– but not many.

17. 2. Is the Obsolescing Bargain Model Obsolete?
Question: Is the obsolescing bargain model an appropriate
starting point for analysis of the politics of FDI?
Answer: Yes and No.
Yes: The model can and has been updated to incorporate
insights from institutional theory, transaction cost economics,
and the resource based view.
No: The model still tends to treat the state as exogenous.

18. The Obsolescing Bargain Model

19. The Political Bargaining Model (Eden, Lenway, Schuler)
MNE Host Country Government
Goals MNE-HC goals are conflictual but the bargain is potentially positive sum
(both parties can gain).
Market or resource seeking goals. Economic, social and political
goals, focusing on national
welfare.
Resources FSAs of the MNE. FDI is a bundle of CSAs of the host country
capital, technology and managerial (economic, social and political)
skills. that attract FDI.
Constraints Economic and political constraints, both domestic and international.
Bargaining Bargain over MNE entry. Subsequent bargains with same firm(s) over
access to HC resources, contribution to HC and ability to repatriate
profits.
MNE Focus on preventing opportunistic behavior by the host government.
Strategies
Outcomes Outcomes measured by percent of ownership retained by the MNE.
Outcome depends on relative goals, resources and constraints. Initial
bargains favor MNE and then obsolesce over time.

20. 3. How Does Political Science Inform My Research?
Question: How does political science inform the panelists’ research?
(Subtext question: Is politics a blind spot in my research?)
Answer: Yes and No. Three examples:
1. CSR activities of MNEs in host countries as affected by the
institutional distance between the home and host countries (yes
– blind spot).
2. MNE strategies in war zones (mostly – but political strategies are
a coping mechanism).
3. State owned MNEs (no blind spot – interaction between MNE
and state owners/managers)

21. Institutional Distance and CSR Activities of MNEs in Host
Countries (Campbell, Eden & Miller)
RQ: How does institutional distance between
Home home and host countries affect CSR activities
Country of MNEs in a host country?
Home Home
Country
Country CSR activities
by the Foreign
foreign affiliate
affiliate performance
in the
host country
• Culture Distance
• Administrative Distance
Host Country
• Geographic Distance
• Economic Distance

22. Stay or Go? Foreign MNEs in War Zones (Li & Eden)
Resources
Coping
Exposure Vulnerability Mechanisms
RQ: How does war
affect the strategies Exit
of MNEs?
Timing Mode
Whole Partial
Pre-war Early Late
Labor Capital

23. State Owned Multinationals (He & Eden)
RQ: How does state ownership affect the strategies and
performance of multinational enterprises? How is the hybrid
Home Country organizational form – the SMNE --
• Econ development different from its parents?
• Institutional quality
Firm Strategies
Firm Characteristics • Location
• State ownership • Mode of entry Performance
• Multinationality • Int’l Diversification • Parent
•Industry • Product • Subsidiaries
•Size Diversification
Host Country
• Econ development
• Institutional quality

24. Conclusion
B
• Yes, there is a blind spot. IB researchers – for the most part --
- do treat states as exogenous.
• The obsolescing bargain model has been updated, but is not
regularly used by today’s IB researchers.
• My own research is a mix of blind and not-so-blind spots
– which is disconcerting since I am an outlier among IB
scholars (e.g., have taught IPE, read IO and ISQ, go to ISA
meetings).
My conclusion is most IB scholars pay little attention to
political science and treat it as exogenous.

25. Conclusion
B
It’s important to end by noting that:
• IB research is interdisciplinary. Many IB concepts came from other
disciplines when IB scholars asked “How does this apply cross-
border?” or “What happens when we increase the number of
countries?” IB scholars know that interdisciplinary work matters.
• But, the unit of analysis is the FIRM, not the STATE so there is an
unconscious bias to treat the state as exogenous.
• Political scientists can help IB scholars bring the state back into IB
research, but it means crossing disciplinary boundaries and
engaging the “other” in dialogue. Would this be another example
of Susan Strange’s dialogue of the deaf or might the collaboration
benefit both sides?