[Research Summary:Prior research in political strategy shows that political capital is critical in achieving desirable nonmarket strategy outcomes. Less attention has been paid to the fact that firms vary in their ability to acquire political capital. Foreign firms, which typically suffer from the liability of foreignness, have difficulty acquiring and strengthening political capital in a host country. Drawing on the literatures on political capital, the liability of foreignness, and certification, I argue that relying on outside political capital—that is, hiring outside lobbyists—helps foreign multinational enterprises (MNEs) achieve better nonmarket outcomes, thanks to outside lobbyists' certifying role as political insiders. Empirically, the study examines U.S. Department of Defense weapons-system prime contracts awarded to 20,301 U.S. and foreign-owned defense contractors from 1998 through 2006. This study has theoretical and practical implications for studies on political capital, international business, and nonmarket strategies. Managerial Summary:Political capital is assumed to be critical in nonmarket strategy to achieve positive firm outcomes, particularly in industries where political and regulatory players play an important role. However, due to certain industry or firm characteristics, some firms are at a disadvantaged position in acquiring and consolidating the political capital they need. In this research, I argue that one of the factors creating such disadvantage is foreignness. The results indicate that for those foreign firms with a liability of foreignness, relying on outside lobbyists is beneficial to overcome the disadvantages and to achieve better nonmarket outcomes because outside professional lobbyists can ease information flows between political and regulatory players and foreign firms through their trustworthiness as political insiders.]

Cross-border nonmarket strategy—multinational enterprises’ choice of nonmarket strategic actions in pursuit of profitability in a host market—is an essential part of international business. Recent calls for research assert, however, that very little is known about how multinational enterprises choose among cross-border nonmarket strategies. We thus propose that egalitarianism—one type of home-country informal institution—is a key predictor of an important set of cross-border nonmarket strategy choices, particularly among corporate political activities with varying degrees of transparency. We further test this argument by incorporating a firm-level corporate governance measure related to transparency to see how the firm-level corporate governance moderates the main effect. Our study contributes to international business and nonmarket strategy research by highlighting the importance of home-country informal institutions as well as host-country formal institutions as a guiding principle in cross-border nonmarket strategy.

Abstract Research Summary Although rising geopolitical tension is critically affecting multinational enterprises (MNEs), our understanding of geopolitics and its effects on corporate strategy is surprisingly limited. This study sheds light on this underexplored topic by examining the environmental, social, and governance (ESG) strategy of foreign MNEs amid tension between their home and host countries. We argue that the media plays a critical role in shaping host‐country public perceptions of such tension. As media‐reported tension increases, foreign MNEs enhance their subsidiaries' ESG performance to alleviate potential institutional pressure from the host‐country public. We further show that historical conflicts positively moderate this relationship, whereas ongoing conflicts serve as a scope condition that diminishes this relationship. This manifests that MNEs attempt to maximize ESG's insurance‐like benefits in coping with geopolitics. Managerial Summary Rising geopolitical tension leading to a less stable global business environment highlights the growing importance of geopolitics and strategic responses of firms. This study explores how host‐country media coverage of geopolitical tension affects foreign MNEs. If host‐country news media reports more tense interactions between MNE's home and host countries, the MNE ex ante is likely to experience heightened pressure from the host‐country public. Thus, we argue and show that MNEs subject to pressure from the host‐country public intensify their ESG efforts to enjoy the insurance‐like benefits of ESG's prosocial initiatives. Our study also shows that both past and ongoing conflicts between home and host countries differentially influence MNE's ESG efforts because the anticipated effectiveness of their strategy is heterogeneous.