Reality or Illusion? The Efficacy of Non‐market Strategy in Institutional Risk Reduction
| DOI | http://doi.org/10.1111/1467-8551.12229 |
| Author | Tazeeb Rajwani,Kamel Mellahi,Tahiru Azaaviele Liedong |
| Date | 01 October 2017 |
| Published date | 01 October 2017 |
British Journal of Management, Vol. 28, 609–628 (2017)
DOI: 10.1111/1467-8551.12229
Reality or Illusion? The Ecacy of
Non-market Strategy in Institutional
Risk Reduction
Tahiru Azaaviele Liedong, Tazeeb Rajwani1and Kamel Mellahi2
School of Management, University of Bath, Claverton Down Road, Bath BA2 7AY, UK, 1EssexBusiness
School, University of Essex, Southend Campus, Elmer Approach, Southend-on-Sea SS1 1LW, UK, and
2Warwick Business School, University of Warwick, Coventry CV4 7AL, UK
Corresponding author email: T.A.liedong@bath.ac.uk
Non-market strategy researchers have postulated that political and social strategies re-
duce the exposure of firms to risk, but those arguments have received little empirical at-
tention. In this paper, we integratesocial capital and institutional theories to examine the
ecacy of managerial political ties (MPTs) and corporate social responsibility (CSR)
in institutional risk reduction. Using survey data from 179 firms in Ghana we find that,
whereas CSR reduces institutional risk exposure, MPTs do not. We also find that the
eect of MPTs on risk exposureis moderated by public aairs functions. Contrary to ex-
tant literature, we do not find evidence of complementarity betweenMPTs and CSR. Al-
together, the findings not only show that the proposed ecacy of MPTs in risk reduction
is illusive, but they also signal the need forscrutinizing the har monybetween non-market
political and social strategies.
Introduction
There is growing research on the link between
non-market strategyand organizational outcomes.
Non-market strategy, which is defined as ‘a firm’s
concerted pattern of actions to improve its perfor-
mance by managing the institutional or societal
context of economic competition’ (Mellahi et al.,
2016, p. 143), has two key components: corpo-
rate political activity (CPA) and corporate social
responsibility (CSR). Non-market scholars sug-
gest that advancing our understanding of the link
between non-market strategy and organizational
outcomes requires the integrationof both CPA and
CSR (Darendeli and Hill, 2016; Hond et al., 2014;
Liedong et al., 2015). However, the combinative
impact of engagement in CPA and CSR has not
been examined to any great extent.
Although recent studies have shown the impor-
tance of integrating non-market social and po-
litical strategies (Mellahi et al., 2016), many of
these studies are conceptual (e.g.Hond et al., 2014;
Rehbein and Schuler, 2015). The few that are em-
pirical have focused on developed countries (e.g.
Hadani and Coombes, 2015; Werner, 2015). Build-
ing on Puck, Rogers and Mohr (2013), Liedong
et al. (2015) and Mellahi et al. (2016), we expand
integrated non-market strategy research to emerg-
ing countries by addressing the following research
questions: (1) what is the impact of managerial po-
litical ties (MPTs) and CSR on institutional risk
exposure; and (2) do public aairs (PAs) func-
tions help to reduce institutional risk exposure?
Our study examines the singular and combined ef-
fects of MPTs and CSR on institutional risk expo-
sure, as well as the moderating eect of PAs func-
tions on MPTs and CSR in Ghana.1
1Based on previous research (Peng and Luo,2000; White,
Boddewyn and Galang, 2015), we define MPTs as the
extent to which firms’ managers establish and maintain
informal relationships via personal networks with gov-
ernment ocials, and CSR as corporate actions that
© 2017 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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610 T. A. Liedong, T. Rajwani and K. Mellahi
We draw upon and integrate social capital the-
ory and institutional theory to achieve our goal.
