1 CORPORATE DIPLOMACY: THE ART AND SCIENCE OF MANAGING A NONMARKET ENVIRONMENT By SARABDEEP K. KOCHHAR A DISSERTATION PR ESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFI LLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOHPY UNIVERSITY OF FLORIDA 2014
2 Â© 2014 Sarabdeep K. Kochhar
3 ACKNOWLEDGMENTS I want to acknowledge my family and my husband for their support thr ough this Ph.D. program. This program has been a challenge and I am grateful to my chair, Dr. Molleda for his support and encouragement throughout the process. It would not have been possible without his vision and guidance. I would also like to thank my o ther committee members, Dr. Kathleen Kelly, Dr. Spiro Kiousis, and Dean John Kraft for their time. This program would not have been possible without my colleagues and friends who helped me remain positive and give my best. A special thanks to all my frien ds for their support and confidence in me. And this acknowledgment would not be complete without thanking God, who showed me light always.
4 TABLE OF CONTENTS ACKNOWLEDGMENTS ................................ ................................ ................................ ............... 3 LIST OF TABLES ................................ ................................ ................................ ........................... 8 LIST OF FIGURES ................................ ................................ ................................ ......................... 9 ABSTRACT ................................ ................................ ................................ ................................ ... 10 CHAPTER 1 INTRODUCTION ................................ ................................ ................................ .................. 11 Opening Case: The Price ArcelorMittal Had to Pay ................................ .............................. 11 Nonmarket Business Environment ................................ ................................ ......................... 15 Corporate Diplomacy ................................ ................................ ................................ .............. 17 Significance of the Study ................................ ................................ ................................ ........ 19 Purpose of the Study ................................ ................................ ................................ ............... 23 2 REVIEW OF LITERATURE ................................ ................................ ................................ . 26 Business Strategy: Staying on the T op ................................ ................................ ................... 26 The concept of business strategy over time ................................ ................................ ..... 29 ................................ ................................ ............................... 32 Macroenvironmental factors ................................ ................................ ............................ 33 International Business: An Economic Force ................................ ................................ .......... 37 Market and nonmarket environment ................................ ................................ ............... 37 ................................ ................................ .......... 38 The Determinants of Nonmarket Business Environment ................................ ....................... 40 Managing risk ................................ ................................ ................................ .................. 41 Dependence on relationships with stakeholders ................................ .............................. 44 Public Affairs: Strategic Intelligence fo r Organizations ................................ ........................ 48 Corporate public affairs ................................ ................................ ................................ ... 50 Public affairs and public relations ................................ ................................ ................... 52 The Power of Diplomacy ................................ ................................ ................................ ........ 55 Soft power ................................ ................................ ................................ ....................... 56 Public diplomacy and public relations ................................ ................................ ............ 59 The Shift of Power: From Country Power to Corporate Power ................................ ............. 61 Defining corporate diplomacy ................................ ................................ ......................... 62 Corp orate diplomacy categories ................................ ................................ ...................... 65 Corporate Diplomacy Strategies ................................ ................................ ............................. 69 Alliance ................................ ................................ ................................ ............................ 71 Ordinance ................................ ................................ ................................ ........................ 72 Compliance ................................ ................................ ................................ ...................... 72 Diligence ................................ ................................ ................................ .......................... 73 Research Questions and Hypotheses ................................ ................................ ...................... 73
5 3 METHOD ................................ ................................ ................................ ............................... 80 Sampling Strategy ................................ ................................ ................................ ................... 81 Big Data in Pub lic Relations ................................ ................................ ................................ ... 83 Computer Software MATLAB Â® ................................ ................................ ............................ 84 Factiva Database Search ................................ ................................ ................................ ......... 85 Reliability and Validity ................................ ................................ ................................ ........... 86 Event Data Methodology ................................ ................................ ................................ ........ 88 Conflict Cooperation Scale ................................ ................................ ................................ .... 91 Operationalizing Risk ................................ ................................ ................................ ............. 93 Operationalizing Dependence on Stakeholders ................................ ................................ ...... 96 Data Analysis ................................ ................................ ................................ .......................... 98 4 RESULTS ................................ ................................ ................................ ............................. 101 ExxonMobil ................................ ................................ ................................ .......................... 101 General Motors ................................ ................................ ................................ ..................... 103 Johnson & Johnson ................................ ................................ ................................ ............... 104 JPMorgan Chase ................................ ................................ ................................ ................... 105 Procter & Gamble ................................ ................................ ................................ ................. 107 ExxonMobil Oil Spill in Nigeria ................................ ................................ .......................... 108 Event in brief ................................ ................................ ................................ ................ 108 Corporate Response and Action ................................ ................................ .................... 110 Risk and Dependence ................................ ................................ ................................ .... 110 Early Contextual Indicators ................................ ................................ ........................... 111 ExxonMobil against the Venezue lan Government ................................ ............................... 112 Event in brief ................................ ................................ ................................ ................ 112 Corporate Response and Action ................................ ................................ .................... 113 Risk and Dependence ................................ ................................ ................................ .... 114 Early Contextual Indicators ................................ ................................ ........................... 114 General Motors India Tavera Recall ................................ ................................ ................... 115 Event in brief ................................ ................................ ................................ ................ 115 Corporate Reaction and Action ................................ ................................ ..................... 115 Risk and Dependence ................................ ................................ ................................ .... 116 Early Contextual Indicators ................................ ................................ ........................... 117 General Motors Closing Plants in Australia ................................ ................................ ........ 117 Event in brief ................................ ................................ ................................ ................ 117 Corporate Response and Action ................................ ................................ .................... 118 Risk and Dependence ................................ ................................ ................................ .... 119 Early Contextual Indicators ................................ ................................ ........................... 119 Johnson & Johnson Baby Powder Recall India ................................ ................................ ... 120 Event in brief ................................ ................................ ................................ .............. 120 Corporate Response and Action ................................ ................................ .................... 121 Risk and Dependence ................................ ................................ ................................ .... 122 Early Contextual Indicators ................................ ................................ ........................... 122 Johnson & Johnson Children Tylenol Recall ................................ ................................ ...... 122 Event in brief ................................ ................................ ................................ ................ 122
6 Cor porate Response and Action ................................ ................................ .................... 123 Risk and Dependence ................................ ................................ ................................ .... 124 Early Contextual Indicators ................................ ................................ ........................... 125 JPMorgan Chase China Corruption Case ................................ ................................ ............ 125 Event in brief ................................ ................................ ................................ ................ 125 Corporate Response and Action ................................ ................................ .................... 126 Risk and Dependence ................................ ................................ ................................ .... 127 Early Contextual Indicators ................................ ................................ ........................... 12 8 JPMorgan Chase Sanction V iolations ................................ ................................ ................. 128 Event in brief ................................ ................................ ................................ ................ 128 Corporate Response and Action ................................ ................................ .................... 129 Risk and Dependence ................................ ................................ ................................ .... 130 Early Contextual Indicators ................................ ................................ ........................... 130 Procter & Gamble SK II Cosmetic Brand Recall in China ................................ ................. 130 Event in brief ................................ ................................ ................................ ................ 130 Corporate Response and Action ................................ ................................ .................... 131 Risk and Dependence ................................ ................................ ................................ .... 132 Early Contextual Indicators ................................ ................................ ........................... 132 Procter & Gamble Price Fixing Fine by European Union ................................ .................... 133 Event in brief ................................ ................................ ................................ ................ 133 Corporate Response and Action ................................ ................................ .................... 134 Risk and Dependence ................................ ................................ ................................ .... 135 Early Contextual Indicators ................................ ................................ ........................... 135 Research Questions ................................ ................................ ................................ ............... 136 Compliance Strategy ................................ ................................ ................................ ..... 136 Ordinance Strategy ................................ ................................ ................................ ........ 138 Alliance Strategy ................................ ................................ ................................ ........... 139 Diligence Strategy ................................ ................................ ................................ ......... 140 Test of Hypotheses ................................ ................................ ................................ ............... 141 Hypothesis One ................................ ................................ ................................ ............. 142 Hypothesis Two ................................ ................................ ................................ ............. 145 5 DISCUSSION ................................ ................................ ................................ ....................... 160 The Art and Science of Corporate Diplomacy ................................ ................................ ..... 160 Managing Risks ................................ ................................ ................................ ............. 161 Dependence on Stakeholders ................................ ................................ ......................... 163 Nonmarket Business Environment ................................ ................................ ................ 165 Contextual Ind icators ................................ ................................ ................................ ..... 168 Limitations of the study and lessons learnt ................................ ................................ ........... 169 Future Research: The road ahead ................................ ................................ ......................... 171 Implications for Theory ................................ ................................ ................................ ........ 173 Implications for Practice ................................ ................................ ................................ ....... 174 APPENDIX A DEGREE OF CONFLICT COOPERATION SCALE ................................ ......................... 178
7 B STOCK PRICES FOR EXXONMOBIL ................................ ................................ .............. 179 C STOCK PRICES FOR GENERAL MOTORS ................................ ................................ ..... 180 D STOCK PRICES FOR JOHNSON & JOHNSON ................................ ............................... 181 E STOCK PRICES FOR JPMORGAN CHASE (CHINA HIRING) ................................ ...... 182 F STOCK PRICES FOR J PMORGAN CHASE (SANCTION VIOLATIONS) .................... 183 G STOCK PRICES FOR PROCTER &GAMBLE (CHINA SK II BRAND) ........................ 184 H STOCK PRICES FOR PROCTER &GAM BLE (PRICE FIXING FINES) ........................ 185 LIST OF REFERENCES ................................ ................................ ................................ ............. 186 BIOGRAPHICAL SKETCH ................................ ................................ ................................ ....... 207
8 LIST OF TABLES Tabl e page 2 1 The concept of strategy over years ................................ ................................ .................... 72 2 2 Comparison between market and nonmarket strategy ................................ ....................... 73 2 3 Concept ualizing public affairs (McGrath, Moss, & Harris, 2010) ................................ ... 74 2 4 Categories of corporate d iplomacy and its public relations strategy ................................ 76 3 1 List of sample organizations and industry types in cluded in the study ............................ 98 4 1 ........ 148 4 2 The proposed corporate diplomacy strategy for each event ................................ ........... 150
9 LIST OF FIGURES Figure page 2 1 Market and nonmarket organizational environment s (Bach & Allen, 2012) ..................... 76 2 2 Proposed corporate diplomacy s trategies ................................ ................................ ........... 76 2 3 Proposed relationship among key variables ................................ ................................ ....... 79 4 1 ExxonMobil global media coverage over 10 years ................................ .......................... 151 4 2 General Motors global media coverage over 10 years ................................ ..................... 151 4 3 ................................ ................................ ..... 152 4 4 ................................ ................ 152 4 5 ................................ ................................ .. 153 4 6 Iden tified risk and dependence on stakeholders for each event ................................ ....... 154 4 7 GM India Tavera r ecalls in 2013 ................................ ................................ ..................... 153 4 8 ................................ ................................ ............................ 155 4 9 ssue in 2013 ................................ ................................ ..................... 156 4 10 ................................ ................................ . 156 4 11 P&G price f ixing in Europe ................................ ................................ ............................ 157 4 12 JPMorgan Chase sanction v iolations ................................ ................................ ............... 157 4 13 ExxonMobil oil s pills in Nigeria ................................ ................................ ..................... 158 4 14 ExxonMobil arbitration c ase in Venezuela ................................ ................................ ..... 158 4 15 JPMorgan Chase corrupt hiring practices in China ................................ ......................... 159 4 16 II brand recall in China ................................ ................................ .................. 159
10 Abstract of Dissertation Presented to the Graduate School of the University of Florida in Partial Fulfillment of th e Requirements for the Degree of Doctor of Philosophy CORPORATE DIPLOMACY: THE ART AND SCIENCE OF MANAGING A NONMARKET ENVIRONMENT By Sarabdeep K. Kochhar August 2014 Chair: Juan Carlos Molleda Major: Mass Communication Th is dissertation examine s corporate diplomacy from an international public r elations perspective to determine how organizations manage their nonmarket environment. The dissertation conceptualizes corporate diplomacy strategies based on an interdisciplinary literature to understand the strategic levers that make the nonmarket environment work. Previous literature on the topic has looked at how multinational corporations operate within the rules of a host country. The dissertation is an attempt to understand t he rules themselves and their impact on the strategic choices made by an MNC. The study analyzed five U . S . MNCs (ExxonMobil, Johnson &Johnson, JPMorgan Chase, General Motors, and Procter &Gamble) across five different industry sectors. International media coverage of the selected co mpanies was examined over a 10 year period from 2004 to 2014. A total of 22,357 news articles were coded to identify events for each company outside of their home country. Ten unique events in total were then further studied to examine the efficacy of the proposed corporate diplomacy strategies. The strategies provide MNCs with a clear set of guiding principles and goals to effectively deal with the interests, institutions, ideas, and issues that fall outside of their market doma in.
11 CHAPTER 1 INTRODUCTION The opening case of ArcelorMittal in France represents how business environment s can be unstabl e and even hostile at times which requires organizations to make strategic choices to sustain and succeed in a challenging environment . The case serves as a fitting preface to the dissertation by discussing the different and unique market and nonmarket forces with which an organization deals . The case illustrates a diffuse nonmarket business environment and why MNCs must understand the ir social political risk and dependence on stakeholders to further their cooperation among stakeholders. Opening Case: The Price Arcelor Mittal Had to P ay An epic battle of billionaire steel barons ended in July 2006 , when the merger of Mittal and Arcelor c reated a global giant without rivals ( , 2006). The deal combined Arcelor , a symbol of successful pan European cooperation and economic revival, with operations that span Luxembourg, Belgium, France , and Spain , with a fast growing c onglomerate, Mittal Steels, founded by the India born Lakshmi Mittal ( Arcelor Mittal Reaffirms Merger , 2006 ts Mittal , 2006 ). Mittal Steel and Arcelor reached an agreement to combine the two companies in a merger of ( Arcelor Mittal Reaffirms Merger , 2006). When he took o ver Arcelor, Laks hmi Mittal promise d that he would not carry out massive job cuts. But a lot changed since 2006 especially after t he Europe an financial crisis of 2008 . PSA Peugeot Citroen, France's biggest carmaker, had 8,000 job cuts and had to shut down its plant. Sanofi , France' s biggest pharmaceutical company also announced 900 job cuts over the
12 years. The demand for steel dropped and ArcelorMittal plunged into a quarterly net loss of $709 million in the period from July to September 2012 ( Jolly & Clark , 2012) and was f orced to shut sites in Gandrange in France and Liege in Belgium and then in Florange , north eastern France ( , 2012). The steel group's decision to close plants in Belgium, Luxembourg , and France triggered violent protests as well as initiatives by the European Union (EU) to save an industry that was at the heart of the creation of the bloc. EU Industry Commissioner Antonio Tajani said that there is no Europe without steel. The steel industry accounts for some 360,000 jobs at about 500 plants in the EU , but production slumped from 22 percent of world output to 1 2 % between 2001 and 2011 ( , 2013). The real battle wa s between the debt saddled Arcelor Mittal, which was trying to adjust to a sagging steel market, an d the new Socialist government that want ed to improve industrial competitiveness , and had also vowed to protect jobs as unemployment climbed ( ArcelorMittal to c lose 2012 ). The shutting down of sites by Arcelor Mittal was seen as unacceptable. Lakshmi Mit tal was even criticized by the France's industry minister who accused Mittal of ly ing. "We no longer want ArcelorMittal in France because they didn't respect France," Arnaud Montebourg told French business daily Les Echos , 2012 . The minister accused the co mpany of "overwhelming lies" and said the Florange closure breaks a promise of creating jobs for common people made by chief executive Lakshmi Mittal during Mittal Steel's takeover of Arcelor in 2006. The problem "isn't the furnaces in Florange, it's Mitta l", said Mr. Montebourg ( Sinha, 2013). ArcelorMittal , pressurized by the French government , finally agreed to find a buyer for the furnaces. Arnaud Montebourg claimed that the government had found buyers who were not
13 ready to take just the closed parts , bu t were interested in buy ing the entire Florange site. ArcelorMittal said that it was not willing to give up the site, as this would jeopardize its activities in France , where it employs 20,000. Montebourg further threatened to seize all ArcelorMittal sites and temporarily nationalize the company ( Landauro & Macdonald, 2012). The outrage of the workers and labor unions was further fuelled by a new video game called was lau nched as a way to vent out the anger against the Indian steel tyco on Lakshmi Mittal ( Sinha , 2013). The game offered players a chance to take on the Indian billionaire inside a s teel factory. The video game took inspiration from Mittal's real life decision to shut steel blast furnaces in France's northeastern town of Flor ange ( Sinha , 2013). A text on the screen of the video game reads: The year is 2030 and Mittal has closed the majority of steel factories worldwide, tossing out thousands of steelworkers. For these men tired of unfulfilled promises and repeated closures, w hen all mediation has failed, there is just one solution: Kill Mittal. Once the Mittal robot is defeated, the game reminds the player that although Mittal has been killed, he will quickly be replaced by someone similar ( Sparks , 2013). The creator of the g ame , Alexandre Grilletta , has been vocal about the "inspirational" story of workers striving to make a living. He said that it seemed like a fable with a hero and an evil boss 2013 ). The decision to nationalize ArcelorMittal was s e en negatively by multinational corporations as a way to bully an industrial group the French do n o t quite consider their own, and to exploit this sentiment to show that the government is fighting hard to save jobs ( ArcelorMittal 2013). Anal ysts said that by taking such a strongly interventionist stand to protect steel workers, France r isked sending the wrong signal to multinational companies, whose investment the economy needs if it is to stave off long term decline ( Jolly &
14 Clark 2012). Nat ionalization would also throw doubt on the government's seriousness about improving the competitiveness of French industry, although it has announced billions in tax breaks for companies ( Landauro & Macdonald, 2012 ). The handling of the issue by the French government caused outrage in India, where social media networks were flooded with messages saying Mittal would have been treated differently if he were white ( Chanda , 2012). Some s ections of the French media called Mittal's compa ny "the Indian group." In 2006, when Mittal Steel was making a bi d for Arcelor, Mittal Steel was termed as "an organizat ion of the past" and "full of Indians" ( , 2012 ). Mittal with his unexpected offer for Arcelor 2006 , was harshly rebuked by Arcelor mana gement , and a chorus of European politicians who criticized everything from his grammar to his Indian origins to the quality of his company's steel ( Arcelor agrees to Mittal , 2006). To promote France as a destination for foreign investors, the governmen t recently hired which is running in the United States, Canada, China, India , and Brazil ( Jolly & Clark , 2012). said Nina Mitz, (as cited in Jolly & Clark, 2012), a public relations consultant in Paris. While she conceded the Florange factory case presented a political thicket for the government, Ms. Mitz said such bold talk of nationalization even if served up ma inly for domestic consumption ( Jolly & Clark , para 5 ). Mr. Mittal met with the French Prime Minister Jean Marc Ayrault and ruled out nationalizing the steel plant. ArcelorMitt al agreed to further mothball the furnaces, rather than clos ing them, and to continue to explore the possibility of using the equipment as par t of another project ( Landauro & Macdonald, 2012 ). ArcelorMittal invest ed $233.6 million in the Florange
15 steel com plex, which includes a factory that refine d and finishe d steel, mostly for the auto industry, as well as a food and drink packaging unit. In addition, ArcelorMittal pledged that all job losses w ould be entirely voluntary. ArcelorMittal , in a special websi te created to address th e developments in Florange , promise d the workers to provide any necessary training for employees who ha d to find alternative employment (ArcelorMittal, 2013). The crisis faced by ArcelorMittal raises a question about the real chall enge faced by the organization: is it the Indian origin of the company, the French g overnment, the labor unions, the workers, the economic crisis, the failure to keep the promises made by the organization, or all of these factors adding up at the wrong tim e. Certainly, one of the key lessons learned from the ArcelorMittal case is that m ultinational corporations have to grapple with nonmarket pressures that can surprise even the most experienced. The only solution for ArcelorMittal was to find a middle groun d with all the parties involved. Nonmarket Business Environment Political risk as an aspect of the non market business environment has been implicitly recognized in international business research and practice (Fitzpatrick, 1983). Government has been recog nized and emphasized as a variable in international business studies b ecause MNC s operate under a great variety of evolving political regimes that have an impact on organizations entry, operation, and ex it (Boddewyn & Brewer, 1994). The political environm ent of an organization is complex and uncert ain , and the complexity of the societal environment further increases with multiple stakeholders complicating the decision making process of the organization (Buchholz & Rosenthal, 1 995; Carroll, 1996 ). Strategi c management is increasi ngly concerned with managing this non market environment (Baron , 1995 ). The term nonmarket environment is meant to denote the wide range
16 of political, social, and legal arrangements that firms might have to engage outside of their ma rket environment (Baron , 2010). Bach and Allen (2010) also define the nonmarket environment as t he social, political , and cultural sphere that surrounds an economic market of an organization and affect s o reach its business objective s. Any changes in the business environment can threaten business operations and thus requires closer analysis, managing, and coping w i th those changes (Carroll, 1996 ). Baron (1995 ) emphasized the correlation between market and nonmarket conditions and ment ioned how and nonmarket considerations (p. 47). Baron (1995) suggested that since nonmarket issues are critical to the performance of the firm, managers are responsible for developing, formula ting and imple menting strategies to facilitate t he creation of favorable nonmarket conditions f o r the MNC . Can twell, Dunning, and Lundan (2010 ) underscore d the importance of nonmarket business environment through the definition of a n MNC as, a coordinated system or net work of cross border value creating activities, some of which are carried out within the hierarchy of the ( p. 569). The social ties and contractual relations hips are de fined as the nonmarket forces that help shape the business environment and the rules of the game. vary significantly across countries. Baron and Diermeier ( 2007 hese rules, and in many cases their enforce ment, are not fixed, well defined constraints, but are determined, implemented, and interpreted by legislatures, government administrative agencies, judicial (p. 359). Various nonmarket reactions, such as lawsuits, consumer boycotts, and interest group protest s might induce governments, as well as organizations to reconsider their initial decisions (Volden & Wiseman, 2009).
