Business and Politics in Europe

– Role of Corporate Political Strategies

1. Introduction

As globalization has taken its demand on the market place, more and more companies are
experiencing fiercer competition along with more apparent government intervention in the
firm’s business activities and outcomes (Hillman and Hit 1999, p.826). Thus, it has become
essential for a firm to influence public policy and use the government as a competitive tool in
shaping an environment that is favorable to the firm’s business. Succeeding in these new
challenges imposed by globalization might be crucial in order to be a strong player in the field,
for survival efforts, and might even provide a competitive advantage in the global marketplace.
This paper will examine how a firm can influence public policy and what the rewards for doing
so are.

Firstly, a focus will be set upon the relevant political strategies that exclusively aim to influence
public policy and their means in achieving such an outcome. In addition, the first section will
attempt to investigate to what extent firms prefer one strategy over another. Secondly, the role
of wider societal influences will be discussed followed by a description of rewards which
entitles a firm actively pursuing a political strategy.

2. Means to influence public policy and strategic preferences

A first step to influence public policy is to include a political strategy in the overall strategy of
the firm and to deploy the tools that adhere to the selected type. The views of the authors Oliver
and Holzinger (2008) regarding this topic are constructed upon the resource based view which
propose that the prerequisites for long-term success in the market place are the development
and deployment of valuable, unique and inimitable resources (Oliver and Holzinger 2008,
p.500). According to the authors, a firm’s choice of political strategy will differ based on two
factors, namely the value perspective of the organization, as described above, and its strategic
orientation. Value by itself refers to economic rents, or put differently; economic benefits
accruing in the political environment or in the market place. With reference to the value
perspective of a company, there is the option between value creation and value maintenance.
More descriptively, value creation implies invention or reconfiguration of the firm’s assets or
competencies and value maintenance relates to preservation of those resources (Oliver and
Holzinger 2008 p.497). With regards to the firm’s strategic orientation the firm can either take
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an influencing or a compliance stand. As mentioned, the focus of this paper is on the firms that
seek to influence governmental forces with their political strategies and those organizations
typically deploy external capabilities in an effort to shape the public policy requirements to
their own best interest. There are two strategy types to be found in this category; the defensive
political strategy and the proactive political strategy. The defensive strategy is focused upon
value maintenance and will use means like lobbying activities and persistently advocating the
status quo to defend the company’s resources and views. In a proactive strategy the firm finds it
important to create new value for the firm and will typically attempt to redefine current
constituencies or establish standards in the industry that will influence future legislation (Oliver
and Holzinger 2008, p. 505-507).

Hillman and Hitt (1999) have taken the proactive political strategy formulation even further
and advocate that the extent and the means used by the firms in being proactive in return will
rely on three fundamental decisions. The first decision variable concerns the approach chosen
towards political action, being either transactional or relational. Transactional approach refers
to an ad-hoc relationship where the firms will be political active only when necessary while a
relational approach entails a long term exchange relationship across public issues with
continually political activity. The second decision variable regards the participation of the
institution, whether to pursue such a strategy alone or with others. The final decision to be
made concerns whether to pursue an informational, financial incentives or a constituency-
building strategy type. Means used in an informational strategy entails lobbying activity,
providing research and survey results or testifying as experts. In a financial strategy the means
are clearly in the form of monetary art and appeals directly to the target through financial
inducements. Lastly, in the constituency building strategy companies might use tools such as
press conferences, political education programs and public relations to form constituencies
(Hillman and Hitt 1999, p. 835).

Certainly, there is not a one single strategy that will fit every firm, there are in fact several
factors that influence the preference of one strategy over another. Relating back to the strategic
types as presented by Oliver and Holzinger (2008 p.505), there are specific firm and industry
characteristics which will influence the strategic choice. For instance, firms most likely to
pursue the active strategy types are typically large, their business is concentrated and greatly
influenced by public policy and they possess or produce assets which are dependent on

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governmental guidelines. Moreover, Hillman and Hitt (1999) present three main influential
variables in their model namely the issue’s life cycle stage, the nature of the issue, and the
firm’s resource availability. For instance, collectives with a large employment base or high
credibility are likely to use a constituency building strategy, assuming that the firm has chosen
a relational approach to political action. Continuing, a firm adhering to a transactional approach
and is coping with a political issue in the public policy formulation stage is likely to use an
informational or financial incentive strategy (Hillman and Hitt 1999, p.836-837).

