Characterizing MNCs’ Corporate Diplomatic Activities

Abstract

We advance the concept of corporate diplomatic activities (CDAs) to study the actions through which multinational corporations (MNCs) seek to influence the diplomatic relations between their home country and the host country to gain business advantage. We maintain that an MNC can mobilize its political resources and capabilities in the home country through their CDAs to increase the host government’s bargaining power vis-à-vis the home country and, in return, obtain business benefits in the host country. The MNC’s CDAs, however, can also become a source of risk: the host government can use the MNC’s political resources at home to increase its bargaining power vis-à-vis the host government by taking “hostage” the MNC’s sunk investments in the host country to compel the MNC to work on its behalf in the home country and, in this way, outsource foreign policy to a powerful actor in the home country. We adopt a history-to-theory approach and develop a theoretical framework by analyzing the case study of the role played by Standard Oil of New Jersey in the negotiations between Colombia and the United States over the reparations for the loss of Panama in the 1910s and 1920s. Our theoretical framework advances that MNCs’ CDAs can create an inter-temporal shift in asset specificity, which, in turn, can reshape the dynamics in the bargaining power between MNCs and the host country.