17 The growing focus on nonmarket institutions and reactions are regularly discuss ed in the business world as well. A McKinsey study in 2008 found that only 13% of large corporations engage nonmarket actors to manage sociopolitical issues even though 30% believe doing so would be very effective (Bonini, Mendonca, & Rosenthal, 2008) . A r ecent article in MIT Sloan Management Review (2010) focused on what every CEO need ed to know about nonmarket strategy and speculates how in the global economy, sustained competitive advantage arises from tackling social, political , and environmental issues as part of a corporate strategy. Novartis AG, has been fighting a public battle with the Government of India over Glivec, a cancer drug. Novartis has been successful in obtaining patents for the drug in more than 40 countries but has been denied the patent by the Government of India. The pharmaceutical company has been featuring content and videos on its website focusing on the benefits of the drug for the patients and hence targeting the nonmarket audie nce. The nonmarket strategy of Novartis compliments the market strategy of competing in the Indian market ( , 2013 ; Bach & Allen, 2010) . Corporate Diplomacy Nonmarket business strategy , according to Bach and Allen (2010), recognizes how businesses are not just economic agents, but are social and political beings, which can be influenced by many forces. Smart executives, therefore, engage with their social and political environment, helping shape these environments and reduce the risk of be ing hemmed in by nonmarket stakeholders (Bach & Allen, 2010) . Non market stakeholders are also called socio political stakeholders (Holtbrugge & Berg, 2004) and can include governments, regulators , community , and environmental interest groups, and ind ustry associations (Delmas & Toffel, 2004). The nonmarket stakeholders can impose coercive and normative pressures for organizations to deal with. C oercive for ces can be in the form of regulations and regulatory
18 enforcement an organization could face , wher eas the normative pressures are the set of values, norms, and rules for organizations (Delmas & Toffel, 2004). These forces are made more fragmented, unpredictable, demanding, media driven , and diffuse d by globalization (Steger, 2003) . Corporate diplomacy pertains to the , management of interfaces between the global company and its multiple non business counterparts (such as NGOs, governments, political Saner & Yiu, 2 005, p. 302). towards society, and in particular with its public institutions, whose main added value to the to turn, improves its Rigo & Duarte, 2009, p. 549). This definition focuses on the importance of influencing s takeholders to build long term relationships with multiple sta keholders, thereby earning a license to operate. Thus, the challenge for MNCs is to recognize, respect, and respond to the dynamic political and social factors that are unique to every host location. Adapting to these unique factors helps an organization o perate successfully in a host country with the support from multiple stakeholders. This forms the basis of corporate diplomacy. Amann, Khan, Salzmann, Steger , and Ionescu Somers (2007) define d business envi ronment systematically and professionally, to ensure that business is done smoothly, with an unquestioned license to operate and an interaction that leads to mutual adaptation between corporations and socie 34). Organizatio ns thus have to continuously attempt to manage and influence their nonm arket business environment using corporate diplomacy strategies.
19 Toyota is another example of successful management of nonmarket business environment and corporate diplomacy. In Calif ornia, Toyota has been in successful in including its flagship Prius hybrid model in a program granting low lanes, even with only a single occupant. With minimum financial investment, Toyota managed to give its product a decisive competitive advantage. Building on this success, the company won Prius owners the right to park for free at public meters in Los Angeles and other cities ( Bach & Allen, 2010). The opening case of ArcelorMittal and the subsequent case s of Novartis and Toyota, present the challenges MNCs are facing from their nonmarket business environment, and the strategies they are adopting to overcome those challenges. Understanding the nonmarket business environment is just one part of the puzzle, while the other part comprises influencing the nonmarket business environment through corporate diplomacy in order to achieve a social license to operate. Significance of the Study Much of the early research in the international management field has exami ned general environmental risks, especially financial risks (Hagigi & Sivakumar, 2009) . However, there is a need to understand how organizations manage the social risks along with political risks and what strategies they deploy to overcome the macro enviro nmental challenges in host countries. The study is important to understand how MNCs through corporate diplomacy can create a position of advantage in the society. The study makes a unique contribution to the field of international public relations by analy zing the nonmarket environment an MNC is weaved in and develop corporate diplomacy as a theoretical and practical approach to managing this environment. The field of international public relations has also addressed the impact of sociopolitical risks on th e practice and function of public relations. The contextual variables critical for
20 international public relations success are what define the nonmarket business environment as well. Addressing the impact of globalization on public relations practice, Srir ( 2009 ) question ed if there is any such thing as domestic public relations anymore and state d that public relations has become a global business. Wakefield (1997) referred to international public as certain coordination between headquarters and various countries where offices and/or publics are located, and that carries potential p. 355). Wilco x and Cameron (2006 ) defined i nternational public relat as the planned and organized effort of a company, institution, or p. 516). More recently, Molleda (2009) defined international public relations as strategic co mmunications and actions carried out by private, government, or nonprofit organizations to build and maintain relationships with publics in socioeconomic and political environments outside their home location Â¶ 10) . Foster (1998) described the complicat ions associated with international public relations f all the areas of public relations and public affairs, the international sector is the most difficult to manage. It is more complex, more unpredictable, and generates more risk than m ost domestic p. 1). The study of public relations in the international domain reflects the increasing activities of organizations around the world. Stohl (2001) emphasized how MNCs are dealing with workforces, customers, a nd other forces beyond izations are now facing the new aspects of p. 16). International public relations as a field of study has been most successful in providing a descriptive analysis of how public relations has been practiced in a particular country. A quick review of journals like Public
21 Relations Review will detail articles about public relations practice around the world. The Global Public Relati ons Handbook has a chapter each on public relations growth and practice in Asia , Africa , Europe, Japan, North America , and UAE . However, the field lacks the required knowledge base that can advance the profession and practice of international public relati ons towards greater sophistication and effectiveness (Molleda ; Wake field, 2011 ). The body of knowledge of international public relations is very young and needs to draw from other similar fields to advance the growing field. Molleda and Laskin (2005) stated the dearth of literature especially on public relations practice by multinational relations practices of transnational corpora p. 478). Research in international public relations has been defined under two broad areas; comparative public relations and international public relations (Culbertson & Chen, 1996). Comparative public relations research is an attempt to identify g eneric practicing principles of public relations and apply it widely. Whereas the international public relations research is cross cultural in its approach and more focused on individual culture or nation. A review of key concepts studied under internation al public relations clearly reflects a gap that exists in the field and needs to be addressed by scholars. J. Grunig (2006) spoke about the cultural, political, and economic differences across countries and the emphasis on MNCs to account for those dissimi larities. The study signifies the gap in the scholarship and practice of international public relations practice for MNCs and seeks to address that need. The interest for the study came from the chapter on corporate foreign policy by Molleda (2011). The ch
22 stakeholders ( p . 274). The chapter also laid emphasis on the need for identifyi ng concepts from international business and other disciplines to inform the concept of corporate diplomacy. Earlier work by Molleda (2004, 2005, 2006, 2008, 2009, 2010, and 2011 ) has consistently drawn from the business literature and other related fields enriching the scholarship on international public national conflict shifting analyzed the contextual variables important in international public relatio ns practice. Contextual varia bles are described as the environmental variables that outline the practice environmental variables used to set up international public relations practice. The five variables political ideology, economic system, degree of activism, culture, an d media systems in a country are the defining variables for international public relations practice. The chapter by Molleda (2011) is a conceptual piece that establishe d the foundation for my research. However, there is no other study in the field of international public relations that explores the concept of corporate diplomacy. As mentioned above, there is a lack of research on international public relations, especiall y on MNCs practice of public relations function. Molleda (2011) urged scholars and practitioners to develop communication plans and programs to engage stakeholders and The curren t study makes this transition to under stand the contextual variables through the lens of nonmarket business environment from an international business perspective. The study is an ambitious attempt to bring together the vast literature on international bus iness, public affairs, public diplomacy, and business strategy to inform the field of international public relations and develop the concept of corporate diplomacy as a solution to the diverse challenges faced by MNCs.
23 Purpose of the S tudy The market and nonmarket forces are different and require their own unique strategies (Baron, 1995). This dissertation offers theoretical beginnings for corporate diplomacy that get s to the heart of understanding a diffuse business nonmarket business environment . The bus iness environment can be fragmented, volatile, and even hostile at times and hence organizations have to make strategic choices to succeed in the nonmarket business environment. The dissertation aims to achieve two main objectives; to develop corporate dip lomacy strategies as a response to the key challenges MNCs face and to measure the success of corporate diplomacy strategies in increasing cooperation with its stakeholders . Steger (2003) suggest ed developing industry and company specific cases to manage the Since expectations for MNCs are often conflicting , the dissertation will use specific cases and events to present corporate diplomacy strategies, document experiences, and transfer insights . The dissertation conduct ed an extensive quantitative content analysis using big data to take an investigative look at the empirical evidence on how MNCs are implementing the proposed corporate diplomacy strategies . The dissertation conceptualize s a business case for corporate di plomacy that serves as a starting point for organizations to practice. The dissertation then develop s corporate diplomacy strategies from the international business, public affairs, public diplomacy, and international public relations literature as a frame work for organizations to adopt. The dissertation tests the proposed strategies by measuring the success of corporate diplomacy strategies in increasing cooperation with its stakeholders . The dissertation aims to make organizations aware of the difficulti es in the nonmarket business environment that the top management must tackle with corporate diplomacy strategies. Corporate diplomacy has not been much studied in the business literature but is worthy of
24 , 2009 ). Despite bei ng discussed for more than 15 years, corporate diplomacy has received relatively little scholarly analysis, with the concept mainly preached in professional business and management texts, a handful of conference papers, speeches, websites , and blogs (Macnamara, 2012 ). The dissertation addresses the need of the academic and business world to conceptualize, theoretically develop and practically expand the field of corporate diplomacy. Steger (2003) in the preface of his book said, least important source was academic literature. Too much is either preaching to companies en couraging them to behave nicely, well meant advice from an ivory tower, or pretty meaningless correlations of two variables that fit well into the publish or perish system as the least publishable 2003, p. xvi). The dissertation makes a uni que contribution to the field of international public relations by introducing a concept that fall s in the realm of this evolving but young area of study. T o adapt to the global marketplace, MNCs must utilize public relations tools to further their legitim acy within the agr eed upon socio political system ( Ordeix Rigo & Duarte, 2009 ). The dissertation thus extends the field of international public relations by analyzing the nonmarket business environment an MNC is weaved in and develop corporate diplomacy as a theoretical and practical approach to managing the nonmarket business environment. The dissertation attempts to develop and theorize an approach for organiza tions to effectively deal with the interests, institutions, ideas , and rules that fall outside o f the ir market domain. The dissertation will first conceptualize and define corporate diplomacy to position it in the broader context of international business, international public relations, public affairs, and business strategy. The dissertation will th en develop corporate diplomacy strategies to test them and measure its success in various industries.
25 The following chapter will review relevant literature on corporate diplomacy to learn and draw from other interdiscipl inary areas of study. The cha pter on methodology will introduce the study design, the choice of methods , and a list of variables important for the study.
26 CHAPTER 2 REVIEW OF LITERATURE This chapter will examine literature from multi disciplines to un derstand the concept of corporate diplomacy. To begin with previous work on business strategy will help understand business strategies and global strategies an organization could adopt. The section on business strategy first establishes what is meant by st rategy to then look at the perspectives and theories of the business strategy. The five forces model of business environment as given by Porter is also discussed in the section to explain how external forces can shape business strategy. The framework for a nalyzing the nonmarket environment is also presented that translates into the following sections of international business . International business literatur e helps explicate the market and non market challenges MNCs face in the host environments. In the se ctions that follow, the study will examine literature on corporate public affairs as that pertains to its practice in MNCs. The literature on public diplomacy helps explain the concepts of diplomacy and how it differs from corporate diplomacy . The function of corporate public affairs and public diplomacy are compared with the function of public relations in the respective sections. The last section of the literature review ties the interdisciplinary literature together to define and conceptualize corporate diplomacy, and theorize s c orporate diplomacy strategies for MNCs. The section also presents the research questions and hypotheses for the dissertation. Business Strategy: Staying on the Top global business comprises a complex web of linkages acr oss a spectrum of government s and communities. The nature of business is more politicized and humanized than ever before (Moore & Sullivan, 2011), which requires a wider set of academic theories and
27 different models of practice, for MNCs either looking to engage , or those that have already established themselves, in host countries. Strategy is part of the core logic that drives success ful businesses (Markides, 2012). Although, business academics and consultants have been writing about strategy for over 40 years (Yip, 2004) , there still is a lack of understanding as to the true meaning of strategy (M arkides 2012 ). The Economist even opined: Nobod y really knows what strategy is ( as cited by Markides, 2012). Operational effectiveness and strategy are cited as the two essentials to superior performance, which is the primary goal of any organization (Porter, 1996). Operational effectiveness is described as the ability to perform similar activities better than the competition, whereas strategy is the differentiati on an organization creates for itself (Porter, 1996). Simply put, strategy is defined as a plan of action, which is aimed at achieving an objective (Casadesus Masanell & Ricart 2010 the creation of a unique and valuable (p. 68). Barney (2002) explains strategy as ow to compete successfully in pursuit of sustainable competitive advantages ( p. 8) . Casadesus Masanell & Ricart ( 2010 ) refer to strategy ( p. 196). Business strategy as defined by Favaro, Rangan, and Hirsh (2012) is choices executives make, on where to play and how to win, to maximize lo ng term value Strategy is the instrument through which a firm attempts to exploit opportunities available in the business environment. The performance of a firm is a function of how effective it is in converting a plan into action and then executi ng it. Thus implementation is the key to performance, given an appropriate strategy (Markides, 2012 ) . One of the key determinants of strategic decisions,
28 which are long lasting commi tments, from tactical decisions, which are short term responses to According to Porter (1996) strategy should aim at differentiating the organization from its competitors in a way that is sustainable in the future. Ghemawat (1991) mentioned the management. Thus, strategy can be summarized as an organizational ability to analyze its competitive environment, define its position, develop competitive and cor porate advantages, and finally understand threats to face those challeng es . The earlier works in strategy literature focus ed on the overall performance of the organization and supported the idea of strategy being made at the top and executed at the bottom (Andrews, 1971) . Business strategy was positioned as a primary function and implementation as secondary function (Floyd & Wool d ridge , 2000 ) in organizations. Mintz berg and Waters (1985) redefined the role of strategy from merely a top management view to a more expanded continuum of strategies. On one end is planned strategy, and the other end is emergent strategy that is reliant on external factors. Th e study by Mintzberg and Waters (1985) challenged the paradigm of explicit strategy formulation and implem entation, and proposed strategies to be emergent and often unrealized across industries and countries . Mintzberg (1987) identified strategies as a pattern in the decisions an organization makes. From this perspective, strategy is a combination of what an o rganization intends to do and what it actually does. Thus an organizational strategy is the product of (a) the part of intended strategy that is actually realized and (b) its emergent strategy that is unintended and unrealized at times (Mintzberg, 1987) . S trategy then is not a fixed plan but can rather change s based on the external environment (Mintzberg , 1987 ).
29 A. G. Lafley, former CEO of Procter & Gamble (P&G), in his book on business strategy, uses P&G as a full length case study on strategy. A good stra tegy , according to Lafley (2013), has five key components to help organizations develop successful strategies. The first two components are identifying the key markets and defining parameters of success in those markets. The next component focuses on comin g up with a distinctive strategy to help the organization win in any market. This component transforms into the last two components of play ing to the unique strengths of an organization and identifying those things that need to be managed for the strategy to succeed . Favaro, Ragan, and Hirsh (2012) explained that to define the fundamentals of the business strategy, an organization has to answer three main questions; (1) who is the target customer, (2) w hat is the value proposition to that custome r, and (3) w hat are the essential cap a bilities needed to deliver that value proposition . The concept of business strategy over time Whittington (2000) collated various theories about strategy over the last 40 years and categorized strategy into four categories : the classical perspective, the evolutionary perspective, the processual perspective, and the systemic perspective , each w ith different implications for . The classical perspective places the control over the internal and extern al resources of the organization with the manager of the organization. The classical perspective follows a rational approach, in which planning is most important. Most prominent during the 1960s when there was a top down, rational, logical approach to form ulating strategy. 34). The second perspective, the evolutionary perspective, emphasizes behavioral differences between organizations on their market selection decis ions. The evolutionary perspective shifts the focus from the operational manager of the organization to other factors like market selection,
30 and factors that determine performance. The processual perspective defines strategy as a process of constant evolve ment where interactions between individuals and their environment define the strategy. Processual because strategies are not long term , but just emerge while doing. Organizational members bargain between each other to arrive at a set of joint goals that ar e more or less acceptable to them all (Whittington, 2000) . A more rational view is taken in the systemic perspective which argues that strategic behavior is embedded in a network of social relations that includes cultural norms, religion, and any other rul es. According to Whittington (2000), there is no best strategy to choose. Rather the key is to match strategy to market, organizational, and social environments as each strategy works b est in different contexts ( Whittington, 2000 ). Min tzberg (1998) also cl assified strategy based on how strategy has evolved over different stages in the development of strategic management and prescribed strategy as not normative but rather integrative in its approach . Markides (2012) presented two leading schools of thought to approach strategy. The first view of strategy emphasizes the positioning in the industry environment as the key element of strategy, whereas the other school of thought considers positioning to be static and encourages a more dynamic view of strategy (M arkides, 2012). A ccording to this way of thinking, strategy is more about how you play the game than about choosing what game to play. The choice of a strategy for an organization is not entirely based on the categorizations of strategies, but rather on th e industry type. Porter (1985, p. 3) said Organizations might find all aspects of strategies in their strategic formulation. Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Valu e is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost le adership and differentiation.
31 The two sources of competitive advantage define two fundamentally different approaches to business strategy. A firm that is competing on low cost is distinguishable from a firm that competes through differentiation in terms of market positioning, resources , and capabilities, and organizational characteristics (Grant, 2010) . According to Hill ( 2012 ) , organizations identify strategies at the functional, business, global, and corporate level strategies. Functional level strategi es are directed at improving the effectiveness of operations within a company, such as manufacturing, marketing, materials management, research and development, and human resources. The business level strategy of a company looks at the choice of a strategy an organization makes to gain competitive advantage in the marketplace. One of the strategies, according to Hill (2012), addresses how organizations expand operations outside of their home country and the strategies they employ. Corporate level strategies focus on maximizing the long run profitability of the organization through multiple options like vertical integration, diversification, strategic alliances, acquisition, new ventures, etc. Based on Pettigrew , Thomas, and Whittington (2002) and Whittingto n (2000) Table 2 1 summarizes the key developments in the definitions and perspectives of business strategy. Each perspective has its own view of strategy and how it matters for managerial practice . Beinhocker (2006) state d that the two basic challenges fo r organizations today it must execute its to those activities to survive tomorrow (p. 77). Understanding the environment and factors that can control the strategy formulation and impleme ntation thus becomes critical for an organization. For a company to survive and thrive , its management must understand the implications that environmental forces might have on an us es concepts from industrial organi zation economics to
32 analyze interacting factors critical for an industry to remain competitive in the business environment. Porter (1985) identified five forces that determine the state of competitiveness in a market. T he se for ces help identify and shape techniques for identifying strategic opportunities and threats. The five forces that influence the intensity of competition in a particular industry, and therefore the profitability of the firms within the industry: (1) the risk of entry by potential competitors, (2) the intensity of rivalry among established companies within an industry, (3) the bargain ing power of buyers, (4) the bargaining power of suppliers, and (5) the closeness of substitutes to an industry's products ( Hill & Jones, 2012). C ompetitive force s are the first barriers to entry. Hill and Jones (2013) explain ed the barriers to entry as, "factors that make it costly for companies to enter an industry" ( p. 41). Some industries have many barriers to entry , which disc ourage potential entrants. Barriers to entry are brand loyalty, absolute cost advantages, economies of scale, customer switching costs, and government regulations. The second force is rivalry, which refers to the , competitive struggle between companies i n an industry to ga ( Hill & Jones, 2013, p. 43). Three main factors contribute to rivalry within an industry. "R ivalry among established companies within an industry is largely a function of three factors: (1) industry compe titive structure, (2) demand conditions, and (3) the height of exit barriers in the industry" (Hill & Jones , 2013, p. 43) The third force is the bargaining power of buyers, which is the , ability of buyers to bargain down prices charged by companies in the industry or to raise the costs of companies in the industry by demanding bet ter product quality and service ( Hill & Jones , 2013, p. 48).
