MT7 Strategy Beyond Markets: Integrating Market & Non-Market Strategy (Wk5 material)
*Recommended
~from Y1 notes
L9 Readings- Beyond Markets: Non-Market Strategy
Political connections/ lobbying
*Acemoglu, 2013- <abnormal returns from political connections only in crisis> abnormal positive returns
on connected firms (eg. Citigroup) when Geithner was nominated for Treasury Secretary in 2008,
abnormal negative returns upon news of issues with confirmation. Excess returns could reflect perceived
impact of relying on advice from connections in a period of crisis + high policy discretion, which could
lead to favourable policy results for firms. If so, benefits are temporary and specific to a crisis
environment.
Note that mechanism for link is not corrupt/seeking material gain, but advice-seeking
*Fisman, 2001- <how much connections matter to firm value, Indonesia example> empirical study on
political connectedness of Indonesian firms and share price reactions to rumours of Suharto's health.
Well-connected firms suffer more in reaction to a serious rumour. Results suggest that a large
percentage of a well-connected firm's value may be derived from political connections
*Bertrand et al. 2014- <role of lobbyists with connection over expertise> 2 views of lobbyist role:
connections view (key asset is providing access to politicians) vs expertise view (key asset is providing
information for decision making). Both found to be valid, but lobbyists are paid more for connections
(higher premium paid) vs expertise, suggesting that connections are a scarcer resource
This does not necessarily suggest that lobbyists are welfare-reducing. Expertise & connections
can complement in a welfare-enhancing manner. Since lawmakers are more likely to listen to
lobbyists they know, lobbyists with expertise and connections can improve policymaking.
Otherwise, having lawmakers may not listen if you just have expertise without connections.
Of course, this may have some negative effects on society overall: hard to assess when a
lobbyist is peddling influence for welfare-destructive reasons
Faccio 2006- <political connections more common in more corrupt countries, net effect on company of
revolving door, better for companies in one way>
Where are political connections more common?
o More common in countries with higher levels of corruption/countries with more FDI
restrictions and even countries with more transparent systems (?)
o Less common in countries where strict limits on political conflicts of interest
Specific observations:
o When politician joins a board, stock prices don’t change much
Explained by politicians seeking rents from the company; costs of having
politician roughly equal to benefits
o When businessperson becomes a politician, stock prices steadily increase & significantly
Since the businessperson/politician would not extract rents from his/her own
company to as large an extent
*Bonardi, 2011- <modified RBV for political resources> RBV must be drastically adapted for political
resources that provide nonmarket advantages. VRIN is not necessary or as important as other criteria for
political resources. Criteria for success in political strategy is to have resources that are: (1) based on
firm's critical economic assets (2) do not have high integration costs (3) fit with public policy supplier
,needs (4) can generate credible commitments (5) cannot be made ineffective by competitors. Example
resources: campaign contributions, information, votes for policy change
*~Baron 2013- <anticipate non-market environment, progression of issues, affects expansion decisions>
book, C1, 6; only looked at C1. Market & nonmarket environments. Anticipating change in the
nonmarket environment (anticipate opportunities, address issues early, limit damage, proactive in
shaping issues). 5-step progression of non-market issues. Factors affecting expansion decisions: market
competitiveness (Porter), strengths (RBV), regulatory systems and institutional forces. McDonald
example of non-market issues (Super Size Me film, health, children's advertising, animal welfare)
Progress through 5 stages: issue identification, interest group formation, legislation,
administration, enforcement. As issue progresses, impact on firm tends to increase.