Precisely, we rely on the micro−macro link of so-
cial capital theory (Acquaah, 2007; Peng and Luo,
2000) to argue that, in emerging countries where
market institutions are weak, the micro ties that
senior managers establish with influential politi-
cians can enable their organizations to gain ac-
cess to private information, influence government
policy and reduce exposure to institutional risk
(Acquaah, 2007; Luo, 2001; Luo and Zhao,
2013; Peng and Luo, 2000). This argument is
based on the new institutional economics per-
spective (North, 1990; Williamson, 2000) which
emphasizes the eect of political governance on
institutional structures (Doh, Lawton and Ra-
jwani, 2012) and the strong link between polit-
ical or regulatory uncertainty and non-market
strategy (Kingsley, Vanden Bergh and Bonardi,
2012; White, Boddewyn and Galang, 2015). It
is strengthened by the fact that political stake-
holder management in emerging countries revolves
around social ties and networks (Dieleman and
Sachs, 2008; Rajwani and Liedong, 2015).
With respect to CSR and PAs functions, we draw
upon the legitimacy-based logic of institutional
theory to argue that corporate responsibility and
community initiatives enhance corporate reputa-
tion (Hond et al., 2014), strengthen trust between
firms and institutional actors (Liedong et al., 2015)
and confer legitimacy on firms (Beddewela and
Fairbrass,2016; Park, Lee and Kim, 2014). Legiti-
macy,which is about the adaptation of non-market
initiatives to suit local institutional contexts
(Mellahi et al., 2016), is in particular more im-
portant in emerging countries (Guo, Xu and Ja-
cobs, 2014) where weak institutional conditions
put pressure on firms to ensure that their ac-
tions are desirable or appropriate within systems
of norms and values established by institutional
actors (Suchman, 1995; Zheng, Luo and Maksi-
mov, 2015). Similarly, weak institutional condi-
tions in emerging countries make structural man-
agement of external aairs crucial (Greening and
improve social welfare (McWilliams and Siegel, 2001;
McWilliams, Siegel and Wright,2006). We also define in-
stitutional risk exposure as the sum of investment climate
constraints resulting from weak market supporting insti-
tutions. This risk is more prevalentin emerging countries
where political, economic and legal institutions are insuf-
ficiently developed (Schwens,Eiche and Kabst, 2011).
Gray, 1994) −hence the need for PAs func-
tions. These functions are important links be-
tween firms and their external environments (Grif-
fin and Dunn, 2004), and they are useful for man-
aging institutional stakeholders who are report-
edly the source of legitimacy (Chiu and Sharfman,
2011). We posit that legitimacy can lead to desir-
able organizational outcomes such as regulatory
leniency (Hong and Liskovich, 2015) and risk re-
duction (Bansal and Roth, 2000; Henisz and Zel-
ner,2005; Luo, 2001; Stevens, Xie and Peng, 2016).
Indeed, the results of this study show that CSR
and PAs functions significantly reduce risk expo-
sure. However, and contrary to expectations, the
results also show that the main eect of MPTs
and the combined eect of MPTs and CSR are
insignificant.
Our study contributes to the non-market strat-
egy literature in three ways. First, it sheds light on
the interactive eect of MPTs and CSR and thus
addresses the paucity of empirical research on inte-
grated non-market strategy. It is worthnoting that
MPTs and CSR have been studied but in silos, and
hence little is known about their combined eect
on organizationaloutcomes (Frynas and Stephens,
2015; Lin et al., 2015; Mellahi et al., 2016; Sun,
Mellahi and Wright, 2012).
Second, in addition to addressing the lack of
research on the combinative eects of non-market
initiatives, this study examines the role of PAs –
a function that supports CSR and MPTs but has
been largely overlooked in extant studies. PAs,
CPA and CSR are dierent but their dierence is
rarely articulated in non-market strategy research.
We note that risk reduction requires firms to
structurally manage their relationships with insti-
tutional actors (Kotter, 1979). However, organiza-
tional structures which support firms’ political ac-
tivities or strengthen legitimacy-building CSR ini-
tiatives have received little attention in non-market
strategy research (Dieleman and Boddewyn,
2012), a shortcoming addressed in this study.
Third, this study examines an immediate out-
come of non-market strategy – institutional risk
exposure −and thus departs from the trajectory of
studying outcomes that are dicult to attribute to
non-market strategies. Reviews of the literature re-
veal that the performance outcomes that are often
investigatedare distant from the direct influence of
MPTs or CSR, and this distance perhaps under-
lies the limited ability of non-market researchers
to provide plausible explanations for the causal
© 2017 British Academy of Management.
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