33 The fourth, of the five forces, the bargaining power of suppliers, is the , ability of suppliers to raise input pric es, or raise the costs of the industry in other ways for example, by providing poor ( Hill & Jones, p. 49). The final forc e is the threat of substitutes, which is the threat of substitute products: the products of different businesses or industries that can (Hill & Jones , 2013, p. 49). The five forces model is a useful way of analyzing the various market forces that influence an industry. Vinig, Shapiro, and Borges (2005) highlight ed the import ance of five forces model in assessing the within the industry. Besanko, Dranove, and Shanley (2000) state d the weakness in the five forces model as not accou nting for the role of the government. Oster (1994) added the impact of government action as the sixth force in the competitive arsenal of an organization. Government can directly affect the rivalry among firms , but also impact profitability through their i mpact on entrants, substitutes, suppliers , and buyers (Vinig et al., 2005). Macroenvironmental factors Hill and Jones (2013) stated the importance of macroenvironment factors outside of the five forces model to influence an industry and an organziation. T he role and impact of these macroenvironment factors can change and influence the organization and the forces that operate in the microenvironment. Hill and Jones (2013) defined the macroenvironment of the firm as the broader economic, technological, demog raphic, social, and political environment within which each organizaton operates. Hill and Jones (2013) defined each of the macroenvironment factors and its possible effect on the five forces model. The economic forces in the macroenvironment includes grow th rate of the economy, interest rates, curremcy exchange rates, and inflation (or
34 deflation) rates. Technological forces are defined by the speed of innovation and change that can create new products as well as make processes obsolete. The changing trends related to population in terms of its size, density, location, age, gender, race, occupation, and other statistics characterize the demographic forces in the macroenvironment. Social forces consist of changes in the social basic values, perceptions, prefe rences , and behaviors. Political and legal forces in the macroenvironment are the rules by wh ich business can be conducted. These rules can be in the form of laws, government agencies, pressure groups , insurance reform, etc. MNCs need to consider these va riables as part of its environmental scanning to better understand the threats and opportunities and formulate strategic plans to obtain and retain its competitive advantage. The macroe nvironment factors, thus, include the major forc es that influence not o nly the organization, but also its competitors and the elements in the microenvironment. The macro environment factors are harder t o influence than the micro environment, but this does not mean that firms must simply remain passive; the inability to control does not imply an inability to influence. The need to identify the factors and s trategy in international environment. The strategies can be one of the four categories (1) international strategy, (2) multidomestic strategy, (3) global strategy, and (4) transnational strategy. The relevance of each strategy varies with the extent of pressures for cost reductions and local responsiveness (Hill, 2012). The international strate gy is when an organization tries to create value for their products or services by transferring valuable skills and products to foreign markets , where indigenous competitors lack the same . Organizations transfer their product offerings developed at home to
35 new markets overseas to create value. They undertake limited local customization of products and marketing strategy, but the head office retains tight control over these. Another global strategy is the multidomestic strateg y in which the organization or i e nts itself towards achieving maximum local responsiveness. In this strategy, organizations customize their product offerings and marketing strategies to meet the needs of the host countries. The third global strategy as given by Hill (2012), is the global strategy in which the focus is on increasing profitability by focusing on the cost reductions. Organizations implementing the global strategy do not cutomize their maket and product strategies, instead they concentrate in a few favorable locations to reduc e costs. The fourth global strategy, transnational strategy, enables organizations to maintain low costs and be locally responsive, which puts conflicting demands on the organization in return. Hill (2012) stated that although a transnational strategy has the most benefits, implementing it is the most challenging of all. The choice of strategy should be weighed against the two pressures; cost responsiveness and local responsiveness and then implemented by the oragnizations. However, these pressures and choi ces vary across countries and a s a company moves from a multidomestic, to an international, to a global, and then to a transnational strategy, the need for coordination increases, and companies adopt a more complex structure and more complex ways of contro lling their activities (Hill, 2012). Peng , Sun, Pinkham, and Chen (2008) summarized the research on strategy in two broad perspectives: the industry based view and the resource based view. The industry based view suggests that strategy and p erformance are affected by industry specific conditions, whereas the resource based view identifies firm specific factors that determine competitive advantage. Peng et al. (2008) criticized the two perspectives as missing the influence
36 of institutions on o as the third leg in the strategy tripod, especially in international business. A s the based institutional frame ket (Peng et al., 2008, p. 921) a new perspective to integrate institution based, industry based, and resource based views in strategy research is needed . Peng et al. (2008) stated how the strategic choices an organization make are dr iven not only by industry conditions and firm capabilities, but also by the institutional and nonmarket conditions an orgnization faces. As an important area in international business and strategic management, global strategy research has attracted substa ntial attention among scholars (Peng, 2006) . Strategy formulation in a global setting according to Lessard (2003) involves competition in industries that extend across national boundaries and among firms with different national home bases that may tap int o strategic resources in more than one location p. 1). Peng and Pleggenkuhle Miles (2009 ) summarized three key views on global strategy. The first view is given by Yip ( 2004 ), which helps organizations develop a total worldwide strategy by following thre e steps: developing the core strategy that is developed for the home country first, internationaliza tion of the core strategy by ad a p ting for host countries, and finally globalizing the strategy across all other countries the organization has operations in . The global strategy is too idealistic to be practiced in actuality by multinational orgnizations (Rugman & Verbeke 2004). The second view defines Lohrke , & Lu 2003) , which is a much broader view of the global strategy (Peng et al., 2008) . The third view defines global strategy in even broader terms: the strategy of firms around the , 2006) globally . Lessard
37 (2003) provided a multilevel approach for global strategic analysis at four different levels: the geographic scope of the industry, the com petitiveness of various location s, the geographic reach of the firm, and the global integration vs. local focus of specific activitie s. Global s trategy formulation thus requires the knowledge and skills necessary for understanding the international business environment and help organizations analyze situations and solve complex problems. International Business: An Economic Force MNC s are the primary players force behind the global economy. The world has seen a tremendous rise in the international exchange of good and services based on globalization and international business, whi ch has led to wealth creation, employment opportunities, and transfer of technology (Mudambi & Navarra, 2002). The International Monetary Fund forecast s slower global growth for 2013 and 2014, citing expectations of a slowdown in key developing cou ntries such as China and Brazil. A report on the Global economy in 2013 by the Grant Thornton International Business mentions the significant political changes that have happened over the course of 2012, especially with the presidential elections taking place in countries like China, Egypt, France, Mexico, Russia, and the United States. These pose challenges for internationa l business and thus requires instinct and reason ing to decision making for organizations. Market and nonmarket environment Research in inte rnational business indicates that the environment in which MNCs operate can control the business strategy and outcomes ( Kostova & Zaheer, 1999) and MNCs need to acclimatize to the multidimensional nonmarket business environment of each host country (Dunnin g & Lundan, 2008 ). In international markets, the nonmarket business environment helps
38 proficient in operating in the world of customers, suppliers, and competitors but are mostly less comfortable at operating in the nonmarket business environment ( Mahon & McGowan, 19 9 8 ). Child, Chung, and Davies (2003) further added external circumstances hav e a better chance of prospering ( p . 243). Figure 2 1 depicts the market and nonmarket business environment an organizati on manages in the host country. Peng (2006 ) explained the economic, political, social, cultural , and institutional differences across countries that can explain the perfo rmance of MNCs. As MNCs retain their national identities, host governments also seem to influence the nonmarket business environment in favor of the home based MNCs. Prakash (2002) cited globalization of media as a reason for how local nonmarket issues get global dimension immediately. He further added that MNCs are increasingly thr eaten ed by supranational actors who oppose them, supranational regimes that govern their behavior and global media that scrutinizes them p. 15) . In an external environment, o rganizations deal with the nonmarket actors that define the social, political, and legal boundaries of an organization (Scott & Vissey, 2002 ). The legal and regulatory constraints are among the strongest environmental pressures according to Rosenzweig and Singh (1991) , and can affect the future business opportunities of an organization. The way an organization deals with governments, interest groups, activists, and the public can limit an e competitive advantage. Baron (1995) differentiate d between the market and nonmarket business environment to emphasize how assessing the market environment and formulating strategies must be supplemented with approac hes that explicitly take these differences into account. The market
39 nonmarket business environment can be categorized in issues, institutions, interests, and information (Ba ron, 1995). The nonmarket strategy framework is a means to affect the outcome of an issue (Baron, 1995 ). Issues are the specific threats or opportunities an organization deals with. Institutions are defined as all organizations that are aware and familiar with the p articular issue in question. Interests are individuals and groups with preferences for a stake in an issue. Information is what the groups already know about the issue and the preferences they have (Baron, 1995) . The earlier example of Toyota in California deals with the issue of Clean Air Vehicle Decals for the High Occupancy Vehicle Lane Usage in California and Toyota. California Department of Motor V ehicles, California Air Resource Board, environmental organizations, and NGOs are the related i nstitutions for the issue . Interests are individuals and other groups with preferences in the issue. Information is the current knowledge the specific institutions have about nonmarket strategy then is the concerted action of an interested party directed at a nonmarket issue that is a subject of competition in the cognizant institutions where information typically plays an important role , ( 1995 , p. 3). A combination of market and nonmarket strategies is termed as integrated s trategy that focuses on both specific nonmarket issues that affect the firm and nonmarket action as complements to market action (Baron, 1995). Nonmarket strategies result from a management process that incorporates knowledge of the market and nonmarket bu siness environment s, information about specific issues, and conceptual frameworks that guide strategy formulation and implementation (Baron, 1995).
40 Nonmarket strategy has been studied in academic literature as initially focused on public institutions, pri vate nonmarket competition such as activists or NGOs that may impact the organization, but has recently shifted to study the strategic use of c orporate social responsibility (Baron & Diermeier, 2007). The literature on international business emphasizes how MNCs must recognize and abide by market fo rces but they must also recognize the ways they are intertwined with society. From the influence of governments to the employees and customers who play multiple roles ( e.g., economic agents, parents, citizens, lob byists, etc.), MNCs have to manage the interests, expectations, and threats outside of the market domain. The next sub section discusses the two main determinants of nonmarket business environment; that is, risk and dependence on stakeholders. The Determi nants o f Nonmarket Business Environment vulnerable to business risks (Ghoshal, 1987). Hymer ( 1976) stated how foreign entrants incur unfamiliar costs due to differences , and cultural systems. Cantwell, Dunning, and Lunda n (2010) suggest ed that the due to the rise in global interconnectedness, the uncertain t ies faced by organizations are far tense than those a few years ago . MNCs are increasingly threatened with institutional tensions more frequentl y than are the national organizations . MNC activities can be predictably related to the changes in organizational environment (Cant well, Dunning, & Lunda n, 2010). The growing risk for MNCs is further multiplied by the growing dependence of organizations on social, legal, and political stakeholders that has created a situation in which t he insufficient consideration or ignorance of these stakeholders can increase risks, cause conflicts and even lead to financial losses ( Hillman
4 1 & Wan, 2005 ). Organizations are seen as dependent on and extracting resources from an uncer tain environment ( Pfeffer & Salancik, 1978). Managing r isk Evaluating business risk is important for MN Cs as Haley (2003) points out that MNCs p. 237). Delo itte & Touche LLP reports that in an ever increasing complex and volatile business environment, risk management has continued to (Deloitte, 2007 , n.p. ) . MNCs face a complex business environment and higher risk t han their domestic counterparts. The elements of risk in the external environment have increased both in their numbers and complexity owing to the change s in the global business environment (Hagigi & Sivakumar, 2009). uncertain environmental variables that reduce performance predictability, as well as the lack of predictability in firm outcomes itself p. 312 ). Howell and Xie (2000) explicated that the threats to operations can be external or internal which may impact corporate performance, the risks include political, social, or even competitive risks. B usiness risk is defined as a multi dimensional concept th at integra tes macroenvironmental, industrial, and corporate level variables (Haley, 2003) . Hagigi and Sivakumar (2009) stated that the definitions of risk differ from explaining the negative outcomes to the presence of variability in expected outcomes. Hol n of which one is p. 22.) Mascarenhas (1982) classified risk under the headings of political, foreign exchange, input, production , and output uncertaint ies to explain how MNCs cope with the ri sks i n international business. Risk has also been defined as variations or uncertainties in the business environment an MNC fails to predict and hence can negativ ely impact organizational
42 effectiveness (Conklin, 2002 ). Uncertainties in business can affect corporate performance (Haley, 2003) and may arise from macronenvironmental factors, unanticipated behavioral choi ces, or combin ations of the two (Lessard, 2003 ). Macroenvironment uncertainties are termed country risks as that deals with the pervasive sour ces of uncertainties in a country (Lessard & Lucea , 2009). The macro environmental factors are also seen as the key external factors of business risk (Miller, 1992). These factors may include political uncertainties, government policy uncertainties, economi c uncertainties such as interest rates and foreign exchange variability, so cial, and natural uncertainties (Hagigi & Sivakumar, 2009, p. 289). Lessard and Lucea (2009) explained the shortcoming in international business literature in dealing with factors o f risk as independent of each other. The authors tackle this myth to suggest that there exist important interrelations among different sources of risk and MNCs should recognize this relationship to create competitive advantage. Haley (2003, p. 241) defined macroenvironmental sources as P olitical variables (such as war, revolution, and governmental changes), regulatory variables (such as fiscal and monetary reforms, price controls, and governmental regulation), macroeconomic variables (such as inflation, fo reign exchange rates, and terms of trade), social variables (such as social unrest, changing demographics, and corruption), and natural variables (such as natural disasters, variations in rainfall, and climatic conditions) . Damodaran (2008) s eparate d goo d risk (opportunities) from bad risk (threats), empha s izing why organizations should utilize the good risk and protect and manage the bad risk. Risk in MNCs arises from the inherent nature of the international business. Diversification and operational flex ibilities across geographical regions lead to multinational risk (Andersen, 2012). ach country is surrounded by fences corresponding to economic, institutional and cultural barriers to business , (p. 91) that res ults in
43 greater risk for multinational corporations. Uncertainty thus occurs when the institutional, cultural, and economic conditions strongly differ (Webb et al., 2010). Risk management is seen as the ability of an organization to avoid and manage outco mes that can negatively impact the (Damodaran, 2008). Ramamurti and Singh (2009) present ed a widely accepted view in the international business literature stating how a firm that operates globally has greater risk when compared to the domestic firms in those countries. This is primarily based on the liabilities the firm has as an outsider added to the cost of operating in a different market and culture (Ramamurti & Singh, 2009). Hillman and Keim (1 995) discussed the impact of cultural differences in nonmarket interactions as leading to an increase in the vulnerability of an organization. Holtbrugge, Berg, and Puck ( 2007 ) d efine d the risk in the market environment to be related to suppliers, competit ors, and economic challenges , whereas the business risk in the nonmarket business environment has been summarized to be based on three sources: dependency, vulnerability , and direct threats. D ependency in the nonmarket business environment is the extent t o which an organization depends on the nonmarket business environment for its financial performance (Lenway & Rehbein, 1991) . Vulnerability can be defined based on the industry type of the organization and the market activities. Certain industries are more vulnerable to nonmarket forces (Masters & Baysinger, 1985). Direct threats are seen as barriers that may restrict the organization . Ring, Lenway , & Govekar, 1990 highlighted the fact that direct threats in the form of political barriers also are a key con activities. Institutional factors are important and help predict the levels of risk ( Child et al. , 2003 ).
44 Gladwin and Walter (1980) presented a model based on the alternatives for managing conflict bet ween multinationals and the nonmarket business environment . The five alternatives help define the strategy for a multinational and is based on: (1) assessing the stakes, (2) the overall global strategy of the individual firm, (3) firm financial condition a nd resource availability, (4) situation urgency, (5) determination of power positions, and (6) determination of matching interests. Gladwin and Walter (1980) predicted the invo lvement of organizations in non market activities as dependent on the resources a n organization can direct towards such activities. Institutional theorists emphasize the need for MNC subsidiaries to conform to these multiple, sometimes conflicting, pressures from the institutions and their representatives in their environment in order to survive (Pache & Santos, 2010). Thus, it is concluded that firms with a stronger market position will be better oriented and equipped to allocate resources to non market activities (Gladwin & Walter, 1980). The dependence on resources and stakeholders i s another key determinant that defines the success of MNCs in host countries. The next sub section illustrates the importance of managing the amount of dependence MNCs have on their stakeholders. D ependence on relationships with stakeholders The growin find, establish, and strengthen political and social support for their operations (Henisz, Dorobantu, & Nartey, 2011). Sharma and will be influ enced by their ability to engage fringe stakeholders to understand the unique social, environmental, and economic agency or another regulatory agency are termed as long term activities that in fluences the
45 decisions an organization would take in its market and nonmarket business environment ( Hillman & Wan, 2005 ). Geletkanycz and Hambrick (1997 ) mentioned how relationships with the social, political, and legal actors can greatly impact organizat ional stra tegy and performance. Industry alli ances are suggested as a way to achieve particular set of goals in the nonmarket business environment ( Hansen & Prusa, 1997 ). Research has shown that MNC s have relations both with actors within th e MNC (Bartlett & Ghoshal, 1989 ) as well as outside the MNC organization, often in the local national environment (An dersson, Forsgren, & Holm, 2007 ). Hillman and Hitt (1999) developed a typology to distinguish between three different political strategies ; information st rategy, financial incentives, and constituency building. The information strategy provides specific information to the stakeholders to influence the actions of stakeholders. The financial incentives strategy aims to influence the actions of stakeholders th rough financial inducements. T he constituency building strategy trie s to influence stake holders indirectly through stakeholder support. Host country institutions can be broadly classified as political, l egal, and societal institutions (Demirbag, Tatoglu, & Glaister, 2007) . A relationship between political uncertainties, the entry mode decisions, and performance of a MNC are found to be correlated too ( Brouthers, Brouthers , &Werner, 2000). Demirbag et al. (2007) stated that the macro level country effects a re more significant than the micro level firm effects on organizational performance. Foreign firms entering into a host market face a different institutional environment from the one i n their home countries (Kostova & Zaheer, 1999 ). Makino et al. (2004) po stulated how advanced economies are more stable than the emerging market economies as the dynamic economic environment in the emerging markets can greatly example of Walmart in India illustrates this point.
46 invest ment in Bharti , India, has come under a scanner amid allegations that the global retail end multi brand retail business two and a half years before the government actually lifted the ban on foreign in vestors in the sect or last year ( 2013) . I ndian authorities including the Enforcement Directorate, which tracks money launde 2010. Bharti Walmart, suspended five executiv es as part of an ongoing investigation against alleged corrupt practices that the U . S . retail giant has launched globally includ ing in China, Brazil, and Mexico ( . The Walmart case is an example of dependence on political factors as crucial for organizational success. Johanson and Vahle (2009) explained how the business environment is viewed as a web of relationships, a network, rather than as a neoclassical market with many independent suppliers and customers . C ountry level facto rs like market size and income, factor costs, and cultural distances are important for a MNC for deciding on a host location. MNCs attempt to overcome these challenges and learn how to adapt and operate successfully in a new and different environment to ga in legitimacy (Johanson & Vahlne, 2009 ). MNCs interact and build relations with a wide range of stakeholders specific to the host country to include even the public opinion that can challenge the operations of MNCs (Hillman & Wan, 2005 ). The dependence on stakeholders is termed as stakeholder capital by Dorobantu, Henisz, and Nartey (2012) and defined as the level of mutual recognition, understanding and trust established by the firm with its stakeholders p. 2). Stakeholder capital can help an organizat ion Henisz, & Nartey, 2012, p. 2) . The benefits of stakeholder capita l are also reflected through the
47 support of the stakeholders who are more likely to defend organizational activities in challenging times (Dorobantu, Henisz, & Nartey, 2012). Investment in stakeholder capital by organizations is considered as an insurance, which will provide relief after adverse events. Pfeffer and Salancik ( 1978) evaluated the priorities in relationship building to suggest evaluating the critical dependence of an MNC on different stakeholders. The relational view given by Dyer and Singh ( 1998) argue d that organizations need to pay attention to the select few important stakeholders at a given point of time. The relational view highlights that an organization is at times unable to cope with the global competition and should cooperate and dev elop relational networks in the international market for mobilizing its resources (Wong, 2011). Jawahar and McLaughlin ( 2001) developed a descriptive stakeholder theory to exemplify that certain stakeholders, based on their ability to help organizations ac hieve their objectives, are more important than other stakeholders. The stakeholders can lose their importance as an organization evolves from one stage to another and approaching the each stakeholder follows a unique strategy dependent on how important th e stakeholder is for an organization (Jawahar & McLaughlin, 2001). The intensity of a relationship between the stakeholders and the organization is strengthened by higher levels of resource dependence ( Oliver, 1990), which can be further strengthened by i n tensive interaction (Gulati & Gargiulo, 1999). Positive relations between subsidiary managers and g overnment institutions in China have been found to significantly impact the organizational opportunities and competitive advantage (Luo, 2001) . The changes i n the importance and strength of these relations for the focal subsidiary are associated with shifts in its dependence and interdependence on the different actors and their resources over time.