Pro-active (Firm engineers and frames issue, shapes ‘public sentiment’), Anticipatory (Firm
prepares for and addresses issue), Responsive (firm is challenged), damage control (firm is
forced to act)
Not important
Wu, Li & Li, 2013- not important. Another empirical study of the value of political connections in Chinese
firms
Haveman et al., 2013- <increased business value of political ties in China> empirical study showing
China's economic reform coupled with lack of political reform led to increased value of political
connections for business performance (access to bank loans, acquire state-controlled resources, gain
state authorisation)
Luechinger & Moser, 2014-
Jordi et al, 2012-
L10 Readings- Integrating Market and Non-Market Strategy
*Bach & Allen, 2010- <IA3 framework, factors driving nonmarket strategy, vs market, 3 examples>
Nonmarket issues can affect the bottom line and should be managed strategically. Coherent integrated
market + nonmarket strategy needed. (IA)3 framework to analyse issues for nonmarket strategies (issue,
actor, interests, arena, information, assets). Only consider relevant critical issues. Nonmarket strategy
driven by 4 globalisation-linked factors (multiple audiences, NGO globalisation, new regulatory hurdles,
competitive edge). Non-market management vs markets: less predictable, information vs money,
coalitions vs leadership, consistency vs flexibility, values vs value. Examples: Novartis India Glivec patent,
Toyota Prius carpool lanes, Vodafone response to regulation on lowering cross-border roaming charges
*Bach & Blake, 2016- <framing as a tool to shape nonmarket environment> via 5 pathways: bring in new
actors, shape interests, access the most favourable arena, shape what information matters, mobilise
assets. Effective framing: appeal to key audience, be consistent, frame early, maintain credibility, select
frames to advantage. Limitations: no guarantee of success, constrained in adoptable frames based on
behaviour, framing to be part of a larger nonmarket strategy
This can be effective YET responsible; the firm certainly benefits from this, but this can also help
improve public discourse on important topics
o Societally beneficial framing will ultimately need to be ‘broad’, i.e. include multiple
perspectives & dimensions of the same issue evaluated from the view of different
stakeholders
, But note that the public is much less easy to mislead with the widespread accessibility of
information, compared to in the past. Therefore, the best thing for a company to do is indeed to
frame an issue responsibly, and also conduct its business responsibly at the same time
~Baron, 1995- <Nonmarket strategy> 4 "I"s of non-market environment (issues, institutions, interests,
info). Strategy congruent with both market and non-market components. Calgene & Toys 'R' Us
example. Nonmarket strategy as multidomestic not international
Not important
*~Baron 2013- Book, C2, 7, 8.
Yaziji, 2004
Yaziji & Doh, 2009- book
Dahan et al., 2010
*Holburn & Vanden Bergh, 2013- <empirical evidence for nonmarket strategy of firms> Regulators can
reduce the value of economic rents gained from M&A via regulation. Utility firms invest more in political
activities before merger.
Examples
Lobbyist can be useful by providing expertise to inform policymaking
o Financial regulation is arcane, and we do need industry lobbyists
o Same for big tech (congresspeople can asked inane questions during hearings; they
don’t understand the industry)
Academia as an arena for firms to compete to influence consumer choice
o Anti-fat campaign by sugar industry + sugar association sponsoring studies to show that
splenda (global brand of sugar substitutes) is bad; J&J sponsoring studies to show the
opposite
Non-market environment risks
o Huawei: restriction on service provision
o Tencent and gaming regulation in China
o TSMC: geopolitical uncertainty in Taiwan, started rapidly setting up plants in Germany,
US, Japan as the geopolitical situation worsened in recent years
o Juul vaping advertising crackdown
Non-market limit traditional strategic approaches
o Cost-saving M&A deals thwarted (Singapore’s Broadcom > US’ Qualcomm > Dutch NXP).
Forbid Broadcom acquisition of Qualcomm by Trump, commitments needed for
Qualcomm to buy NXP. Semiconductor industry.
o Product differentiation (marketing): Animal welfare activists undermine demand for
luxury leather products (Hermes Birkin bag)
o Strategic complements:
Facebook not allowed to leverage their WhatsApp user data
Ryanair fined for state aid from regional airports (deals with smaller airport
regional governments to lower fees in exchange for jobs)
DOJ investigating Apple-Google search engine partnership
Regulatory opportunities
