Non-market strategy refers to the actions undertaken by firms to improve their organizational performance by managing the political and societal context(s) in which they operate (Boddewyn, 2003; Doh, Lawton, & Rajwani, 2012; Doh, McGuire, & Ozaki, 2015; Lawton, McGuire, & Rajwani, 2013). Non-market strategies include a wide variety of activities that include corporate political activities (such as lobbying) as well as corporate social responsibilities and environmental management strategies that may be useful in gaining legitimacy and trust from a variety of stakeholders (Mellahi, Frynas, Sun, & Siegel, 2016).
All firms purchase raw materials and other inputs, convert them into goods and services for sale, and add value in the process. Some of this value added is set aside for the future of the firm in the form of capital expenditure on plant and equipment, R&D, and programmes to enhance the productivity of the labour force. The remaining value added is then distributed among various stakeholders: wages and salaries to the labour force; interest payments to the providers of debt capital; tax revenues to the government; and any residual to the shareholders in the form of dividends and/or retained profits. Firms thus contribute to society in many ways. First, they provide a range of goods and services demanded and valued by the users/consumers. Second, they employ labour, upgrade skills, and provide employment income. Third, they generate income for the shareholders and the providers of debt capital. Fourth, they provide taxation revenue to governments, and this revenue can fund vital public services. Fifth, there are the multiplier effects upon the suppliers of the plant and equipment, raw materials, and other inputs. Last, but not least, firms will generate a range of positive (and negative) externalities for society: Positive externalities may arise from knowledge or R&D spillovers, while typical negative externalities arise from pollution, noise, and congestion.1
These societal contributions are subject to the competitive environment and to a variety of institutional constraints arising from behavioural norms and formal rules and regulations (Dunning & Lundan, 2008a; North, 1990; Xu & Shenkar, 2002). Furthermore, they will be circumscribed by the influence of various external stakeholders, notably governments (national and regional), labour unions, non-governmental organizations (NGOs), and the public. Firms are thus obliged to develop a range of non-market strategies to secure the provision of critical resources, gain the support of salient stakeholders, and obtain organizational legitimacy. Suchman (1995, p. 574) defines organizational legitimacy as āa generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs, and definitionsā. He argues that legitimacy reflects the reaction of a set of societal stakeholders to the organization. As Stevens, Xie, and Peng (2016, pp. 950ā951) note, an organizationās ālegitimacy is evaluated by a broad set of social groups and stakeholders in addition to the government, including interest groups, competitors, the media, NGOs, financial institutions, employees, customers, āeliteā members of society, and other members of civil societyā¦. These actors can also provide or withhold their āsocial license to operateā from an organization, depending on the degree to which they perceive it as a legitimate and accepted part of the communityā. Governments necessarily play a vital role in conferring legitimacy (Stevens et al., 2016, p. 951), as they have āthe ability to provide directly or revoke a formal, legal license for an organization to operateā. But governments typically receive information and representations from various interest groups and stakeholders. They will weigh up these representations in formulating their views about the legitimacy of organizations and will signal their support (if appropriate) by providing favourable policies and resources.
Now some firms are locally owned and operate solely in their home economies, utilizing local raw materials and inputs, employing local labour and capital, selling exclusively to local users/consumers, paying taxes to local governments, and generating externalities that are limited to their home economies. In such cases, the societal contributions accrue wholly to the home economies, and firmsā non-market strategies can be concentrated on the external stakeholders therein. But multinational enterprises (MNEs) involve value-creating activities that are geographically dispersed in global value chains (GVCs), hence they make potential contributions to several different societies. MNEs enjoy the benefits of choosing the countries in which to locate these activities, to employ labour, to raise capital, to register costs, and to report profits (and hence to pay taxes). Thus, MNEs have the potential to improve their performance by offshoring labour-intensive activities to countries with lower labour costs and pollution-intensive activities to countries with lower environmental standards, to raise finance in global capital markets, to circumvent trade restrictions, and to minimize global tax liabilities (Contractor, 2016; Dharmapala, 2014).
But the realization of these performance improvements may necessitate the shifting of the societal contributions from one country to another, and also brings the MNEs into contact with a wider group of external stakeholders. On the one hand, there may be concerns from various stakeholders in home countries about the āexport of jobsā, downward pressures on wages, and reduced tax revenues. On the other hand, there may be concerns from stakeholders in host countries2 about the MNEsā motives, footloose investments, low wages and job insecurity, the crowding-out of indigenous firms, pollution and other negative externalities, and loss of sovereignty arising from the MNE control over domestic assets (Vernon, 1971, 1981). Furthermore, these concerns may still be apparent whether the value-creating activities in the GVCs are internalized within vertically integrated MNEs, or whether some of the activities are externalized to independent partners (Buckley & Strange, 2015). In the latter case, the MNEsāas the lead firms in the GVCsāmay leverage their power in the externalized GVCs to capture disproportionate shares of the value created (Strange & Humphrey, 2018).
IB scholars are well aware of the potential liabilities of foreignness that MNEs face in doing business in foreign countries (Hymer, 1976; Zaheer, 1995): These liabilities include the costs due to the additional complexity of managing international operations; unfamiliarity with the foreign environment; and the discriminatory attitudes of local customers, suppliers, and national governments. These host country concerns may be particularly strong in the case of MNEs from certain home countries3 and/or MNEs that are state-owned or controlled: Stevens and Shenkar (2012, p. 128) suggest that some firms may suffer from a āliability of homeā (LOH) which they define as āthe disadvantages borne by a firm investing in a foreign country due to the friction [emphasis added] caused by the attributes of its home country institutionsā, while Musacchio and Lazzarini (2014) identify a āliability of statenessā. In short, MNEs are subject to a much wider array of societal contexts and stakeholder pressures, and many of these pressures are not easily reconciled. Yet the MNEs will need to attain organizational legitimacy in all of these contexts so that they have a āsocial license to operateā. The necessity for effective non-market strategies is clear, and this necessity will be ever greater for MNEs from certain home countries, which manifest (a degree of) state ownership or control, and where there is contestation over the distribution of the value created within GVCs.
Over the past two decades, significant attention in international business research has been paid towards the non-market activities and strategies of multinational enterprises. The dynamism associated with the changing nature of non-market strategies of firms involved in international business over the past decade is reflected in the increasing number of articles being published on this topic in leading international business and strategic management journals. In the last five years, a number of excellent āspecial issuesā have also been dedicated to this topic i...