48 Drogendijk and Andersson (2012) summarized the dependence of a MNC subsidiary on its external environment over time. The initial stages of the subsidiary will be highly dependent on the resources and knowledge support of the headquarters. This will shift with time, as the subsidiary will develop its own resources an d capabilities, its dependence on headquarters and on local government declines. The dependence of subsidiaries on the local public opinion is seen to be dependent on the size and visibility of both the company as a whole and also the subsidiary ( Drogendij k & Andersson , 2012 ). A business strategy ideally must provide an organization with a market or competitive element and a nonmarket or public component strategy (Baron, 1995). An MNC can develop and pursue a nonmarket strategy through specific legal, regul atory, and public affairs activities (Cummings & Doh, 2000) . The public affairs function within the firm is charged with effectively managing its pol itical and social environments (Meznar, 2005) . Windsor (2005) stated that the external environment of busin ess will continue to become more global and effectively mobilize more stakeholders and hence needs public affairs function to address the interface between a c orporation and its external nonmarket business environment . The public affairs function of organi zations has much to do with the organization's external environment (Carroll, 2005), and hence needs to be understood to explain the relationship between the or ganization and the environment. The section next looks at public affairs as s trategically respon din g to and shaping the firm's nonmarket business environment. Public Affairs: Strategic Intelligence for Organizations Organizations today constantly remain in the public eye and under media scrutiny (Meznar, Johnson, & Mizzi, 2006). The challenges for MNCs arise from a multitude of stakeholders, diverse sociopolitical issues, and persistent focus on building and maintaining
49 legitimacy (Drogendijk, 2004). MNCs these days have to cope with the pressure of meeting the demands multiple stakeholders. The sta keholder pressures are shaped by global public opinion (Berg & Holtburgge, 2001). Public affairs function is seen as , a window out of the corporation through which management can perceive, monitor, and understand external change and simultaneously, a w indow through which society can influence corporate policy and practice (Post 1982, p. 13). Public affairs may be defined as the management skill that internalizes the effects of the environment in which an organization operates and externalizes actions to influence that Pedler ( 2002 ) stated ( p. 4). The success of public affairs function in organizations is seen in meeting or exceeding key stakeholder expectations and requirements (Meznar et al., 2006), which is termed as p ositive gaps . Whe reas, negative gaps among organizations and are often seen as organizations failing to meet the stakeholder expectations (Meznar et al., 2006) . Research in public affairs suggests that organizations neglect of negative gaps can lead to issues and crisis an d should be resolved and eliminated ( Meznar et al., 2006 ). McGrath, Moss, and Harris (2010) on the tenth anniversary of the Journal of Public Affairs put together a reflection of the development of public affairs as an academic discipline and professional practice. The editorial team presented a summary of the key concepts of public affairs, the main contributors of the concepts and the implications it has for the role and practice of public affairs in organizations. T able 2 3 below presents the summary an d highlights how the function of public affairs is seen in organizations and what role each function plays. Table 2 2 illustrates that the key challenge for organizations is to navigate through a complex environment where multiple stakeholders may influenc
50 operation and growth. in the political arena and engage in political activities and various forms of communication to er, 2006, p. 5). Corporate p ublic a ffairs McGrath et al. (2010) synthesized the research in public affairs in the last decade to suggest focusing on communication as a key determinant of public affairs practice. The emphasis on strategic thinking and adv anced solutions to issues and challenges is another uniqueness in public affairs practice (Harris & Moss, 2001 ). McGrath et al. (2010) emphasized the importance of issues management as one of the essential aspects of public affairs management. I ssues manag ement in organization involves prioritizing and proactively addressing public policy and Large organizations both in developed and emerging countries use issues man agement techniques to remain focused on high priority challenges and opportunities. Burns (2012) found the rapid growth of corporate public affairs in Asia and the senior prac titioners in organizations managing complex issues, team diversity , and geographi c challenges. Public affairs function in an organization is termed as corporate public affairs and is non commercial environment and managing the corporation (Foundation for Public Affairs, 1999, p. 2). to enable an organization to achieve preferred outcomes in the political arena and to forge and maintain a sociopolitical environ ment favorable to it p. 5) . Corporate public affairs function plays an important role in helping organization achieve their business objectives by shaping the d ecision making process . O n the front end, corporate public affairs help
51 organ corporate public affairs provide organizations with information to start and sustain a dialogue with key stakeholders. The three most important participant groups in terest groups, news media, and government environment (Lerbinger, 2006). Windsor (2005) outlined the corporate public affairs function to accomplish two goals for an organization. The broader of t he two goals, is to secure legitimization for the organization from multiple societies and stakeholders . The second goal is to secure specific benefits for the firm from public policy, stakehol der action, and public opinion. Meznar and Nigh (1995) suggeste d two main strategies for organizations to match external pressures; buffering strategy and bridging strategy. Buffering strategy is an attempt by the organization to change the external expectations instead of changing its own practices. As they put it, a n org either resists environmenta l change or tries to (Meznar & Nigh, 1995, p. 976). Bridging strategy on the other hand is an attempt by the organization to change its own practices to match the external expectat ions (Meznar & Nigh, 1995). According to Mack (1997), corpo rate public affairs function has four main functions government relations, issues management, public relations and community affairs. Corporate public affairs encompasses public policy, issues man agement and crisis management (Carroll, 1996), and deals with lobbying, media relations, crisis management, issues management, stakeholder relations , and corporate social responsibility (Thomson & John, 2007). A survey of practitioners by the Centre for Co rporate Public Affairs and Public Affairs Council (2009) came up with core activities mentioned by public affairs practitioners. The most listed activities include corporate communications, corporate social responsibility, crisis management, community rela tions, issues management, stakeholder relations, and government
52 relations , among others. A significant body of public affairs literature is most often found under the rubric of corporate political activity (McGrath et al., 2010). Corporate political activ ity (CPA) perspective is seen as an emerging focus to explain firm performance in political arenas (Hill man, Keim, & Schuler, 2004). Research in CPA has political resources and capabilities and their prof itability (McWilliams , Van Fleet, & Cory, 2002). CPA research consists of presenting opinions, views , and suggestions to influence organizations at national and international levels (Lawton, McGuire, & Rajwani, 2013). The interaction of organizations, gove rnments, and various interest groups in home and host countries requires the art and science of diplomacy and consensus building. The next section of the literature review explores the efforts by organizations to inform, influence, and shape diverse set of stakeholders within the ever increasing complexity of international markets. Public affairs and public relations relationships with the various groups of people (publics) who can influence the future. Public affairs is the public relations practice that The public affairs function is descr ibed as a boundary spanning role in organizations that helps manage the interface between the organization and a specific segment of t he firm's external environment (Meznar, 2005). Marx (1990) defined the public affairs function primary responsibility to d o the, assessment of the company's external sociopolitical environment p. 9). Harris and Moss (2001) said that the roots of contemporary public affairs can be found in the function of community relations and has changed to include activities that may a ffect organizations. Toth
53 (2006) categorize d p. 499). White (1991) also proposed public affairs as a specialist area of prac tice within public public policy, legislation and regulation which may affect organizations, their interests and p. 31 ). J. Grunig and H unt (1984) in their argument described public relations as a much broader function in the organizations than public affairs. Public relations manages organizational relationships with its environment whereas public affairs focuses on organizational relatio nships specifically with the governments ( J. Grunig & Hunt, 1984). Cutlip et al. (1994) emphasized the confusion between publ ic relations and public affairs public relations that builds and maintains relationship s with governmental agencies and community stakeholder groups in order to influence public policy (p. 17). An earlier study conducted by Boston University Management School (1981) found that public affairs focused around the two broad areas of community r elations and government relations. Reviewing the literature on public relations and public affairs, Fleisher and Blair (1999) summarized the core definitions of public affairs as m anaging relationships between organizations and stakeholders/issues in the p ublic policy (ie non market or socio political) environment. Fleisher (2002) state d how every successful CEO understands the significance of analyzing the organizational external environment. The role of a corporate public affairs analyst , according to Fle isher (2002) , is to analyze the economic and non economic interests of the organizations and advance those interests. Fleisher (2002) cite d Baron (1995) to talk about the in the form of interests, intelligence, institutions , and issues. The corporate public affairs
54 analyst thus has to manage the 4Is and ensure success of the organization in these areas. A corporate public affairs analyst provides an organization with an expert assessment of the environment in the form of recommendations and warnings t o account for in their organizational strategy (Fleisher, 2002). There is a substantial overlap of public affairs and public relations (Harris & Moss, 2001) in which communications strategies and tactics play a vital role. Oberman (2008) descri bed the goal of public affairs as to strategically exploit public opinion, political influence and public policy to attain certain advantages in the market place. T he benefits an organization receives can differ for under different situations but will ultimately depen d on how dynamic the public affairs func tion exists within an organization (Oberman, 2008). Toth (2006) explored the theories from the excellence study that relate to theory building ps, activism, and how p. 515). Public relations and public affairs have an important role to play in an increasingly external facing global environment where organizations o perate in a complex, dynamic, interconnected, and demanding atmosphere. Regardless of the form it takes, public affairs activities involve attempts by the firm to secure or maintain legitimacy by influencing legislation affecting corporate activities using lobbying, and constituency building and/or involves attempts to secure legitimacy by influencing society using advoc acy advertising or public rela tions (Meznar & Nigh, 1993). The broad environment of an organization has an important effect on the surviva l, operation, and success of those organizations (Carroll, 2005) . The current business environment has given the global citizen a greater power on the positions, policies, and attitudes of elected
55 governments (Signitzer & Wamser, 2006), and the regulatory business environment. Governments have power over the opportunities that are important for a MNCs s urvival ( Hillman & Wan, 2005 ) and organizations need diplomacy and tact to get access to these and attain a social license to operate in the host country . Th e next section discusses the literature on public diplomacy and how that translates into corporate diplomacy for MNCs to increase their power and legitimacy. The Power of Diplomacy Public diplomacy has generated a substantial body of critical discourse f rom both the professional and academic world. Public diplomacy literature emphasizes the increasing global affairs ( V an Ham, 2001). Wang (2006) state d how a nat and an increase in their f oreign investment and tourism. Public diplomacy is defined as a governmental process of, (Tuch, 1990, p. 3). Communication thus becomes a critical component of public diplomacy. Leonard , Stead, and Smew ing (2002) laid emphasis on relationship building as a part of the public diplomacy process. Wang (2006) outlined three main objectives of public diplomacy : promoting nation and developing common understanding and mutual trust among countries and peoples. not possess a unique, well established conceptualization (Payne, 2009). Yet, in simple words public diplomacy is the influence of a nation on foreign audiences (Ordeix Rigo & Daurte,
56 state actors as practitioners of diplomacy: Public diplomacy can be defined as an activity conducted by nations (stateless and otherwise), organizations, which operate globally (national sporting bodies, tourist bodies), global organizations (corporations such as Nike and nongovernmental organizations [NGOs] such as the Internationa l Olympic Committee, World Health Organization, and the Catholic Church), and international political organizations advocating change (Greenpeace) ( p. 610) aim of p. 12). Hence, public diplomacy can be thought of as a process of a nation listening and understanding the needs of other countries and communicating its viewpoint to even tually build relationships. Soft p ower Public diplomacy is based on the identity and reputation of a nation that is dictated by many factors: political, social, economic, and cultural. Trust has been highlighted as the most important factor necessary to initiate a conversation, sustain a dialogue and build relationships (Iivonen, Sonnenwald, Parma, & Poole Kober, 1998; Payne, 2009). The focus on developing direc p. 106). Molleda (2011) highlighted engagement and dialogue as key indicators of developing relationships in public dip lom acy. Payne (2009) explained way street with reciprocal influence on both the source and receiver involved in the o p. 582) . The ongoing communication process helps forge lasting rel ationships with a foreign
57 audience that bestows nations with soft power. Soft power is an advantage in world affairs that incites admiration and respect in other parts of the world. In the context of international relations theory, Joseph Nye (2004) defin any explicit thr p. 7). The soft power of a country is defined by three factors: its culture, political values, and foreign policies (Nye, 2004). All these factors rest primarily on its ability to shape preferences of others by using strategic communication skills. building long ( p. 31). China is one such example of the benefits of a soft on strengthening energy relationships in the Middle East, Africa, and Lat in America, Chinese leaders aim to deepen relationships with these nations and thereby increase influence on them. international hostile forces and the fact th at China is under assault by western soft power (Jintao, 2012). Public diplomacy is, to a significant extent, concerned with identity, reputation and the way the world sees the world brand power is a reflection of global opinion and the effectiveness of public di plomacy efforts by hexagon). T he six dimensions are exports, governance, culture and heritage, people, tourism, investment, and immigration provide a
58 framework for nation to nation comparison against the key factors impacting a nation's reputation. Factors, such as people or human capital, determine how people of a nation are perceived by the rest of the world. For example, the Colombian government attempted to improve its reputation abroad by conducting a national and international campaign called Colombia is p assion , which communicated positive claims about Colombia and Colombians. Likewise, the Israeli Ministry of Public Diplomacy and Diaspora Affairs launched a website in 2010 in an effort to enable e very single citizen to become an ambassador. The website, Together, w e c an c hange the p icture, tips for Israeli citizens abroad to practice public diplomacy. The efficacy of the n initiative by Israel is particularly interesting as the Gallup research (2012) indicate d an increase compared to 68% in 2011). These examples of public diplomacy using social media, global citizen diplomacy, creating platforms for networked communications, etc., emphasize the need for nations to keep up with the challenges and demands of globalization, which is defined by an increasing interdepende nt and interconnected world economically, environmentally, politically, and socially or demographically. It is also important to identify and acknowledge the growing impact of non state actors on the practice of public diplomacy. Public diplomacy is no lon ger restricted to governmental efforts, but also incorporates non state actors, which have redefined its concepts and understanding. T he role and potential of non state actors in shaping foreign public opinion needs more focused attention. Zakaria (2011 , p . 5 ) defined non state actors to include multilateral organizations, corporations, nongovernmental groups, and activists .
59 Functions that were once controlled by governments are now shared with international bodies like the World Trade Organization and th e European Union. Nongovernmental groups are mushrooming every day on every issue in every country. Corporations and capital are moving from place to place, finding the best location in which to do business, rewarding some governments while punishing other nation states, up, down, and sideways. Public diplomacy and public relations Van Dyke and Ver i debated the issues of separation or convergence between ( p. 832). diplomacy. Both public relations and public diplomacy are responsible for communications with other organizations, mainta ining relations with multiple stakeholders, and shaping public opinion d public relations and public states, that typi ( p. 441). Public relations and public diplomacy practitioners are boundary spanners and serve as a liaison between the organization and external groups (Signitzer & Wamser, 2006). (1996) describe d p. 16). Diplomacy in any form ( e.g., political, economic, informational, and cultural) is defined as a part of The areas of public relations and public diplomacy have both been termed as propaganda, a term practitioners from both the fields have tried to distinguish themselves from (Kelley, 2009). Public relations practitioners ha ve been defined as cultural intermediaries (Curtin & Gaither, 2007), a term commonly used for public diplomats as well. Nevertheless, the
60 consonance between diplomacy and public relations work adds to a broader understanding of the strategic communication role internati onally, nationally, and cultur ally as part of power relations. Scholars in public diplomacy (Snow, 2009; Zaharna, 2009) have noticed a growing interest in public diplomacy literature for dialogue, transparency, trust, and commitment. Zahar na (2009) also highlighted that p. 86). ed the communitarian and rhetorical approaches as common theoretical frameworks between public relations and public diplo macy. Communitarian approach is primarily focused on engaging stakeholders whereas the rhetorical approach indicates use of language and persuasion as an instrument of power. Public diplomacy and public relations is seen as helping governments and organiza tions respectively to gain legitimacy. Macnamara (2012 ) presented shared characteristics between public diplomacy and public relations to highlight research, priority on relationship, dealing with different stakeholders, interests, and conflicts as common to both. Signitzer and Coombs (1992) first explicated the link between public relations and public states, countries or societies manage their communicative p. 96) identified common functions like: representational (rhetoric, oratory, advocacy), dialogic (negotiation, peacemaking), advisory (counseling), and intelligence gathering (research and environmental scanning, issues management) as common to public relati also highlights the need to shift towards a government to citizen perspective that underscores a o .
61 uence the lives of people in more ways than what any government can possibly do (Goodman, 2006). The focal point of political power no longer rests with the state and national government alone (Bolewski, 2007), but also rests in the hands of MNCs. Muldoon (2004) state d how MNCs command a crucial position in the world economy 341). The next section introduces corporate diplomacy and its consequences for MNCs and international public r elations. The Shift of Power: From Country Power to Corporate P ower A national survey conducted by the Public Affairs Council looked at the views of Americans on businesses and government. The results revealed an increase in the favorable view of America ns towards major companies from 61% in 2011 year to 67% in 2012 (Public Affairs Council, 2012). The annual survey analyzes how the public perceives the role of government and large companies in the society. It was surprising to find that only four in 10 Am ericans have a positive view of the government. A similar view was echoed in the Edelman Trust Barometer, which reported a maximum decline in trust in the government in 2012 as compared to all the previous years. According to the Trust Barometer (2012), 7 0% of the countries surveyed do not trust their governments to do the right thing. This clearly indicates the growing responsibility on the part of the private sector to be conscious of the growing societal problems and challenges. The findings are reflect ive of how corporations are gaining more power and hence should rethink the broader implications of their actions on society. The power and reach of MNCs is a reality that has drawn considerable critical analysis from various stakeholders worldwide. MNCs have immense power, even greater at times than
62 some of the biggest countries in the world (Rothkopf, 2012). Based on a comparison of corporate sales and GDPs, among the 100 largest economies in the world, 44 are MNCs (Keys & Malnight, 2009). A shift in the power between government and organizations (Scherer & Palazzo, 2007) has raised many questions on the role of MNCs. The question is not about the growing power of MNCs but about how MNCs can exercise that power to benefit the organization and the society. Research shows that organizations are investing and contributing more now in their societies ( M c Don a l d & R und l e Th i e l e , 200 7 ) . The investment in society is based on a moral obligation that an organization feels towards the communities in which they operat e (Porter &Kramer, which is as important to an organization as its financial performance (Bud, 2001). the biggest challenge for organizations that are gradually adopting a global perspective in managing their operations. The challenge for MNCs is to recognize, respect, and respond to the dynamic political, economic , and social factors that are unique to ev ery host location. Adapting to these unique factors helps an organization operate successfully in a host country with support from multiple stakeholders. This forms the basis of corporate diplomacy. Defining c orporate d iplomacy Amann, Khan, Salzmann, St eger , and Ionescu Somers (2007) define d corporate professionally, to ensure that business is done smoothly, with an unquestioned license to operate and an interaction that lead s to mutual adaptation between corporations and socie ty in a sense of 34).
