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Navigating geopolitics: the role of corporate political capabilities in Latin American investment decisions
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Date
2024
Authors
Tonn Goulart Moura, Stephanie
Journal Title
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Publisher
University College Cork
Published Version
Abstract
Although geopolitics have attracted significant interest from strategic management scholars, there is still limited understanding of how these power dynamics influence the investment decisions of multinational enterprises (MNEs). Due to the international scope of their strategies, MNEs must navigate a variety of political environments. However, the existing literature on strategic management often frames geopolitics as a factor contributing to a country’s risk profile and views it as an external source of uncertainty that MNEs manage through various strategies at the host country level. This thesis challenges this prevailing narrative in at least two main ways. First, I explore geopolitics as a complex construct that not only influences the risk profiles of host countries but also shapes the political affinity of MNE home and host countries. Shifts in these political relations can motivate MNEs to engage with governments and navigate the political landscape in various ways, sometimes mobilizing resources beyond the host country’s borders. Second, I frame MNEs as active participants in the geopolitical arena. While geopolitics sets the context and influences political affinity between home and host countries, MNEs do more than merely react to these geopolitically induced shifts. They actively engage with governments, leveraging their resources to shape the political landscape and negotiate their positions within it. Thus, I discuss the opportunities for MNEs to capitalize on their political capabilities within the geopolitical context, as well as scenarios where these capabilities may have their value moderated by the geopolitical context. This thesis unveils this theme, building upon three research papers. In the first paper, I conduct a systematic review of the literature on geopolitics, the relations between home and host countries, and the foreign direct investment (FDI) strategies of MNEs. This review informs the development of a theoretical framework that integrates firm-level variables and demonstrates how MNEs’ FDI decision-making is influenced by the geopolitical context shaping home and host countries’ international relations. In the following papers, I test this framework using data collected from the FDI of Latin American MNEs, spanning the period from 2003 to 2019. Conditional logit and logit regressions are used to analyze MNEs’ greenfield investment choices. I find that MNEs’ investment strategies are positively influenced by historical geopolitical context when colonial ties have fostered political closeness between their home and host countries. Conversely, when post-colonial trajectories have resulted in low levels of political affinity between countries, MNEs tend to rely on their political capabilities to make investments. Furthermore, I found that the host country’s participation in regional cooperation projects creates a present geopolitical context that positively impacts MNEs’ investment decisions and attracts FDI while also diminishing the relevance of both political affinity and MNEs’ political capabilities in these decisions. This thesis makes three key contributions to the literature. First, it provides a more nuanced understanding of the impact of geopolitics on international business, highlighting the importance of grasping the geopolitical context underlying bilateral relations between home and host countries and the related influence on MNE’s FDI decisions. Second, it contributes to the strategic management literature by emphasizing the role of political capabilities in different geopolitical settings, specifically detailing how MNEs leverage these capabilities to navigate shifting politics between home and host countries. Third, this study contributes to the strategic management literature by integrating political capabilities with real options theory to better understand how MNEs leverage strategic flexibility in their investment decisions, demonstrating how the geopolitical context can also limit the value of political capabilities in investment decisions.
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Controlled Access
Keywords
Geopolitics , Foreign direct investment , Colonial ties , South-South cooperation , Political capabilities , Real options
Citation
Tonn Goulart Moura, S. 2024. Navigating geopolitics: the role of corporate political capabilities in Latin American investment decisions. PhD Thesis, University College Cork.