3. Societal influences

Despite the firm and industry specific characteristics there are other, wider societal influences
that are likely to shape the political focus of an organization along with its rewards. Whether a
business belongs to a country that is categorized as a pluralist or a corporatist nation will surely
have an effect on the various decisions undertaken in formulating a political strategy. A
corporatist nation reflects “the coordinated, cooperative and systematic management of the
national economy by the state, centralized unions and employer presumably to the relative
benefit of all three actors” (Siaroff 1999, p.177). In a pluralist nation on the other hand, there
are many interest groups which compete for a voice in the public policy making process. In a
classic corporatist country the powers and opinions of a third interest group, typically a workers
union, are highly represented and valued in the governmental political work. In such a nation
business and labor unions are seen as joint partners and the state is centralized and at least
moderately involved in the economy (Siaroff 1999, p.178). Corporatist nations generally value
a cultural character of agreement and cooperation among actors implying that a business
located in such a nation will tend to pursue a political strategy collectively and at the same time
with a relational approach as opposed to independently with regards to the participation
decision variable as presented by Hillman and Hitt (1999, p.830). In a pluralist nation one
might see more occurring tendencies of corporations to act independently and use tactics such
as monetary incentives to elevate their interest. Consequently, with regards to rewards, firms in
a corporatist nation might not see the rewards accruing from their political strategies as explicit,
as firms acting individually in a pluralistic nation.

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4. Rewards for being politically active

For an organization to tie up resources in pursuing a political strategy the incentives for doing
so must clearly be in place and so the actions taken should be positive correlated to the
performance of the firm. Both Oliver and Holzinger (2008) and Hillman and Hitt (1999) agree
on the fact that companies that are able to shape and influence the institutional framework of an
industry by engaging actively in the political environment, will see more favorable rulings and
opinions from the government which will result in a competitive advantage. The favorable
decisions put forth by the legislature will be able to influence the performance of the firm by
for instance placing a better fit between a firms actions and public policy requirements,
protection of current market position and assets and might in addition result in first mover
advantages and enhanced reputation of the firm (Oliver and Holzinger p.509). Moreover Oliver
and Holzinger (2008 p.496) advocate that the reward and duration of the competitive
advantages for being political active will be dependent on not only the degree to which the
resources are valuable but in addition the firm’s ability to exert dynamic capabilities, meaning
to develop, deploy and recombine internal resources to maximize congruence with an ever
changing environment.

5. Conclusion

Governmental influences are becoming more apparent in the environment in which businesses
operate. This phenomenon can be seen as a great opportunity for firms to extract new value
from its resources as to strengthen their position in a global market place. Clearly, the means by
doing so, with regards to strategic efforts, will differ according to the firm and industry specific
characteristic such as the company’s resources and the wider societal frame in which the firm
operates within. Moreover, none of the proposed strategic types are mutually exclusive,
implying that the best fit for a company might involve a mix between the various strategic
choices. In addition, the economical principal of cost and benefits should not be forgotten as
some strategies will put a substantial claim on firm’s resources. The cost of being political
proactive should always be weighed against the benefits of doing so. But as a general
conclusion the rewards of being political involved are clearly apparent and even though they
might vary in their extent they are likely to form a source of competitive advantage for the firm
compared to the firms that are politically inactive.

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6. References

Hillman, Amy J., & Hitt, Michael A. (1999), Corporate political strategy formulation: A model
of approach, participation and strategy decisions, Academy of Management Review 24(4), p.
825-842.

Oliver, Christine & Ingo Holzinger (2008), The effectiveness of strategic political
management: a dynamic capabilities framework, Academy of Management Review 33(2),
p.496-520.

Siaroff, Alan (1999), Corporatism in 24 industrial democracies: Meaning and measurement,

European Journal of Political Research, 36, p.175-205.