63 The coevolution occurs when an organization understands and responds to the diverse positions and preferences of its home and host publics. MNCs can strengthen the ir influence and legitimacy in the community through strategic corporate diplomacy initiatives and programs (Ordeix Rigo & Duarte, 2009). Corporate diplomacy , thus , is essential for any organization that wants to create, build , or extend its position and p rivileges in a given community. C orporate diplomacy is broadly understood as a privileged authority an organization attains in a host country, which gives it the control to achieve its organizational objectives (Steger, 2003 ; Ordeix Rigo & Duarte, 2009). The concept of corporate diplomacy was originally suggested in 1966 by Herter, the former general manager of the government relations department at Socony Mobil Oil Company. Herter emphasized the need for corporate diplomacy, especially after WWII, due to the global competition, mistrust towards Western nations, and the majority of the European corporations being state owned (Molleda, 2011). However, the expectations of stakeholders are changing as organizations are evaluated more from a morally legitimate perspective than a financially practical one. Enhanced and favorable corporate reputation is just as important to an organization as its financial performance (Bud, 2001). The foundation of success in effective corporate diplomacy is to understand the mult ifarious agendas of host audiences and align to those agendas. and in particular with its public institutions, whose main added value to the corporation is a greater degre to given social system Rigo & Duarte, 2009, p. 549). Post, Preston, and Sachs (2002) also explain ed ion within society
64 depends on its ability to meet the expectations of an increasingly numerous and d 9). Legitima cy is important for MNCs for gaining other resources for its socia l support from the environment in order to grow and survive (Zimmerman & Ze itz, 2002). Asquer (2012) defined corpor as a range of activities aiming at generating favorable conditions for carryin and accomplishing org anizational goals p. 55) . Steger (2003) in his book describe d systematically and professionally the business environment in such a way as to ensure that oned license to operate and an interaction that leads to mutual adaptation between c Salzmann, Ionsecu Somers, and Steger (2006) define d expectations of corporate behavior an 4). Corporate d iplomacy , therefore, f ocuses on the strategic choices that MNCs make in their host environments to maintain and strengthen their corporate reputation and function easily. Corporate diplomacy is built on the key concepts of relationship and dialogue and shares these with public relations (Macnama ra, 2012 ). Edelman (2009) term ed the initiatives organizations i mplement to connect with their stakeholders in the environments where they operate. Grupp (2008) define d corporate diplomacy to include two things: firstly, a address ing everything that can impact the organization directly or indirectly. These definitions briefly point out how organizations and stakeholders will have differences in their objectives, issues, and agendas, and hence it is for the organizations to strategi cally and tactfully deal and
65 reconcile those differences (Amann et al., 2007). Steger (2003) also emphasize d that conflicts of interest and differences in priorities often arise between organizations and their stakeholders and corporate diplomacy can help settle these differences. Corporate diplomacy is , thus , defined as a strategic function that relate s to creating and seizing business opportunities, safeguarding the image and reputation of the firm, affecting the making of rules, and preventing conflicts. Corporate diplomacy categories Steger (2003) explained the strategic choices organizations make to remain relevant and competitive in their host environment based on their external pressures and ability to handle those pressures before it becomes a cris is. The business environment can be fragmented, volatile, and even hostile at times and hence organizations have to make strategic choices to develop early warning systems. The age of transparency and the diversity of the world media system have revolution ized the business world. Organizations can no longer evade talking about an issue that concerns and are visible to shareholders, customers, employees, partners, and society. Incidences and conflicts are also not isolated to the country where they originate d from (Molleda & Quinn, 2004). The world of internet, social media , and blogging has compelled organizations to rethink their business principles and values. Globalization and development of emergent communication technologies have added to the challenge for MNCs in managing crises, conflicts and issues in multiple locations. As one of the main outcomes of globalization, business corporations are involved and affected by transnational incidents or challe nging situations (Wakefield, 2008 ). An a ction, policy or decision by an M NC may negatively affect a multitude of publics and can can become
66 Steger (2003), in response to the external pressures, postulated four broad categories as a template for organizations based on their industry type : nice guy, good citizen, lonely fight er, and a stealth bomber . The categories not only describe the kind of external pressures an organization faces , but also provides a response strategy for an organization to each adopt . Steger (2003) explain ed how organizations might appear to be proactive, active, reactive , or i nactive in their approaches towards stakeholders and that defines the success or failure in the market. The response to the external pressures for each category as outlined by Steger (2003) fall on a continuum. At one end of the continuum is the nice guy category, which will invest in sponsoring, and will actively launch public relations campaigns. The other end of continuum with the stealth bomber will not engage in any form of public relations. The nice guy strategy is used to define corporations in fast moving, branded consumer goods who invests in sponsoring, or positive public relations, and tries to avoid all risks or negative experiences which could upset customers. The second strategy of being a good citizen applies to corporations who are often in risk exposed industries like energy, chemicals or car manufacturing and demonstrate responsible behavior through comprehensive reporting, life cycle assessments, public dialogue, trying to convince the public and politicians alike that risk is being manage d. The third strategy of a lonely fighter is not a favored strategy in which a company might have got pushed into. For example , corporations in the nuclear and tobacco industries who cannot build alliances, but circles wagons, rallies supporters , a nd have to continuously defend themselves falls under this category. The fourth strategy of a stealth bomber is adopted by organizations in the heavily subsidized industries such as agroindustry, coal, etc. and those who shy away from the limelight and will not en gage in any sort of public relations. According to Steger (2003) , the strategy for corporate
67 diplomacy is highly contextual, industry , and company specific. Table 2 4 below represents each category against the type of industry and the pub lic relations stra tegy they use. Previous discussion on public and corporate diplomacy reiterated the importance of public perceptions about a nation or organization. Various definitions and examples indicated the need to establish legitimacy in the minds and hearts of fore ign publics. The role of the public in the process of diplomacy needs no further mention but needs greater understanding especially from a corporate diplomacy perspective. literature (Rawlins, 2006). The various stakeholders of an organization have been studied in the form of the stakeholder theory which describes the relationship the organizations holds with its various constituency groups, including customers, employees, and investors (Donaldson & Preston 1995). According to the stakeholder theory, an organization must be receptive to various stakeholders to facilitate its long term success. Similarly , various stakeholders of an organization in home and host countries may be represented in the diverse population and hence there is need to identify and evaluate these stakeholders. Especially in corporate diplomacy, identifying stakeholders is important as organizations need to ensure that their organizational decisions are globally accepted. Friedman (2006) explained an organization as a set of various stakeholders with the prime aim of maintaining the varied interests and viewpoints. Maignan and Ferrell (2004) defined stakeholders as those that are motivated to participate in organizational activities by various interests. Overall, & Ferrell, 2004, p . 5). An organization has interest in communicating with the stakeholders they serve, and
68 the messages are expected to address topics of interest to those stakeholders. In corporate diplomacy addressing stakeholders can be approached as a two step process In an extension to the discussion on stakeholders, Rawlins (2006) developed a stakeholder prioritization model based on the stakeholder theory, stakeholder management, and public relations. The four step model outli nes the process in classifying stakeholders of an organization which begins with identifying stakeholders followed by prioritizing them based on their importance and need and communication strategy (Rawlins, 2006). In corporate diplomacy , any organization has to address stakeholders for its financial success and has to a pproach publics for its acceptance in the host country. Corporate diplomacy, in contrast to public affairs and public relations functions, is a more complex function that can better understa nd the synergies of organizational interests, multiple stakeholders, pressure groups, and business objectives. Corporate diplomacy professionals are adept at finding an overlap between the two worlds of business and diplomacy, hence, making an MNC less pro ne to crisis (Saner, Yiu, & Sondergaard, 2000). Asquer (2012) stated that t he lack of an established body of scholarly literature on corp orate diplomacy does not imply that firms do not carry out such activities that are relevant for the management of dipl omatic relationships between themselves and other entities. A corporate diplomat practitioner is described to achieve two main objectives: first to perform a mediation function between two actors and to create conditions favorable for organizations (Ruel & Visser, 2012 ). Hamel and Prahalad (1994) stressed the diplomatic know how at the firm level as a strategic core competence in the global environment. Skilled top managers employ the tools of diplomacy to
69 advance their objectives through interactions with the leaders of other corporations, governments, analysts, the media , and interest groups (Crawford, 2011). Corporate diplomacy is, therefore, crucial to the credibility of an organization in developing a unique position, voice, and influence in shaping pub lic opinion and policies in the host country to manage conflict, increase cooperation and ultimately attain a social license to operate. Corporate Diplomacy Strategies The section develops the corporate diplomacy strategies by taking into account the two key determinants of international business; amount of risk and amount of dependence on stakeholders. The amount of external risk and dependence on stakeholders is reflected in the perspective given by Katz and Kahn (1978) about the key dimensions of the s ociopolitical environment. The two key dimensions level of turbulence and complexity. Turbulence deals with the stability of various actors, relationships, and issues in the environment. Complexity de als with the number of actors, relationships, and issues in the organizational sociopolitical environment. Turbulence can also be defined as the amount of risk that can arise from actors, relationships, or issues and complexity deals with the amount of dep endence or interdependence on stakeholders. Pfeffer and Salancik (1978) p. 2). From the resource dependence perspective, no organization is completely self contained or self sustaining. Key to the survival of an organization is the extent to which they are effective in their ability to acquire and maintain resources by establishing relationships with other entities in their environment (Pf effer & Salancik, 1978). Relationships with various stakeholders are generally long term activities designed to influence
70 current and future decisions which would affect aspects of the nonmarket business environment (Hillman & Zardkoohi, 1999). Previous re search (Geletkanycz & Hambri ck, 1997) shows that such rela tionships can positively affect organizational stra tegy and performance. Steger (2003), in his work on corporate diplomacy, developed a set of attitudes an organization will adopt based on the amou attitude can be shaped by culture, recent experience, and dependence on stakeholders . Steger (2003) provide d fragmented, volati le, and, to some extent, hostile bus p. 27). Meznar and Nigh (1995) and Carroll (1979) proposed buffering and bridging and social responsiveness continuum strategies respectively to address how organizational competencies can match with the with the opportunities and threats in its sociopolitical environment. Oliver (1991) implored that organizations do not always respond to institutional demands with passive compliance but are strategic in their response and management of each institutio n. The strategic responses can range from compromise to avoidance and defiance and manipulation (Oliver, 1991). The four corporate diploma cy strategies the study proposed are: (1) compliance, (2) ordinance, (3) alliance , and (4) diligence . Figure 2 2 expla ins the choice of a corporate diplomacy strategy based on the amount of risk and amount of dependence on stakeholders The study is not an attempt to qualify the organizations as adopting just one strategy and restraining them in one cluster but is to look at how in different situations an organization can use a combination of more than one corporate diplomacy strategy. Steger (2003) theorized that the strategies for corporate diplomacy are highly contextual and industry specific. Hence, the current study is an endeavor to identify the unique determinants of international business and the
71 resultant corporate diplomacy strategies that can assist organizations in establishing their social license to operate. A basic definition of strategy defines it as, asic characteristics of the match an organization achieves with its environ p. 4). The study embraces the same stance to envision corporate diplomacy strategy as a balance to its nonmarket business environment challenges. The current study aims at exploring and defining corporate diplomacy strategies to simplify the choices an organization can make in their nonmarket business environment. A lliance The alliance strategy can be used by organizations that may face a low amount o f risk and a high amount of dependence on stakeholders. A lliance means to adjust and change organizational actions according to the demands of the various stakeholders. Hon and J. Grunig (1999) acknowledged that organizations must build relationships with many actors in the environment . Meznar and Nigh (1995) suggested th e bridging strategy in an attempt to change the organizational activities to match the expectations of the stakeholders. Bridging is seen as an attempt on the part of the organization to bu ild a bridge between the firm an d its sociopolitical environ ment . Carroll (1979) defined defense approach as a strategy adopted by the organization to comply with the minimum legal requirements to protect the company and satisfy the societal expectations. L. Grunig (1992) stated that relationships between multinational organizations and consensus, heterogeneity rather than homogeneity, and rapid rate of change (p. 130).
72 Ordinance The ordinance strategy is used by organizations that face a high amount of risk and a low amount of dependence on stakeholders. Ordinance implies incorporating factors than can minimize the inherent risk for the to the ordinance strategy and is seen frequently in the nuclear and tobacco industries that face a high amount of risk. Meznar and Nigh (1995) suggested that buffering, attempting to chang e the envi ronment to fit the organization, is a strategy organizations should adopt in such a situation. Buffering is seen as an attempt by the organization to insulate itself by creating a buffer be tween the firm and its sociopolit ical environment . Carrol l (1979) proposed accommodation as a response strategy when the external pressures are main driver behind complying with the economic, legal, and ethical requirements. The amount of risk is high although the dependence on stakeholders is low. A key determi nant of success for organizations is in predicting environmental changes and in influencing the external environment in multiple arenas and issues (Keim, 2002). Compliance The compliance strategy is used by organizations that face a high amount of externa l risk and a high amount of dependence on stakeholders. Compliance thus justifies the need to resign to the risk and the demands of the stakeholders to manage and prevent a negative event. Steger ion and proposed the need for organization to actively develop a positive working relationship with various stakeholders. Organization in such conditions of high risk and high dependence will try to neutralize any resistance to its social license to operat e through proposing different tactics (Steger, 2003; Dorobantu et al., 2012 ). Proaction response strategy given by (Carroll, 1979) is the ideal
73 response to social pressures and complies with all social performance criteria. Meznar (2005) emphasized on an i complexity of business nonmarket business environment and dependence on several stakeholders. Diligence The diligence strategy is used by organizations that face a low amount of risk and low amount of dependence on stakeholders. Diligence strategy indicates a situation when organizations are in a position to observe and be aware of their environment . A key determinant of the choice of strategy is defined by the past successes of a n organization (Steger, 2003). Carroll (1979) proposed a do nothing or a reaction strat egy that an organization adheres to and reacts only when required. Steger (2003) explain ed that corporate diplomacy is not crisis management but is the prevention of crisis a n organization does not want to manage. The central theme of corporate di plomacy focuses therefore on the question of how companies can understand this diffused business environment. Research Q uestions and H ypotheses The four research questions will explore corporate diplomacy strategies and how organizations respond to varying risks and dependencies on stakeholders. The fo llowing research questions guide d the study: RQ1: What corporate diplomacy strategies do es the organization adopt to respond to high amount of risk and high amount of dependence on stakeholders? RQ2: What corporate diplomacy strategies do es the organization adopt to respond to high amount of risk and low amount of dependence on stakeholders?
74 RQ3: What corporate diplomacy strategies do es the organization adopt to respond to low amount of risk and high amount of depe ndence on stakeholders? RQ4: What corporate diplomacy strategies do es the organization adopt to respond to low amount of risk and low amount of dependence on stakeholders? The study analyzed how organizations adopting the proposed corporate diplomacy str ategy will manage the levels of conflict among its stakeholders. The proposed hypotheses look ed at corporate diplomacy and levels of conflict cooperation . The figure 2 3 depicts the proposed relationship among key variables of the study. H 1 : Organization s that adopt the proposed corporate diplom acy strategies will have higher level s of cooperation and lower levels of conflict . H 2 : Organizations that do not adopt the proposed corporate diplomacy strategies will have higher level s of conflict and lower l evels of cooperation .
75 Table 2 1. The concept of strategy over years Descriptor 1950s and 1960s 1970s 1980s 1990s 21 st century Environment Stable Dynamic complex Dynamic complex Highly dynamic Hyper competitive Dominant paradigm of strategy content Growth, large corporation s, control and coordinatio n, production Strategy as direction of company, production orientation Core businesses, competitive advantage, production orientation Core competencies, production, and services orient ation Services orientation, and learning Key to implementati on Fit structure with strategy and context Resource allocation Factors along with structure leading to efficiency How structures are created, adjusted and made to work? How structures are create d, adjusted and made to work? Strategy logic What business to be in Portfolio management Economies of scale and efficiency Compete on strengths, synergy Economies of scope
76 Table 2 2 . Comparison between market and nonmarket strateg y Market strategy Nonmarket strategy Definition A market strategy is concerted pattern of actions taken in the market environment to create value by improving economic performance (Baron, 1995) . A nonmarket strategy is a concerted pattern of actions t aken in the nonmarket business environment to create value by im proving its overall performance (Baron, 1995) . Environment focus Market environment mainly consists of five forces addressed by Porter, for example, customers, suppliers, competitors, new en try and substitutes . Nonmarket business environment consists of the social, political, and legal arrangements. Strategic making process A process consists of external environment analysis, internal competence evaluation, strategic plan making and selectin g, actin plan making and exacting, and feedback. A process consists of issue perceiving and priority, issue analyzing, selecting, and acting.
77 Table 2 3 . Conceptualizing public affairs (McGrath, Moss, & Harris, 2010) A uthors Date Descriptor Role for Public Affairs Description of the role Meznar and Nigh 1995 Buffer or Bridge Interfacing role/boundary spanning To identify and reach out to key stakeholder groups and manage expectations Hillman and Hitt 1999 Relational vs. transactional Political exchange activity vs. Political relationship building To accomplish short term or long term organizational goals through stakeholder cooperation Post 1982 Window out and window in Political boundary spanner To reflect organ izational views and bring into the organization outside assessments and observations Van Schendelen Fleisher 2010 1998 To get support from political and social environment key players and achieve corporate goals
78 Tab le 2 4 . Categories of Corporate Diplomacy and its public relations strategy Category Type of Industry Public Relations Strategy Nice guy FMCG Proactive Good citizen Energy Active Lonely fighter Nuclear Reactive Stealth Bomber Subsidized indust ry Inactive Figure 2 1 . Market and nonmarket organizational environment Company's Market Environment Competitors Customers Suppliers Company's Nonmarket Environment NGOs Citizens Governments Media Regulators Activists
79 Figure 2 2 . Proposed Corporate Diplomacy Strateg ies Figure 2 3 . Proposed relationship among key variable s Risk and Dependence Corporate Diplomacy Strategy Conflict Cooperation Compliance Alliance Diligence Ord inance Sociopolitical Risk High High Low Dependence on stakeholders Low High Low
80 CHAPTER 3 METHOD The dissertat ion aimed to explore and develop an area of study, corporate diplomacy that has not been extensively studied or empirically tested before. The researcher initially proposed to identify cases unique to each corporate diplomacy strategy ( compliance, ordinanc e, diligence, and alliance) and analyze those in light of the theoretical framew ork summarized in the previous c hapter. The first challenge was to identify the cases for each of the corporate diplomacy strategy. However, the bigger challenge was to use tho se diverse cases from different MNCs in different host countries facing distinct social, political, and economic situations across a variety of industry types. The researcher decided to control for as many variables as possible and hence choose companies f rom the same host country. The rationale was to ensure that companies from the same home location would be similar in its business practices, regulatory policies, and other management functions. The proposed methodology of first selecting the cases and th en identifying MNCs was modified to include big data in the analysis by first choosing the MNC s to study instead of the cases. The author decided to first choose the MNCs from the same home country and study those for a period of time instead of identifyin g unique cases and analyzing their coverage over few months. As mentioned earlier, the big data and data mining approach was taken for the study. The sample was drawn from the 2013 Forbes 500 List to identify U.S. companies across different industries. Th ten year period from Jan 1, 2004 to Jan 1, 2014. The data was content analyzed using a computer code to calculate a conflict cooperation score. Using time moving average, the data was fur ther analyzed to identify events unique to each MNC and representative of the identified corporate diplomacy strategies. After identifying the events from the ten year period , each event was
81 analyzed in detail to be included in the study. Each event was re ported in terms of the event at hand, the corporate response and action, categorization of risk and dependence on stakeholders for each case, and early contextual indicators unique to each case. The researcher then analyzed the new coverage for the cases in its particular host country. For example: J&J baby powder recall in India was identified as an event from the ten year news coverage of J&J globally. Once the event was identified, the researcher gathered news coverage specific to India for a year to an alyze it further. The rationale was to test the efficacy of the corpo rate diplomacy strategies. T en discrete events were examined and their news coverage studied for a period of approximately one year around the event. The researcher hypothesized that stud ying the news coverage for the specific host country will give better insights into the corporate diplomacy strategies by the organization as compared to studying the global news co verage for the organization. The following sections explain the sampling st rategy, use of big data in public relations, the computer code developed for the study, and use of databases to access global news coverage. The chapter also details out the event data methodology adapted from the business literature, conflict cooperation scale, and different variables included in the study. Sampling Strategy The methodology of the study follows the approach most commonly adopted by scholars in the international business and international public relations research. Previous studies by Mol leda (2011, 2010, 2008, 2005), Peng et al. (2008), Freitag (2002), and many others have identified MNCs operating in different locations around the world and different MNCs in the same host location. The topic of corporate diplomacy has been a topic of int erest mostly in the business schools. For Ex: The USC Center on Public Diplomacy at the Annenberg School for
82 Communication and Journalism offers a seminar in corporate diplomacy. Dr. Witold Henisz, a professor at the Wharton Business School teaches a gradu ate course in corporate diplomacy and has a book in press on the topic. Dr. Henisz defines that successful practitioners of corporate diplomacy meld art and skill in engaging external stakeholders to advance their corporate interests. They craft internatio nal coalitions of stakeholders spanning politicians, regulators, bureaucrats, analysts, investors, lawyers, reporters, consumers, and activists. They influence policy outcome, collective decision, or shift in ability to generate a profit by satisfying a market demand. His previous work on the topic (Henisz, 2011) guided the research methodology and sampling strateg y for the study. 1 The study approached the sampling technique by choosing MNCs from the same country with operations in multiple markets. The next step was to choose the country to be studied. The first choice was to pick India, as it is the home country of the researcher, and the researcher is well versed with the nonmarket influences unique to the country. But the challenge was to gain access to media coverage for the selected organizations. The ease of availability of news coverage dating back to more t han 10 years confines the choice of country to the United States. Hence, the study chose United States as the country to be studied and used 2013 Forbes Global 500 List to choose the companies. A sample was drawn to study different industry types and highe st ranked organization in an industry type was included in the sample. The organizations chosen to be included in t he study are provided in Table 3 1 . The choice of companies is a deliberate attempt to choose companies 1 The researcher contacted Dr. Henisz and his co Business School. Following the discussions with these two scholars and weekly meetings with Dean John Kraft, the sampling strategy was chosen.
83 representative of different industrie s. Once the companies were selected, ten year news coverage of the selec ted companies was gathered. A total of 22,357 news articles an alyzed for this study . Big Data in Public Relations The dissertation approached global news coverage for each organizati on from a big data method. A total of 22,357 news articles were gathered and analyzed to find patterns and guide the study. Oracle interprets big data as the electricity of the 21st century and as kind of power that transforms everything it touches in busi ) defined the big data trend as the next frontier for innovation, competition, and productivity. The report states the use of big data as a key differ entiator for leading companies to outperform their competition. Analysts at Gartner support the findings and warn that use of big data will cause traditional practices to fail. Berger (2013) stated that the use of big data in public relations is revolutio nizing the field and is very important as data driven decisions are better than intuition based ones. McAfee (2013) defined big data in terms of the incredible volume and variety of information available to analyze. McAfee (2013) also described that studyi ng and analyzing big data can improve an telling a new way to tell stories, adjust messaging and respond to public trends, and measure However, Working (2013) in a survey of public relations professionals found that 54 percent of the respondents did not know what big data is. Big data can mean different things in different industries but one definition common across all industr ies is the large volume of the data that is difficult to visualize, share, and analyze. Andrew McAfee from Massachusetts
84 relations students and educators at the Art hur W. Page Society Spring Seminar 2013. The scholars suggested that students should learn about big data and the related issues of analytics and continue to sharpen their analytical and critical thinking skills. Public relations professionals should be fi nd ways to use the data in their decision making, turn the data results into actionable insights and leverage data as competitive intelligence. Computer Software MATLAB Â® As mentioned earlier, the researcher approached the stud y from a unique perspective to mine big data using a computer software. The purpose of developing the software was to get access to big data for the selected organizations. For developing the software, a specialized computer program was purchased and a software engineer hired to wri te the computer program. A detailed description of how the software worked is provided in the followings s ection. MATLAB Â® is a high level language and interactive environment for numerical computation, visualization, and programming. MATLAB Â® is a multi par adigm numerical computing program and language developed by Math Works. MATLAB Â® allows matrix manipulations, plotting of functions and data, implementation of algorithms, creation of user interfaces written in computer languages such as C, C++, Java, and F ortran. The basic data element in MATLAB Â® is in a matrix form. MATLAB Â® is not only used in engineering fields but is also commonly used to analyze and manage financial risk. MATLAB Â® provides effective techniques for managing and analyzing credit risk which include creating customized risk models, performing Monte Carlo simulations, and analyzing scenarios to asses risk expo sure from financial activities .
