Corporate Lobbying Strategy and Foreign MNEs
Description
“U.S. Defense Contracts and the Lobbying Strategies of Foreign MNEs: The Liability of Foreignness and Make-or-Buy Decisions about Political Goods”
Many firms engage in lobbying with the expectation that their lobbying efforts will reap benefits. However, the current literature is inconclusive about the effectiveness of lobbying, and we have a limited understanding of how foreign MNEs engage in lobbying. Thus, in my job market paper, I examine whether lobbying by foreign defense contractors leads to positive outcomes and the potential mechanism behind this process, using U.S. Department of Defense (DoD) contract data with lobbying and campaign financing data that I compiled. The defense industry is domestically driven, so foreign defense contractors hardly seem to be able to penetrate the market. Moreover, foreign MNEs suffer from the liability of foreignness, which poses challenges to acquiring and accumulating political capital in the host country. Assuming that foreign MNEs are socially less inclusive and have weaker political capital than domestic firms do, the question arises as to how and why foreign MNEs engage in lobbying, which requires a great deal of political capital, and whether they can achieve non-market outcomes. In this paper, I show that foreign MNEs can purchase political capital through outside lobbyists, a practice that enables them to achieve better contract outcomes. More specifically, foreign MNEs hire more experienced lobbyists and higher-status lobbying firms to win higher government defense contract amounts.
“The Liability of Foreignness and Political Goods: An Impediment to Foreign MNEs’ Make-or-Buy Decision”
In this paper, I look at the source of the liability of foreignness in political lobbying and identify the factors that penalize or limit the capacity of foreign MNEs to engage in lobbying in the United States. It is generally agreed that there are two sources of liability of foreignness: institutional unfamiliarity and discriminations against foreign MNEs. However, an unexplored area of research remains the actual costs foreign MNEs have to pay from the liability of foreignness and the factors that limit the capacity of foreign firms to execute certain strategies to avoid penalties in the host country. To address this gap in the literature, I use lobbying data from 1998 to 2013 to examine the lobbying fees that firms pay to hire outside lobbyists. The results clearly indicate that foreign MNEs pay higher service fees than U.S. firms, controlling for the types of lobbying services that foreign MNEs are provided. Foreign MNEs pay higher service fees because, relative to similar types of U.S. firms, they are less capable of internalizing good lobbyists with access and expertise. In other words, foreign firms are less likely than U.S. firms to acquire the necessary capabilities internally, which lead them to pay more for lobbyists and make them less capable of executing lobbying strategy. This implies that make-or-buy decisions could be driven by institutional factors that determine the relative costs or benefits of internalization. In other words, even if foreign firms are ready to bear higher costs than their domestic counterparts are, other factors play a deterring role in their internalization decisions. I have completed the data analysis for this study and am currently in the writing phase.