85 Factiva Database Search The global news coverage for each organization was dow nloaded from Factiva database subscribed to by the University of Florida library. Factiva is one of the award winning products of sources in 28 languages from ne t en year data from Jan 1, 2004 to Jan 1, 2014. The rationale was to gather longitudinal data ab out an organization and use the big data set for data mining. A total of 22,357 news articles were coded for the study using the automated code developed for the study. The Factiva features were set to maximize the search functions of the database and increase the accuracy of the data gathered for the study. Factiva provides sources to choose from (e.g., publications, web news, blogs, pictures, and multimedia). The researcher decided to select all publications and all web news and not include the blogs, pictures, and multimedia sources in the analysis. The analysis of blogs and the resultant social media dialogue was not accounted for in the automated code and hence was not studied. The code and the lexicon were developed to analyze the subject verb statements in the news analysis and hence could not study the pictures or any multimedia accurately. Hence, the researcher chose to limit the source options to publicatio ns and Web news. Other Factiva features allowed the researcher to select authors. As the purpose of the study was not to limit articles written by particular authors, so this search feature was not used in the study. Under Factiva expert search, a user ca n select from various subjects like commodity/financial market news, corporate/industrial news, economic news, political/general
86 news, top stories/trends/analysis, and sports/recreation. The researcher selected corporate/industrial news, economic news, pol itical/ general news, and selection of top stories/trends/analysis as the subjects. The researcher decided not to include financial market news as the topics under the subject pertain to debt/bond, securities, equity markets, fund, and forex markets. The s tudy looked at social or political risks and the financial stock price audio visual links, blogs, columns, corporate digests, and calendar of events that were not to be included in the study. For the selection of industry, all choices were retained as the researcher wanted to include all news that pertains to the particular company with business across different industry types. For example: Procter & Gamble is a consumer goods company and can provide its products to different industry types around the world. Another important feature of Factiva is to handpick the region the researcher wants the news coverage from. As the focus of the study was to analyze corpora te diplomacy strategies by The reasoning was to find events that are unique in its social and political outcomes for the organization in a host environment and not in their home country. The language chosen was lead paragraph. Republished news and recurring pricing and market data were excluded from the results. The results w ere sorted by time and most recent news from 2014 was analyzed first, going back to 2004. Reliability and Validity The proposed corporate diplomacy strategies were validated using an in depth interview method with industry leaders. The researcher contac ted 10 industry leaders who have experience
87 working with global organizations and emailed them with an initial request of a phone interview. The researcher asked for assistance in validating the premise and direction for research on corporate diplomacy. Th e researcher outlined the purpose of the study to advance the field of are weaved in (e.g., media, regulators, governments, NGOs, activists, etc.) and to develop The researcher also outlined main objective of the study to develop corporate diplomacy strategies as a response to the key challenges MNCs face in host location. T he researcher attached the proposed strategies and asked for the feedback on the apparent validity of the framework based on their experience in global organizations. The researcher did five phone interviews that ranged from 25 to 45 minutes. The researc her spoke with Fred Cook, CEO, Gollin Harris; Margery Kraus, CEO, APCO Worldwide; Michael A. Fernandez, Corporate Vice President, Corporate Affairs at Cargill; Robert Grupp, President, Grupp Global Partners; and Edlund Bjorn, Chairman Europe, Middle East a nd Africa, Edelman. All five interviewees confirmed the construct validity of the strategic framework and suggested testing this further for organizations to adopt. All the respondents recommended interviewing senior executives in the selected organization s to better understand the strategies and strategic actions adopted by the organizations. The researcher plans to conduct interviews in a future study to validate the framework further. The study approached the content analysis methodology in a unique way to develop a computer code to analyze and mine the data. A software engineer who is not an expert in the topic of corporate dip lomacy developed the code. The researcher provided initial training to the coder over skype . The researcher explained the purpos e and objectives of the study and also did
88 initial manual coding to test if the automated code was giving the right results. The researcher downloade d all the data from Factiva in rtf format that was then changed and created into a text format for the comp uter code to read it. The Factiva database provides a unique document id to each story that was used by the code to identify each new story. Once the data was downloaded and prepared in a text format, the coder ran the initial set of 100 stories to calcula te a conflict cooperation score. The researcher also manually calculated the conflict cooperation score and compared the results. As there is no established method or percentages to compare the results, the researcher looked at the number of agreements and wide variations in score as an indicator of reliability. The purpose was to ensure that the code was identifying the subject verb statements from the story accurately and calculating the conflict cooperation score correctly. The coder and researcher worke d together to evaluate the precision of the code and finalized the code. The researcher then ran the code in the software MATLAB Â® to calculate conflict cooperation score for all the stories. The output file was saved in an excel format and used to further identify unique events for each organization. Event Data Methodology As described in the sampling strategy, the researcher chose MNCs following which events unique to each organization were chosen. The study adopted an event data methodology The creation of event data is basically a process content analysis (Schrodt, 1993). According to Frey, Botan, and Kreps (2000), content analysis was developed as a method for studying mass mediated messages and has been used as a research method since the eighteenth c entury. Content analysis is one of the leading methodologies used in mass communication research (Frey et al., 2000). Quantitative content analysis is defined by Riffe, Lacy, and Fico (1998) as the systematic and replicable examination of symbols of commun ication, which have been assigned numeric
89 values according to valid measurement rules, and the analysis of relationships involving those values using statistical methods, in order to describe the communication, draw inferences about its meaning, or infer f rom the communication to its context, both of production and consumption. (p. 20) . Hayes and Krippendorf (2007) identified advantages of content analysis to emphasize the sophistication of the method as compared to other mass communication research methods . Content analysis is an unobtrusive technique as it allows researchers to study texts that are present and available. The method analyzes content that is unstructured and allows the researcher to categorize the content. Another advantage of content analys is is the presence of content within the context that is helpful for the researcher for making replicable and valid inferences from data to their context (Hayes & Krippendorf, 2007). Content analysis also enables the researcher to handle massive amounts of data to study (Frey et al., 2000). Schrodt (1993) used event data as a method of measuring foreign policy. Event data are generated by examining thousands of newspaper reports on the day to day interactions of nation states and assigning each reported int eraction a numerical score or a categorical code. For example, if two countries sign a trade agreement, that interaction might be assigned a numerical score of +5, whereas if the two countries broke off diplomatic relations, that would be assigned a numeri cal score of 8. When these reports are averaged over time, they provide a rough indication of the level of cooperation and conflict between the two states. In the coding scheme used by Schrodt (1993), negative numbers indicate conflictual behavior, wherea s positive numbers indicate cooperation. Event data are a formal method to measure the behavior of political actors. In the 1960s and 1970s, event data were among the most popular data in international relations to analyze
90 foreign policy behavior (Veen, 2 008). Azar (1980) developed the more elaborate definition of events being verbal and/or physical signals between states. Schrodt and Gerner (1994) described event data as: nominal or ordinal codes recording the interactions between international actors as sequence of basic building blocks (e.g. comments, visits, grants, rewards, protests, demands, threats, and military engagements). (p. 826) Thus, apart from being r eported in a reputable public source, an event involves (1) an actor, (2) a target, (3) a time period, (4) an activity, and (5) an issue about which the activity resolves (Azar 1980). In general, the process of creating event data comprises three basic ste ps (Schrodt, 1994). The first step is to decide about the source(s). The source(s) should provide sufficient coverage of interactions within the time span the study intends to investigate and can rely on single newspaper, a bundle of newspapers, or newswir e services. The study looked at global news coverage for the selected organizations for a time period of 10 years (i.e., 200 4 201 4 ). The second step is the development or adoption of an event framework. In principle, an event framework defines all types of interactions that the researcher wants to identify as an event, which are defined as event types. Each event type is then assigned a unique code and In addit ion, event frameworks contain information on all the stakeholders one wants to include in the data set. The study used the themes and categories developed by scholars in international business. The researcher borrowed the lexicon developed by professors at Wharton Business School, described in the earlier sections of the chapter.
91 The third step then depends on the choice whether to rely on human coders or computer programs for creating event data. Once the aggregation interval for the data, which can be a day, a week, a month, or even a year is decided, the final step is to sum the weights of all events that fall within the chosen aggregation period to determine the net conflict cooperation score for the respective interval. The stu dy relied on computer pro gram, which was developed specifically for the study. For the dissertation, a conflict cooperation score of each news story was calculated. The dissertation followed a similar approach that has been used and adapted by international business scholars. The study adopted the conflict cooperation scale from the foreign policy literature that has been successfully applied to international relations, international business, and other disciplines (Dorobartu, Henisz, & Nartey, 2012; Dorobartu, Henisz, & Nartey, 2 013; Henisz, Dorobartu, & Nartey, 2011; Schrodt, 1993; Veen, 2008) and used the specialized computer program to calcul ate conflict cooperation scores. Conflict Cooperation Scale Conflict cooperation as an outcome of corporate diplomacy was analyzed in th e study. Scholars in international relations and conflict studies have examined the impact of soft power or the degree of conflict and cooperation among states on subsequent relations between states (Schrodt, 1993). To begin with the process, all media art icles in the Factiva database will be searched with the name of the selected organizations. The articles were perused to identify all stakeholder events, which are the subject verb object triplets that will reflect interactions between the organization and its stakeholders or their statements of position towards each other. The information about each relationship between the firm and a stakeholder were coded using a
92 computer code to identify key verb. The key verb was matched onto a conflict cooperation sca le that ranges severe conflict (valued as 0) to strong support (valued as 20). 2 The conflict cooperation scale helped examine the cooperation and conflict between two main actors for our study (organization stakeholders) and was computed as the simple mean value of the relationship between the two actors. Cooperation was computed as the simple mean value of the relations (scaled 10 20) between the two actors for each organization. Conflict was computed as the simple mean value of the relations (scaled 1 9) between the two actors for each organization. The values were then aggregated into time intervals, and summed to calculate a conflict cooperation score for each respective interval period. cale to better reflect relations between organizations and stakeholders in the business context. The Goldstein (1992) conflict Survey (WEIS) event data survey. WEIS coding s cheme consists of 61 event types grouped into 22 categories (McClelland, 1978) and allows for fundamental categorical scaling of events. The original WEIS project covered a time period from January 1966 to December 1978, with 98,043 events included in its final dataset (McClelland, 1999). The source of the project was The New York Times . The categorical WEIS events were then converted to a monthly numerical score using a scale devised by Goldstein in 1992. The most common WEIS scale is the Goldstein scale ( Goldstein 1992). Overall, the WEIS framework can be regarded as the most influential event coding scheme (Veen, 2008). Henisz, Dorobantu, and Nartey (2011) worked with linguists to create a list of 11,000 verbs that reflect each category in the conflict co operation scale. On several requests made by the researcher, the authors shared the lexicon with the researcher. The 2 A detailed description of conflict cooperation scale is provided in A ppendix 1.
93 lexicon was modified and used for coding the stakeholder events and for calculating a conflict cooperation score for the each news story. T he conflict cooperation score served as an indicator of the success of organizations in managing their nonmarket environment. Operationalizing Risk The corporate risk landscape has shifted significantly in recent years (Bekefi & Epstein, 2006). Organizat ions are increasingly threatened by risks that arise from multiple factors like the location of their facilities, their product and consumer characteristics, the nature of their employment relationships, or industry characteristics (Bekefi & Epstein, 2006) . Epstein and Rejc (2005) provided a risk assessment model and classified risk into four broad categories strategic, operational, reporting, and compliance. Strategic risk, according to Epstein and Rejc (2005), is defined as the risk that an organizatio n undertakes strategically to achieve its objectives. Essentially, strategic risks are the risks of failing to achieve these business objectives. Economic, industry, technological, or even political risks are some of the strategic risks an organization tak es. For example, the risks connected with developing a new product may be very significant the technology may be uncertain, and the competition facing the organization may severely limit sales. However, the alternative strategy may be to persist with pro ducts in mature markets, the sales of which are static and ultimately likely to decline. Operational risks are risks that relate to day to day operations of the organization and can result from ineffective business processes or even threats of loss of orga nizational assets, including its reputation (Epstein & Rejc, 2005). Environmental, business continuity, commercial, project, innovation, health, and safety risks are some of the common threats faced by organizations. For example: If production is being dis rupted by machine failure, key staffs are leaving because they are dissatisfied, and sales are being lost because of poor product quality.
94 All of these are operational risks risks connected with the internal resources, systems, processes, and employees o f the organization. Reporting risk are highly dependent on the reliability and accuracy of information systems that assist an organization in internal or external decision making (Epstein & Rejc, 2005). Reporting and information risks are some of the risk s most commonly impacting organizations. Compliance risks arise when an organization fails to address the laws and regulations, comply with applicable laws, regulations, contracts, and expected behaviors (Epstein & Rejc, 2005). Legal and regulatory risks , control risks, and professional risks are some of the examples of compliance risks. For example: The Federal Reserve Guidelines that became effective January 1, 2014 will favor those financial institutions that are proactive and self police their progra ms (Schaus, 2014). The s tudy analyzed events across four risk categories (i.e., strategic, operational, reporting, and compliance) to better understand the corporate diplomacy strategies adopted by organizations. Previous work on corporate diplomacy has emphasized the need for organizations to strategically manage their organizational environment. The literature is replete with depend largely on the community and pu blic institutions (Amann et al. 2007; Asquer, 2012; Ordeix Rigo & Duarte, 2009; Post et al., 2002; Steger, 2003). Thus, the current study defined risk as any social or political risk that may arise for an MNC in a host location. Companies face complex poli tical and social challenges that are wide ranging and have different impacts on organizations, depending on sector, geographic location, and type of operation (Bekefi & Epstein, 2006).
95 Social risk pertains to risks that may arise from the community or loc al population where an organization operates and does business (Bekefi & Epstein, 2006). For example: Organizations with operating plants and installations like factories, ports, mines, and refineries can lead to issues with the local community. Risks aris ing from environmental problems or social discontent surrounding a project can be extremely costly in terms of delays and stoppages, reputation, threats to operating license, and significant unforeseen expenditures. The case of Chiquita Brands Internationa l and its leaders paying off Colombian paramilitary groups to protect their employees is an example of how organizations have to deal with social risks in a host location. eatens a specific or county specific with varied implications for MNCs. For example: Changes in the legal framework in a country could have a significant negativ e impact on the organization whereas a civil war, changes in foreign currency rules may impact all industries and organizations in a country. MNCs have to respond to different political environments that in different locations may give rise to varying poli tical risks and can affect the profitability of an investment in a host country and even result in confiscatory taxation, corruption, or economic constraints such as exchange rate controls (Kesternicha & Schnitzer, 2010). The current study defined high ris k situation as an event that had political ramifications for the organization. The low risk situation was defined as any event that impacted the organization on a social level. The opening case of ArcelorMittal is a high risk situation where the decision b y ArcelorMittal to shut its furnace started as a protest from the workers but translated into a political matter with French Government threatening to nationalize the factory.
96 The distinction between social and political risks is not clear in the risk mana gement literature and is often described to fall on a continuum (Bekefi & Epstein, 2006). Social risk may also occur on the basis of empowered stakeholders addressing a social issue and who apply pressure on a corporation. A 2012 report by PWC reports that CEOs continue to be concerned about environmental and social issues, particularly in developing countries and emergent economies. However, it is a bigger concern if the social issue escalates into a political issue for the organization. The current study differentiates low and high risk based on the magnitude of the event in question. An event with both social and political implications for the organization is termed as high risk event whereas any event with one of the two kinds of risk is defined as low r isk event. Operationalizing Dependence on Stakeholders Discussions on stakeholders, and their importance to organizational performance and reputation, have been an important topic in both the management and public relations literature. Stakeholder theory (Freeman, 1984) and resource dependence theory (Pfeffer & Salancik 1978) both focus on actors external to the organization thus providing a framework for stakeholder prioritization. Frederick (1992) classified stakeholders into internal, external, key, a nd secondary ones, each carrying a different level of influence to the enterprise. Rowley (1997) analyzed stakeholder relations from a social network perspective to study that organizations deal with more than one stakeholder at a time, with interdependent relationships among these stakeholders. Consequently, the relationship between firms and their stakeholders are also complex and needs to be understood. The premise of stakeholder theory is that firms are bound to have conflicts with their
97 multiple stakeh olders. However, the current study proposed that the dependence on stakeholders will vary and that will define the corporate diplomacy strategy an organization would adopt. To identify and prioritize stakeholders, the current study used the power, legitim acy, and urgency framework as given by Mitchell, Agle, and Wood (1997). The framework given by Mitchell et al. (1997) categorized stakeholders in terms of power, legitimacy, and urgency and proposed that the more of these attributes a stakeholder has, the more salient the stakeholder is most used and functional model for ident ifying and prioritizing stakeholders (Sedereviciute & Valentini, 2011). The framework brings together important social science concepts to differentiate stakeholders. Agle, Mitchell, & Sonnenfeld (1999) surveyed CEOs of 80 large U.S. firms to examine relat ionships among the stakeholder attributes of power, legitimacy, urgency, and salience and found strong support for the attribute salience. Power is the ability of stakeholders to impose their will on a give relationship. Stakeholder power is seen as the c will. Legitimate stakeholder actions are seen as appropriate, proper, and desirable in the social system context. Suchman (1995) defined legitimacy as the behavioral patterns that are considered claims are time sensitive or critical (Parent & Deephouse, 2007). Mitchell et al. (1997) described the relationship between the attributes a stakeholder has with the degree o f salience the stakeholder would have. Power, legitimacy, and urgency attributes are social constructed and rooted at least in perception (Agle et al., 1999), and whenever an issue of potential concern arises, these three attributes are present for the org anizations to take action. However, a key
98 (Magness, 2008). Therefore, a claim can be urgent or legitimate at one point in time, but not at another. However, organi zations must be aware, that stakeholder analysis based on these attributes should be conducted on a regular basis, because power, legitimacy, and urgency changes overtime and situations (Sedereviciute & Valentini, 2011). For the purposes of this study, th e dependence on stakeholders was defined based on the attributes of power and urgency. High dependence on stakeholders was outlined as high power and greater sense of urgency on the part of the stakeholders. Low dependence on stakeholders was described as low power and lesser sense of timeliness and urgency for stakeholders. Legitimacy was not included to assess the power of the stakeholders as it is challenging in ers have different values and priorities (Steger, 2003) and hence describing what is legitimate or not may become subjective for the researcher. Data Analysis The data was analyzed to find trends using two types of trendlines. Trendlines were used to pr ovide a visual representation of the data and observe patterns in the data. The type of data determines the choice of trendlines. There are six different trend types; linear, logarithmic, polynomial, power, exponential, and moving average. A linear trendl ine best represents linear data sets and is used when the data is in linear pattern (it resembles a line). A linear trendline usually shows that something is increasing or decreasing at a steady rate. A logarithmic trendline is used in cases of sudden incr ease or decrease in data. Logarithmic trendlines use positive or negative values and the data levels out after the quick increase of decrease. A polynomial trendline is used when there is fluctuation in
99 the data and the order of the polynomial trendline ca ptures that variation. The order of the polynomial can be determined by the number of fluctuations in the data or by how many bends (hills and valleys) appear in the curve. For example: an Order 2 polynomial trendline generally has only one hill or valley whereas an order 3 trendline has one or two hills or valleys. A power trendline is a curved line that is best used with data sets that compare measurements that increase at a specific rate or time intervals. Power trendline can be used for data points tha t are not zero or negative. An exponential trendline is most useful when data values rise or fall at increasingly higher rates. Exponential trendlines also requires a non zero and positive data points to fit through the data. A moving average trendline use s specific number of data points to smooth out fluctuations in data and show a pattern or trend more clearly. The specific number of data points defines the period and its average defines a data point on the trendline. For example: If period is set to 2, t hen the average of the first two data points is used as the first point in the moving average trendline. The average of the second and third data points is used as the second point in the trendline, and so on. The researcher assessed each type of trendline to use for data analysis. The conflict cooperation scores for the news stories were not in linear and hence, linear trendline was not used for the analysis. Logarithmic trendline is used for sudden increase or decrease of the data which was not so in this kind of data. The increase or decrease in data depends on the kind of event, the implications of the issues, the power and urgency demanded by the event, and the corporate response and action for the specific event. The researcher did not use logarithmic trendline for t his data. A polynomial trendline captures the variability in the data, which was the case with the news coverage. The data fluctuated based on the duration of the event and the resulting media
100 coverage given to the event. So, the use of sec ond order polynomial trendline was justified in the study. Power and exponential trendlines require data sets with no zeroes or negative data points. The conflict cooperation scale used in the study had a zero value so the two types of trendlines were not appropriate for the study. As the number of data points differed for each company for each event in the host country, the variance in the data was too big to make meaningful interpretations. Moving average trendline was used to consolidate data and identif y trends and patterns in the data. Different moving average periods were used for each event based on the amount of data each company had and the variability in the data. Table 3 1. List of sample organizations and industry types included in the study Ind ustry Type Name Forbes Rank Oil Refineries Exxon Mobil 2 Motor Vehicles and Parts General Motors 7 Commercial Bank JPMorgan & Chase 18 Consumer goods company Procter & Gamble 28 Pharmaceuticals Johnson & Johnson 41
101 CHAPTER 4 RESULTS As wa s mentioned in the methodology section of the dissertation , the research was conducted in two phases . The first phase was to analyze 10 years of data for the selected organizations and identify the events based on the conflict cooperation scores introduced in the methodology chapter . A total of 22,357 news stories for the sample organizations were studied in the first phase. The second phase was to further investigate the identified events by studying country specific data and testing the conceptualized cor porate diplomacy strategies. The two phase approach was adopted to best understand the corporate diplomacy strategies and its impact on the level of cooperation among stakeholders. The researcher tried to bring fresher insights into the area of corporate d iplomacy and its importance in the global public relations scholarship. The results of the study are presented in two parts; the first part will summarize and illustrate the results from the analysis of the 10 year data for each organization and second p art will analyze the events in detail. The second part will also address the answers to the research questions and hypotheses derived from the big data. The Factiva database was used to collect 10 year data for the five organizations: ExxonMobil, Johnson & Johnson, JPMorgan Chase, General Motors, and Procter & Gamble. Global news coverage for each MNC was analyzed and the news stories were studied using the special automated code, which was also described in the methodology chapter. The chapter will first r eport the results for the sample organizations and detail the findings from the global media coverage that was analyzed for the dissertation. ExxonMobil and BP) and a ma jor petrochemical producer. ExxonMobil has 32 refineries in 17 countries and have a throughput capacity of 5.4 million barrels per day. The company supplies refined products
102 to about 19,400 gas stations worldwide. The top three competitors of ExxonMobil ar e Royal s c ompany p Figure 4 1 is a representation of global news coverage for ExxonMobil over a 10 year period. The conflict cooperation score from 1 10 depicts conflict and 11 20 depicts co operation. The conflict cooperation scores were calculated using an automated code based on a detailed lexicon covering verbs representing conflict and cooperation. The data points are the news stories and their corresponding conflict cooperation scores. T he news stories with high conflict scores, ranging from 4 7, were manually studied to select the events. he top management and executives and financial results were some common events that were identified in the coverage. The countries with the most coverage were Australia, China, Iraq, Nigeria, Russia, United Kingdom, and Venezuela (in no particular order). There were news stories on oilrig security issues, kidnapping of ExxonMobil employees by militants in 2010, and a ttack s on offshore oil rig s by militants in Nigeria. Analysis of the events over 10 years depicted extensive coverage on oil spills in Nigeria a nearly 11 million gallons of oil is spilled in a year Nigeria oil firms nths from the ExxonMobil facilities in Nigeria. The event caused major concerns for ExxonMobil and communities affected by the oil spills. The conflict scores for ExxonMobil for this event were amongst the lowest and hence the event was included in the stu dy.
103 restructure the oil projects started a fight between the MNC and the governm ent that lasted for MNC decided to quit the country. The arbitration case was also widely discussed in the media and was thus included in the study. General Motors General Motors (GM) one of the world's largest auto manufacturers, makes cars and trucks, with well known brands such as Buick, Cadillac, Chevrolet, and GMC. GM also builds automobiles through its GM Daewoo, Opel, Vauxhall, and Holden units. The company operates through five business segments: GM North America, GM Europe, GM International Operations, and GM South America. The top competitors of GM are Chrysler Group, Ford Motors, and c ompany p investments around the world. Announcements regarding $117 million investment in the Ontario plant, new diesel plants and $200 million investments in Thailand, and new plants in Indonesia were some of the events identified in the news coverage. Other events like the impact of the vehicles in 2004 in the United States were some other noticeable events in the news coverage. The most widely covered countries were Australia, China, Germany, India, Japan, South Korea, and United Kingdom (in no particular order). GM recalls in India was one of the most debated event in Indian media in 2013. The Tavera recall in India was t he largest vehicle recalls in the country leading to a government probe and firing of two top GM executives by the organization. The news media discussed the includi ng CEOs and managing
104 directors , from 2005 to 2012 . The magnitude of the event was seen through the conflict scores, which were extremely high in 2013. The second event for GM was most visible in their announcement in 2013 about closing their Australian plants. GM Holden follow ed Ford and Mitsubishi out of the country and was broadly covered and discussed in the media. As the announcement had implications for the Australian economy and the entire automobile industry, the conflict scores were considerably high around the event. The discu ssion in the media is still ongoing since Toyota also announced closing its production in Australia. The high conflict scores justified the inclusion of this event in the study . Figure 4 2 presents news coverage for GM from 2004 to 2014 and its correspond ing conflict cooperation scores for individual stories. The data points represent the news stories and scores. A closer look at the figure shows maximum number of news stories with a hig h conflict score, ranging from 4 8, around 2012 and 2013. Johnson & J ohnson Johnson & Johnson (J&J) is a diversified health care giant that operates in three segments through more than 275 operating companies located in some 60 countries. Its Medical Devices and Diagnostics division offers surgical equipment, monitoring d evices, orthopedic products, and contact lenses. J&J's Pharmaceuticals division makes drugs for an array of ailments, such as neurological conditions, blood disorders, autoimmune diseases, and pain. Its Consumer business makes over the counter drugs and pr oducts for baby, skin, and oral care, as well as first aid and nutritional uses. The top three J&J competitors are Pfizer, Novartis, and c ompany p Most of the events classified from the news media coverage were about the affected products ranging from blood sugar meters to hip implant parts , over the counter medicines, and
105 its massive Oral B recall worldwide. Other events included replacement of a number of senior executives, cut ting employees at the plants that have been shut pending investigations, and lost sales alone during financial year s . The most media covered countries were Australia, China, Germany, Japan, South Korea, and United Kingdom (in no particular order). The first event identified from the big data was t he baby powder recall in India in 2013. Health officials in India revoked J& J 's license to make cosmetics after they discovered the company had used an unauthorized process for sterilizing its baby powder. The mounting pressure on the company from its sta keholders was covered in the media and the opinion columns regularly discussed the malpractices and neglect of MNCs towards consumers in developing countries. overcome manufacturing problem s in 2013. All bottl es of Children's Tylenol made and sold in South Korea were recalled after finding high levels of the main ingredient . A probe by Seoul's Ministry of Food and Drug Safety halted production in t he J&J plant. The high conflict scores in 20 13 were clear indicators of the setback to the efforts to move past production problems since 2009 . F igure 4 3 details the global media coverage for J&J for the 10 year period and the calculated conflict cooperation scores. JPMorgan Chase With abou t $2.5 trillion in assets, JPMorgan Chase is the largest bank holding company in the U nited S tates with more than 5,600 branches in the country and among the nation's top mortgage lenders and credit card issuers ($128 billion in credit card loans). JPMorga n Chase is active in more than 60 countries and also has investment banking and asset management operations. The firm's subsidiaries include the prestigious JPMorgan Private Bank and
106 institutional investment manager JPMorgan Asset Management. It also owns private equity firm One Equity Partners. Barclays, Citigroup, and Bank of America are the top three c ompany p The global news coverage about JPMorgan Chase during 2004 2014 presented varied events like the r Stearns and Washington Mutual, plans to expand its loan portfolio in Brazil; changes in the duties of top level executives, loss of up to $5 billion from its exposure to Greece, Ireland, Italy, Portugal, and Spain lawsuits acc using the bank of improperly boosting minimum payments to generate higher fees, Former British Prime Minister Tony Blair t aking up a job as an adviser South Korean President to increase investment in South K orea. The most covered countries globally were Australia, China, Hong Kong, South Africa, and United Kingdom (in no particular order). The sons and daughters hiring program in China gained media attention and led to a Federal investigation impacting six o ther U.S. financial institutions operating in this Asian giant in 2013. The hiring practices in China violated anti bribery laws by hiring the children and other relatives of well connected politicians and clients in China in exchange for having business s teered to the organization. The case is being probed by U.S. investigators and is still pending gaining increased media attention. The event was included in the study to further examine the corporate response and actions, and risk and dependence on stakeho lders for JPMorgan. The second event further examined was the regulations violations by JPMorgan Chase as investigated by the U.S. Department of the Treasury. JPMorgan Chase Bank was fined $88.3 million for violating U . S . sanctions against regimes in Cuba , Iran, and Sudan, and the former Liberian government. With numerous countries involved the event was much covered in the
107 media and had high conflict scores. Figure 4 4 shows the news coverage of JPMorgan Chase from 2004 2014 and t he conflict cooperation scores. Procter & Gamble Procter & Gamble Company (P&G) is the world's largest maker of consumer packaged goods business divided into four g lobal segments. The four segments are Global Baby, Feminine and Family Care; Global Beauty; Global Health and Groom ing; and Global Fabric and Home Care. The company also makes pet food, water filters, and over the counter acid reflux medication. P&G's brands are available in more than 180 countries and compete with J&J, Kimberly Clark, and Uni lever as its main competit Hoovers c ompany 2014). Analysis of the media coverage for P&G from 2004 2014 reports events about patents, restructuring, retired CEO joining P&G back, cancer awareness campaigns, investments in India, ld to Kellogg company, partnerships in Korea, opening of $100 million p lant in Romania distribution center in China, new plant in Vietnam, and establishing a global R&D center in Beijing, among others. The most covered countries and regions by the media for P&G were Australia, China, European Union Countries, Germany, India, Singapore, and United Kingdom (in no particular order). over the past few years and the c onsumption value maintained an annual growth rate of 22% ( Frost & Sullivan , 2012). With II getting into trouble in China, the media caught up with high end beauty ca re product sales, SK II, were suspended when the China's General Administration of Quality Supervision, Inspectio n, and Quarantine allegedly found traces of chromiu m and neodymium toxins in SK II . P&G failed to facilitate product
108 refunds to the satisfactio n of many consumers in China in 2006. The importance of the Chinese market for P&G, the extensive coverage this even received, and the high conflict scores for several months classified the event to be included in the study. The second event for P&G was c hosen from the expansive media coverage it received in Europe about the price fixing fine. P&G, Unilever, and Henkel colluded over detergent prices for more than three years. The price fixing cartel began in January 200 2 when the three companies agreed to shrink the amount of packaging they used but to keep prices unchanged, and later to collectively raise prices. Figure 4 5 details the 10 year media coverage for P&G and the conflict cooperation scores for the time period. The first phase of the research conducted explored 10 years of data for the sample organizations. The events identified from the data was further examined with a closer look at the global news coverage to best explain the event, the corporate response to the event, classify the event for risk and dependence on stakeholders categories, and the early contextual factors that were present for each event. Exxon Mobil Oil Spill in Nigeria Event in brief ExxonMobil, through its affiliates, has a presence in some 200 countries and territories. T he merger between Exxon and Mobil Corporations in December 1999 brought together three major companies in Nigeria: Esso Exploration and Production Nigeria Limited, Mobil Oil , 2014 ). The U nited S tates imports about 8% of its oil from Nigeria that is nearly half of Nigeria's daily oil production ( Purefoy, 2010). Several oil spills near the ExxonMobil facilities were reported in 2012. The spills in 2012 were recorded on August 13, and 24, as well as November 9 and December 16 and 19. About
109 200,000 barrels of oil leaked from ExxonMobil facilities on Nov ember 9, 2012, destroying i nflicts t wo , 2012 ). Reports from the Ibeno comm unity noticed two oil spills at the Qua Iboe oil fields on December 16 and 19, 2012. A socio political group, the Eket Federal Constituency Vanguard, made up of community leaders, women , and youth groups from Eket, Esit Eket, Ibeno , and Onna local governme nt areas of Akwa Ibom State demanded N26.5 billion as compensation for the oil h ost , 2013 ). However, the organization in return offered just N2.5 billion to host communities as a compensation. The group r ejected the N2.5 billion oil spill compensation and declared that if the oil giant fails to meet all its demands the communities would embark on an indefinite protest against , 2013 ). The protesting youths and w omen took carried placards with the inscription Mobil insults community with N2.6bn out of N26.5bn; prepare for outcome; and excess crude oil revenue is for host com munity not projects. The youths also carried a mock coffin of the Managing Director of ExxonMobil, Mr. Mack Ward, Oil spill detected , 2012 ). The Akwa Ibom Government intervened in the protest a nd warned the youths in the area to desist from further blocking the operations of Mobil Producing Nigeria and their subsidiaries. The Government urged the youths to call off the protest and let the Government resolve the matter. Mr Isiah Abia, the Secreta ry of the Oil Spill Compensation Committee in Eket, said : ``Stakeholders of the affected communities have to respect the wishes of the state government by , 2013, Â¶ 4 ).
110 Corporate Response and Action s local subsidiary Mobil Producing Nigeria confirmed that oil had been found along the shoreline of Akwa Ibom state in southern Nigeria. A statement from the company confirmed that oiling from an unknown source has been sighted along the shoreline near Ibe n o, Akwa Ibom state and a n emergency response team had been sent to the shoreline a nd a sample has been collected Oil spill detected , 2012 ) . ExxonMobil officials had reported to the regulators that the November 9 oil spill discharged a mere 200 barrels of crude into the Atlantic but the oil firm deployed over 600 men to work for over one month to clean up the oil deposits nf licts t wo , 2012 ). The source of the leak was identified and the pipeline was isolated and shutdown. The company said it was investigating the cause of the leak but did n o t give any details on the amount of oil , 2012 cleaning up; they have to tell us what dispersants they are using as t heir continuous spilling in the area has destroyed the fisheries economy and general livelihoods of the people , Bassey, executive director of Environmental Rights Action, an affiliate of Friends of the Earth, , 2013, Â¶ 6 ). Risk and Dependence The oil spills in Nigeria were categorized under high risk and high dependence on stakeholders. The social and political risk is especially high in the oil industry as the industry operates with natural resource extracting activities , which are highly sensitive for contributing to environmental degradation by oil spills or gas flaring. The primary stakeholder in this event was the Nigerian community with a focus on managing the local government.
111 The presence of MNCs in developing count ries with abundant oil and gas reserves is high as host countries often lack the infrastructure required to conduct extracting operations on their own. The extractive industries, particularly petroleum and mining industries, face a high degree of political risk because of growing nationalistic feelings that natural resource endowments should be exploited for the welfare of all the people in a nation rather than for private profit (Robock, 1971). The social risk involved in this event was also categorized a s high. The dependence on stakeholders is defined through the power and urgency indicators. The po wer of the stakeholders has been demonstrated by their protests and demands and the urgency in this event was high based on the impact the oil spills had on t he communities and their livelihood. Early Contextual Indicators , 2011 ). Acco rding to Amnesty International, people living in the Niger Delta have experienced oil spills on par with the Exxon Valdez disaster every year for the last half Petroleum, p ollution , 2011 ted between nine million and 13 million of barrels had leaked in the five decades of oil operations. It also quoted U.N. figures of more than 6,800 recorded spills between 1976 and 2001 in Niger Delta. The report also details how the Nigerian government is failing to hold oil companies to account for the pollution they have caused. Oil spills are common in Nigeria's onshore Niger Delta due to widespread theft by oil gangs tapping into pipelines and the poor maintenance of some ageing infrastructure shuts pipeline , 2012 ) .
112 Numerous media reports state how ExxonMobil has been neglecting the Niger Delta and the growing risk in the region. Nigerian oil is light and easier to refine than the heavy crude oil from other parts of the world. With five oil sp ills in a five month period in 2012 indicates the neglect on the part of the organization to manage its nonmarket environment. Exxon Mobil against the Venezuelan Government Event in brief The dispute between Venezuela's state owned oil company, Petr Ã³ leos de Venezuela President Hugo Ch Ã¡ vez. Following the nationalization, Venezuelan government offered to s, which was not agreed upon by ExxonMobil. The International Chamber of Commerce (ICC) arbitrated and ordered Venezuelan government to pay $908 million to Exxon Mobil based on the book value of , 2012 ). Exxon had sought as much as U.S. $10 billion in compensation for its heavy crude upgrading project in the Orinoco belt, which was nationalized by ChÃ¡vez . In addition to the ICC claim, Exxon filed for arbitration with the World tlement of Investment Disputes over the same is awarded $908 million, 2012 ). Former Venezuelan President Hugo ChÃ¡vez in a statement said that they would not recognize any ruling by a World Bank tribunal in the arbitration case with Exxon Mobi l 2012 ). For years, Mr. ChÃ¡vez has confronted oil companies with tax increases and contract changes aimed at increasing revenue from the industry to pay for state led antipoverty prog 2008 ). During ChÃ¡vez 's reign, oil production declined from 3.5 million barrels of oil equivalent to 2.5 million a day. At the same time, exports declined from 2.2 million barrels of oil a day to
113 1.6 million barrels of oil a day, bringing down the country's revenue from oil, and taking the country from the fifth largest exporter of oil to the eighth largest exporter of Venezuela and, 2013 ). The warning lead to legal dispute between Venezuela and ExxonMobil after the former Venezuelan President imposed bigger state contr indu 2008 ). Corporate Response and Action companies would have to become minority partners with PDVSA, Exxon , and Con ocoPhillips pulled out of the country enti 2013 ). Venezuelan President Hugo ChÃ¡vez threatened to halt all oil exports to the United States. PDVSA later broke off its commercial ties and halted the supply of crude and petroleum pro ducts to ExxonMobil. "Faced with the legal economic harassment started by Exxon Mobil against PDVSA and as an act of reciprocity, PDVSA has decided to suspend commercial relations," the Venezuelan company said in a statement. Exxon Mobil said it will act to ensure supply to its clients. "It is our long standing practice to take appropriate steps to meet our customer needs," spokeswoman Margaret Ross said , 2008, Â¶ 5 ). Exxon Mobil is challenging the ChÃ¡vez government's nationalization of one of four heavy oil projects in the Orinoco River basin, one of the world's , 2008, Â¶ 6) . Some oil companies including San Ramon, Calif ornia based Chevron Corp., France's Total, Britain's BP , and Norway's Sta toilHydro have negotiated deals with Venezuela to continue as minority partners, but Exxon Mobil and Houston based ConocoPhillips declined that Venezuela Vows to Reject , 2012 ).
114 Risk and Depende nce The arbitration case between ExxonMobil and Venezuelan government was categorized as high political risk as the reliance on the state owned PDVSA was extreme in this situation. The arbitration case did not pose any social risk o n ExxonMobil as the ch allenge was to work under the new government rule. The new rule by ChÃ¡vez government required all oil companies to work in joint venture with PDVSA, the state oil company, wielding the controlling share. The dependence on stakeholders was characterized as low. The power of the stakeholders, in this case the Venezuelan government was very high but the urgency was low. Hence, the dependence on stakeholders was classified as low. There was also low involvement of stakeholders other than government officials. H owever, the primary stakeholder in this event was the Venezuelan government. Early Contextual Indicators The biggest contextual indicator was the political situation in Venezuela. A brief look at the political turmoil in Venezuela states that Hugo ChÃ¡vez , a military officer, was elected the president in 1998 and in 2001 he made a new law requiring PDVSA, the state petroleum company, to hold a majority stake in all upstream oil projects. A st rike by workers at PDVSA created political chaos and ChÃ¡vez sacke d 20,000 PDVSA employees in 2003. The mass firings included 75% of the company's engineers, 70% of research scientists , and 50% of its refinery employees . ChÃ¡vez won reel ection in 2006 and in 2007 took control over four heavy oil products in the Orinoco belt worth billions of U.S. dollars oil . The political unrest in the country was a nationalization , 2012 ).
115 General Motors India Tavera Recall Event in brief In one of the largest vehicle recalls in India, General Motors India recalled 1.14 lakh units of its multinational purpose vehicle Chevrolet Tavera, manufactured between 2005 and 2013, to address emissions and specification issues. op selling vehicles in India, and the recall impacted the year over year sales percent significantly. The investigations by the government reported that the company knowingly violated engine testing and compliance of production norms, leading to Tavera veh icles on the roads in India that did n o t m The recall was the result of a surprise check by the Automotive Research Association of Transportation, which discovered that diesel engines included in production spec Taveras were not the same as those that GM sent for testing. Prior to the recall, GM India admitted in a letter to the Indian government that an internal investigation has fou nd that the automaker violated testing regulations when employees intentionally used compliant/approved engines in purpose built Taveras sent for conformity testing to the government. Following government approval, GM included non compliant engines in prod uction spec Taveras. A government appointed panel probing the situation, the panel found corporate fraud. level management who were employed by the automaker between 2005 and 2013 ( 2013 ). Corporate Reaction and Action General Motors India informed government authorities of an emissions issue involving the Tavera BSIII and an issue with the Tavera BSIV meeting certain specifications. GM India voluntarily recalled the specified models and the affected vehicles were repaired free of charge
116 across GM dealers in India. The company stopped production and sale of the Tavera BSIII and the Tavera BSIV. The issues are not safety related, the company ad ded. The carmaker said it has since identified a solution to the issues and performed the required engineering validation, and is await ing regulatory approvals . "After the proposed solution receives approval from authorities, General Motors will resume T avera production and sale, and move forward with its recall and customer notification plan for both the BSIII and BSIV models," the company said. C ommenting on the recall, General Motors India president and managing director Lowell Paddock said: "Our custo mers are at the centre of everything we do. Exceeding their expectations begins with designing, building and selling the world's best vehic les that endure over time" ( 2013, Â¶ 6 ) . Confirming the news, here was an emissions problem. We investigated it and identified violations of company poli Gen , Â¶ 5). GM India was also accused of purposefully misleading government inspectors and fudging emissions tests. A total of 15 GM India executives were fired as a result of the probe. Before announcing the recall, GM India had admitted in a letter to the government that its internal probe has found that company employees refitted noncompliant engines with tho se that were already approved and sent them for testing. GM fired its global chief of engine development Sam Winegarden and GM India financial officer Anil Mehrotra Gen Risk and Dependence The massive cars recall in India cer tainly had high political risks as a government panel including the Ministry of Road Transport and Highways was appointed to probe the issue. The production and sales of Tavera were stopped and many top executives were found to be aware of
117 the fraud. The e vent had low social risks but high dependence on stakeholders. The power and was at risk too. The primary stakeholders in this event were the Ministry of Road Trans port and Highways and the consumers in India. But the prime focus was on the government probe and investigations. Early Contextual Indicators The early indicators in the recall event could be seen in the internal organizational processes. The company e mployees intentionally falsified emission tests on a key vehicle to get approvals. GM has had similar issues and recalled the diesel variant of its Sail model to address a potential engine issue. The recall affect ed 2,910 units of the sedan version of Sa il and 1,090 units of c ompact car variant of the model ( G M also recall ed about 780,000 vehicles in North America in 2014 due to faulty ignition switches that can cause the engine to shut off unexpectedly and disable the air bags, which failed to deploy in crashes that General Motors Closing Plants in Australia Event in brief in 2013 that it would end its production l ines in 2017 after 69 years , joining Ford Motor in exiting the Australian market . In May 2013 , Ford Motor said it would shut down its two Australian auto plants in October 2016; GM to s hift General Motors announced it would stop making cars in Australia by 2017 due to high costs and a cripplingly strong currency, fuelling fears rival Toyota Motor Corp will follow suit and put the entire local autos industry at risk. decision to close its Holden plants in South Austr alia and Victoria states is a threat to Australia's manufacturing industry and the auto sector
118 in particular The decision will result in more than 2,900 job losses. GM is pulling out of Australia at the same time it is closing p lants in Europe, another region that has become unattractive for auto production because of hi GM The company is closing a car assembly factory in Germany to reduce output and plans to end Chevrol et sales in The automaker also plans to slash production in South Korea by as much as 20% by 2016. Holden has posted losses in six of the past eight years, including in 2012, when falling sales of its signature Commodore and Cruze models created a loss of roughly U . S . $140 million. Holden is currently the second best selling auto brand in Australia, with its market share of around 11 percent trailing Toyota Motor Corp's near 20 % . But with more than 60 automobile manufacturers fighting for a market selling just over one million vehicles a year, Australia is a challenging market for the automobile industry GM already imports the majority of the Holdens it sells in Australia, mostly from South Korea and Thai land, and may ramp up imports from such plants once Australian production halts. Toyota also announced in 2014 to pull out of the Australian market Toyot decision marks the end of an Australian car industry that traces its roots to 1901, as a fall in trade tariffs, the small scale of local plants and an Australian dollar that surged almost 50 % against the U.S. currency from 2009 to 2012 pushe d consumers to cheaper imports Corporate Response and Action "The d ecision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world," Mr. Dan Akerson, departing Chief
119 Executive The closing of GM's two plants in Australia is a setback for the new conservative government. Prime Minister Tony Abbott was elected in September on a pledge to reduce government debt, proposing steep budget cuts including a halving of auto industry assistanc The previous center left Labor administration had invested heavily in propping up the country's auto indust The company needed more assistance from the Australian government to survive long term. Abbott's government had earlier ruled out providing the industry further addi tional assistance, "No matter which way we apply the numbers, our long term business case to make and assemble cars in this country is simply not viable," General Manager Mike Devereux told reporters at GM's car plant in Adelaide Risk and Dependence The event was categorized as low risk and low dependence on stakeholders. The political and social implications were high before GM made this announcement. The dependence on Australia n government to support the automobile industry and the dependence on employees and consumers for its survival in the Australian market was critical when GM planned its exit from the Australian market. The primary stakeholder in the case of GM Australia wa s Australian government since the time the policies for auto industry were changed. Early Contextual Indicators Since 2004, the GM Australian unit only posted a profit in two years, 2010 and 2011. The automobile industry in Australia had been facing com petition from imports, high costs, and no The costs of making cars is more than at any GM plant overseas. GM
120 contextual indicators. In October 2013 , Swedish appliance maker Electrolux AB announced it would close a manufacturing plant in New South Wales, while global food giant Heinz last year moved some production from Australia to New Zealand, where costs are l ower The value of government assistance outstripped Johnson & Johnson Baby Powder Recall India Event in brief consumer healthcare divisio n, over t he past few years has recalled millions of over the counter products . In 2012, h ealth officials in India revoked J&J 's license to make cosmetics at a plant outside Mumbai after they discovered the company had used an unauthorized process for sterilizing it , 2013 ). An investigation by the Maharashtra Food and Drug Administration (FDA) revealed that J&J, at its plant in Mulund, had used ethylene oxide to kill bacteria in its baby powder , 2012 ). Ac cording to FDA officials, the order was issued in a case dating back to 2007 when they found that 15 batches , c onsisting of 1,60,000 containers, of Johnson & Johnson baby powder were sterilized by ethylene oxide, a known carcinogenic and irritant. "While e thylene oxide can be used for sterilisation, the company did not bother to carry out a test after the process to check the amount of residue in the product. The products are used for newborn babies. It is must for the company to follow all measures," said the FDA joint commissioner KB Shende Cancer c ausing a gent , 2012, Â¶ 5 ). manufacture the Johnson baby powd Cancer c ausing a gent , 2012, Â¶ 5 ) . In addition, FDA ascertained that there were no complaints or unexpected effect reported concerning any of the batches in question .
121 Corporate Response and Action J&J confirmed the license cancellation and said that it was an ongoing discussion with Ind ian regulators . "We understand their concerns and are diligently working with them to resolve the issue," Peggy Ballman, a J&J spokeswoman, said in a statement, adding that there were no consumer complaints or adverse events reported due to its use of the process pull , 2012, Â¶ 6 ) . The sterilization process in question was used on a one time basis on a limited amount of baby powder . But f or a brief time in 2007, J&J used an alternative sterilization process. J&J could not explain why an a lternative process was used to for the sterilization process. Peggy Ballman said widely accepted and safe practice of sterilization when making many medical devices and consumer product s and leaves no harmful residue " but "the process was no t registered with the local FDA and they viewed this step as out of compliance " , 2012, Â¶ 6 ) . T he company assured people that the baby powder manufactured and sold only in India was safe and did not pose any health risk at any time . J&J spokeswoman said, important to us than the safety of our products and health of the consumers. We continue to manufacture non cosmetic products at th e same site . The Bombay high court allowed the J&J f court lets , 2012 ). J&J said, as part of an audit, it had in 2009 checked samples of three batches and found no residue. J&J told the HC that the 15 batches were brought back to its facility and tested according to a validated process before release into the market. The judges also said it is open to former employee Ajit Telang, who claimed to be a whistle blower, to approach the , 2012 ).
122 Risk and Dependence The baby powder recall by J&J in India was categorized as high risk and high the political risk for the organization. The cancellation of J&J product license and banning the sales of the baby powder in India threatens the social license to operate for J&J. The power of stakeholders (FDA and Judicial system) had complete control over the operations and created the urgency and need to act in a timely manner for J&J. The primary stakeholders in this event was the Maharashtra Food and Drug Administration who were leading the investigation and Early Contextual Ind icators scientist, Dr. Ajit Telang about health and legal implications . Despite the warnings, the organization did not withdraw the batch of baby powder and knowingly expo sed lakhs of infants to daily skin contact and respiration of carcinogenic ETO . Telang, who worked with J&J for 22 years alerted his superiors about the harmful effects of E T O but was terminated to cover up the matter . Dr. Telang then approached FDA under the Right to Information Act followed which FDA investigated the matter. The FDA lawyer stated that the company was not admitting to its fault and there was an absence of repentance and remorse. Johnson & Johnson Children Tylenol Recall Event in brief S ince 2009, J&J has faced a series of quality issues that have resulted in numerous recalls, withdrawing products ranging from certain hip replacement parts to contact lenses to
123 glucose meters to bi rth Johnson & Johnson recalls Sout and drug regulator on Thursday ordered a halt in production of five products manufactured by J&J unit Janssen Korea Ltd. and announced it will seek criminal charges following a recall sparked by the discovery of unusually high levels of the active ingredie syrup Johnson & Johnson recalls The Ministry of Food and Drug Safety said it plans to ban the production of the dandruff shampoo Nizoral for four months, and it will implement a one month ban on the production of a painkiller, a medication used to treat behavioral disorders and a remedy for stomach ailments. The Ministry of Food and Drug Law. A routine quality control inspection detected the undue concentrations in late March, and after a company investigation, J&J reported the problem to South Korean drug regulators on April 22, 2013. Some bottles were found during quality control tests to have too much acetaminophen, the active ingredient in the drug. According to US FDA ingesting high amounts of acetaminophen , 2013 ). The plant temporarily halted production of the recalled Tylenol as J&J worked w ith the regulators. J&J then retrieved more than 90% of the , 2013 ). Corporate Response and Action J&J's Janssen Korea unit withdrew 1.7 million bottles of Children's Tylenol in South Kor ea on April 23, after routine quality control testing detected concentrations of the key ingredient, acetaminophen, that were "slightly out of specification" in some bottles, said the , 2013, Â¶ 4) . J&J said t he , health risk is remote, and it hasn't received any reports of harm , 2013, Â¶ 4) . The
124 Free Tylenol Suspension -Cherry Flavor in 100 milligram J&J r ecalls Some 3) . J&J said it traced the problem to the failure of the machines that fill the bottles at the end of manufacturing runs, the spokeswoman said. Some of the remaining bottles were filled by hand, leading to the improper concentrations, she said. Janssen Kor ea Ltd. said in a statement the company has corrected the problem and promised it will do its best to prevent the recurrence of such a problem. J&J wrote in a statement on its website, "We offer a sincere apology to the Korean people and parents with child bottles , 2013, Â¶ 4) . "We'll actively cooperate with the Korean government's investigation with regard to this case." Seoul's Ministry of Food and Drug Safety said it has begun looking into the ca se and will punish the company if any violation of drug and medicine regulations is found J&J r ecalls s ome Â¶ 5 ) . Risk and Dependence The Children Tylenol recall event is a sensitive issue and was termed as high risk and high dependence on stake holders. The ban on production, the recall, and cancellation of production had high social risk implications for the organization. The decision and involvement of Ministry of Food and Drug Safety situates the event under high political risk as well. The po wer of stakeholders to boycott the brand and product and the urgency involved because of the health hazard to children defined the event as high in the dependence on stakeholders. The primary stakeholders in this event was t he Ministry of Food and Drug Saf ety and the Korean government which banned the sales of the product and stopped the production as well.
125 Early Contextual Indicators The recall is the latest setback to the company's efforts to move past production problems that have weighed on it since 2009, costing it hundreds of millions of dollars in lost sales, damaging its reputation with consumers and drawing the close scrutiny of government health regulators. To revive its reputation in the U nited S tates , J&J launched a corporate branding campaig n. However, the brand is not seen positively in emerging markets. complained about problems with a new dosing system. Similar recalls were made in 2010 when J&J re called 135 million bottles of children's and infant's Motrin, Tylenol, Benadryl , and Zyrtec drugs for quality issues. Another investigation revealed that J&J also tried to conduct a phantom recall of more than 88,000 Motrin tablets in June 2009. To conduct the clandestine recall, J&J hired subcontractor WIS to buy up products from store shelves without notifying consumers of may, 2010 ). JPMorgan Chase China Corruption Case Event in brief JPMorgan Chase has been under the sc anner for its corrupt hiring practices in China. The U.S. Department of Justice obtained documents showing that JPMorgan Chase has been hiring ese government run companies (Protess & Greenberg, 2013) . The documents business deals . 2006 -
126 connected candidates on a separate track from ordinary applicants was not well scrutinized and turned out to be an improper way of hiring children of Chinese officials to win business in China (Greenberg & Protess, 2013). The Foreign Corrupt Practices Act prohibits U.S. n companies from paying money or offering anything of value to foreig n officials for the purpose of se curing any 013). JPMorgan also briefly kept historical deal conversion spreadsheets, according to interviews with people briefed on the investigation. In one column, JPMorgan listed job candidates; in another, the bank recorded its track record for winning business f rom com panies tied to those candidates Other spreadsheets listed well connected hires and the revenue JPMorgan earned from deals with private and state owned Chinese companies linked to those hires, documents show JPMorgan in 2006 hired Fullmark Consulting to hel p improve its standing in China . Fullmark Consulting , which received a $75,000 a month contrac t over two years from JPMorgan was run by Wen Ruchun , the only daughter of Wen Jiabao , who at the tim minister f ruitful . In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state con trolled financial conglomerate son came on board, JPMorgan secured multiple coveted assignment s from the Chinese conglomerate (Protess & Greenberg, 2013) . Corporate Response and A ction chief executive for China investment banking and a vice chairm an for Asia investment banking retired after his email about the hiring practices in China were handed over to the authorities by
127 The hiring practices seemed to have be Hong K ong . said Fang advise Chinese companies ( Prot ess & Greenberg, 2013 , Â¶ 4 ) . JPMorgan is cooperating with the government inquiries from the S.E.C. and the U . S . att In discussions with authorities, JPMorgan has explained that it did spreadsheets were meant to assess whether JPMorgan bankers, in hopes of securing full time jobs for some interns in the program, had exaggerated the revenue received from state owned companies (Protess & Greenbe rg, 2013) . Risk and Dependence The corrupt hiring practices case is best described as high political risk event where the Federal Agencies are involved and an investigation has been opened up for not only the organization in question but the banking ind ustry in general. JPMorgan has been caught up in U.S. regulatory probes into its business practices. The federal authorities have expanded their investigation to include hiring practices of other Wall Street banks conducting business in China i.e., Goldma n Sachs, Citicorp, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, and Bank can be assessed as high as well because the corruption indicators in this case are extremely high as well. The dependence on stakeholders is not termed as high because although the power of the stakeholders, the U.S. regulatory agencies, is high but the urgency of the event and its timeliness is not termed as high at present. The primary stakeholder for this event is the Federal Agency involved and investigating the issue.
128 Early Contextual Indicators The early indicators of the event came from within the organization when t wo whistle blowers raised concerns, with one filing a complaint in April 2011 with the Hong Kong stock exchange and another coming forward to U.S. authorities in 2012 . Underscoring the worries, a junior banker in Hong Kong resigned from JPMorgan in December 2011 stating that his family is not in a position to help the bank to the extent Hiring in China , 2013 ) . However, the organization did not pay attention to its hiring practices and the impact it may have on other stakeholders, most important being the employees in this case 2013) . JPMorgan Chase Sanction Violations Event in brief In the largest settlement ever paid for sanctions violations by a U.S. financial institution , JPMorgan Chase was fined for processing wire transfers to totaling around $178.5 million for Cuban nationa ls in late 2005 and early 2006, violating United States embargo laws. Among the sanctions apparently broken by JPMorgan are weapons of mass destruction proliferation rules as well as sanc tions against Cuba, Iran, and Sudan. he transfers in 2005, after they were tipped off by another financial institution, but failed to report them and did not take adequate steps to prevent more transfers p ay The bank was also fined for a 2009 incident in which it made a $2.9 million loan to a owned shipping line, a violation of United States sanctions against the Northern African nation. Again, JPMorgan Chase learned of the apparent violation early on bu t did not disclose it to regulators until March 2010, three days be fore it was ay A third violation occurred in 2010 and 2011,
129 when the bank failed to give up documents about a wire transfer that referred to Khar toum, the capital of Sudan. JPMorgan Chase had been charged with the violations of the Bank Secrecy Act, laundering money for the Mexico drug cartels, and the violations of the sanction orders , 2011 ). The wire transfers were discovered by another U.S. financial institution, which informed JPMorgan Chase about the issue. After conducting an investigation, which confirmed the findings, the results were reported to management, yet the bank still failed to take adeq uate steps , 2011 ). Corporate R esponse and A ction tier U . S . financial institution such as JPMorgan. The Treasury investigation T he investigation agency gave JPMorgan a list of documents believed to be possessed by JPMorgan. In response, JPMorgan, which previously said it had no such documents, produced more than 20 of the items in question. JPMorgan Chase agreed to pay $88.3 million as part of a settlemen t with the De partment of the Treasury , 2011 ). JPMorgan said that it never dealt directly with institutions in the embargoed countries and that it had merely acted as a middleman. The penalty, the government said, had been reduced because JPMorgan cooper ated substantially with the investigation later , 2011 ). Treasury officials called the knowledge of the conduct constituting the apparent violations and recklessly failed to exercise a mi nimal degree of caution or care
130 of which involved any intent to violate OFAC regulations. These rare inci dents were unrelated pleased to have resolved these matters and to move forward with enhancements to our global OFAC compliance program a Â¶ 5). Risk and Dependence The risk factors in this case were mainly political as the violations tracked by the Treasury raised political issues for JPMorgan. The event was not categorized as high on its dependence on stakeholders. The implications for this event were more on the organizational credibility and reputation and less on its stakeholders. The transgressions include d many wire transfers that in voked various sanctions regimes and posed high risks for JPMorgan. The ssets Control was identified as the primary stakeholder in this event. Early Contextual Indicators Treasury characterized several of the apparent violations and neither did the bank take adequate steps to prevent further transfers nor did it self report. A considerable portion of the transfers happened after JPMorgan had been notified of the potential sanctions violation. The Treasury official said that much of the conduct at JPMorgan counsel and compliance offices from 2005 to 2011 JPMorgan Chase to pay Procter & Gamble SK II Cosmetic Brand Recall in China Event in brief The National Quality Inspection Department of the State General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) tested samples from a batch of the
131 SK II products in 2006 and announced that nine SK II skin care products contained chromium , 2010 ). P&G suspended all sales of SK II products and shut down its department store sales counters and its refund sites, resulting in further consumer anger. Customers gathered outside P&G's Shanghai branch to protest, and the glass was smashed on the company's gate. The local dep artment stores said they would discuss , 2006 ). P&G later resumed sales of SK II products in China in October 2006. The announcement was made after the General Administration of Quality Su pervision, Inspection , and Quarantine and the Ministry of Health made a joint declaration regarding the safety of SK II products. The declaration said the neodymium and chromium detected in SK II cosmetics came from raw materials and only posed a minor haz ard to consumers' health if used pro perly , 2006 ). Corporate R esponse and A ction P&G initially denied SK II products contained any harmful substances whereas a number of Chinese retailers removed the product from their shelves. After initially denying problems, P&G subsequently withdrew nine products from their SK II product range. P&G denied that SK II was harmful to its users and that the two substances were not excessive enough to cause health worries. Chromium and neodymium a re known to occur naturally in products through the manufacturing process, but are not an additive, ingredient or by product during manufacturing s tores h and , 2006 ). P&G later suspended sales of all SK II products. P&G also required consumers to sign a II products were safe to get a refund. The consumers had to wait for one month before receiving any cash refund. Some refund sites in big
132 ghai s tores h and , 2006 ). P&G spokeswoman Maria Burquest diverted questions over whether the company overall has a credibility problem, focusing instead on the safety of SK II. "All SK II products around the world are safe, and consumers can continue to us e them with complete confidence," Burquest said. "The situation in China is a unique one and is different from other countries" s tores h and , 2006, Â¶ 5 ). P&G required each customer to meet four specifications in order to obtain the refund cter & Gamble's China , 2006) : 1. The product had to be one of the nine banned products . 2. Customers had to have a history of allergies and produce proof from a hospital . 3. Customers had to product the original receipt of the product they wanted to return . 4. The pr oduct had to be no more than 1/3 unused . Risk and Dependence The dependence on stakeholders in the event was high as the power of Chinese consumers to boycott the products and the brand was more than the organization. The urgency of the product recall an d its health hazards for the customers demanded immediate attention by the organization. However, the political or social risk in this event was not categorized as high. The National Quality Inspection Department of the State General Administration of Qual ity Supervision, Inspection, and Quarantine was the primary stakeholder for this event, which investigated the case. Early Contextual Indicators P&G initially appeared reluctant to halt sales of SK II in China and took the stance that P&G had no plans f or a recall. Although P&G suspended sales on a later date, the company
133 insisted it isn't recalling SK II products because they aren' 2006 ). Rather than "recall" its products, P&G chose the term "return." The company stated that a r eturn is different from a recall; while the former is derived from consumer dissatisfaction, the later means there are indeed defects in the product. P&G claimed at least three times in its formal statements that its products are safe without question. The Chinese newspapers and magazines, frequently used words like "arrogant" and "defiant" to describe P&G's handling of the SK II case. The early contextual indicators should have emphasized the heightened awareness of the Chinese consumers and the changing l andscape of the Chinese cosmetic industry. P&G had paid a heavy penalty for its misleading advertising of its skincare products SK II in 2005 but seemed P&G accepts fine, 2006 ). Many analysts claim that doing business in China is significantly different from doing business in developed markets. Procter & Gamble Price Fixing Fine by European Union Event in brief The consumer products giant s Unilever and P&G were fined 315m euros (Â£280m, $456m) in 2011 for fixing washing p owder prices in eight European countries. The decision followed a three year investigation by the European Commission following a tip off by the German company, Henkel ( 2011 ). The European Commission said the soap giants fi xed washing powder prices for more than three years. P&G paid paid operated with the inv estigation and agreed to settle lever and Procter & Gamble, 2011 ). The price fixi ng cartel began in January 2002, according to the commission, when P&G and Unilever, along with Germany's Henkel, held talks over plans to imp lement an industry wide
134 program to improve the environmental performance of detergents. The companies agreed to sh rink the amount of packaging they used but to keep prices unchanged, and lat er to collectively raise prices lever and Procter & Gamble, 2011 ). The companies formed the cartel after working on methods to reduce the weight of detergent powders and to reduce waste from boxes and bags through the Association for Soaps, Detergents , and Maintenance Products, a trade association that includes other major home products companies EU fines Unilever, P&G The cartel operated in Belgium, France, German y, Greece, Italy, Portugal, Spain , and the Netherlands , between 2002 and 2005 . "The cartel lasted some three years and aimed at stabilising market positions and at coordinating prices in violation of EU and EEA antitrust rules," said the commi ssion as it a nnounced the fines , 2011, Â¶ 6 ). Henkel avoided a fine after being granted full immunity for informing the commission about the cartel in 2008. Corporate Response and Action P&G acknowledged its participation in the c artel and agreed to pay the fine. P&G with its cooperation in the process qualified for a 50% reduction in its orig inal fine under leniency rules. These discounts are part of the commission's attempt to speed up its investigations by using a simplified pro cedure. The EU Competition Commissioner Joaquin Almunia said in a statement: "By acknowledging their participation in the cartel, the companies enabled the Commission to swi ftly conclude its investigation " , 2011, Â¶ 6 ) . P&G also said it had strengthene d its global compliance program . P&G had made provisions to cover a likely fine from the commission. "Perhaps more importantly, we have already taken the appropriate internal action, including strengthening our global comp liance program, which includes extensive training, reinforcement of key policies and regular auditing," P&G spokesm an
135 Paul Fox said in a statement Unilever, P&G Fined P&G can still face damages claims from other firms, or individuals, who c laim that they suffered financial losses because of the way prices were fixed . Risk and Dependence The price fixing case was considered as low risk, as the political implications for the case was significantl y higher than its social implications. The fine by the European Union posed political challenges for the organization. However, the cartel being run by organizations were not a social threat to the countries involved. The power of stakeholders, EU in this case, was high as EU controlled the outcome of fixing the fine. The urgency of stakeholders in this event was low and was not bound by immediate action on part of the organization. EU was the strongest and the primary stakeholder identified in this event. Early Contextual Indicators Some of the contextual indicators for P&G came from their earlier situations and the EU probes in the past. In 2010, Italy had fined P&G and 13 other companies for coordinating price increases for cosmetics. The stringent EU p robes could have been another early contextual indicators for the company. EU probes in 2010 fined producers of D RAM memory chips and Unilever, P&G fined The in depth analysis of events helped the researcher to identify paramet ers of risk and dependence on stakeholders for the sample organizations. The identification further aided categorization of corporate diplomacy strategies for each event and organization. To simplify the analysis, the table below presents the organization and its corresponding events and defines the risk and dependence on stakehol ders for each event (see Table 4 1 ).
136 Assessing the big data for five organizations concluded the first phase of research. The key findings revealed the events that garnered m edia attention and the conflict cooperation scores for each story. Organizational events were classified based on two key indicators; risk and dependence on stakeholders. The next section of the chapter will report the corporate diplomacy strategies and th e results of the research questions and hypotheses. Research Questions The research questions aimed to explore corporate diplomacy strategies orga nizations adopt under different The four research questions sought to explore four different situations; high risk and high dependence on stakeholders, high risk and low dependence on stakeholders, low risk and high dependence on stakeholders, and low risk and low dependence on stakeholders. The dissertation propos ed corporate diplomacy strategies as a set of guiding principles for organizations to manage their nonmarket business environment. Table 4 1 details each organization identified under risk and te diplomacy strategy for each . Compliance Strategy The proposed strategy organizations should implement under high risk and high dependence on stakeholders is the compliance strategy. Compliance strategy helps an organization understand and comply with the interests of various stakeholders and the complexity of legislation and regulations in its nonmarket business environment. Under compliance strategy, organizations will t ry to neutralize any resistance to i ts survival and success in the host country. T he organization will be proactive in developing a positive working relationship with various stakeholders.
137 ExxonMobil oil spills in Nigeria were categorized as high risk and high dependence and the organization should have adopted a compliance strategy. T he company neglected all early contextual indicators and the region suffered five oil spills in five months. The last spill of the five spills caused the organization to take notice; ExxonMobil shut the pipeline immediately and started investigating the ca use of the spill deploying more than 100 personnel for the cleanup . ExxonMobil did not adopt the compliance strategy and after much resistance complied with the regulatory agencies to manage the high risk but did not work closely with the Nigerian communit y to address the urgency of the issue. J&J baby powder debacle in India initially started with low risk when a company scientist raised concerns over the faulty method of sterilizing baby powder bottles. The company ended up in high risk when investigatio ns by the government led to the cancellation of the license. However, J&J conformed and cooperated in the probe and got the production license back. An analysis of the event in the previous section showcased how J&J adopted the compliance strategy and foll owing the license cancellation appealed and ensured that the effected batches of baby powder was brought back to its facility and tested according to a validated process before release into the market. GM India Tavera recalls was one of the most massive r ecalls resulting in high dependence on the stakeholders and high risk for the organization. GM adopted a compliance strategy and recalled all the units under scrutiny. GM India plant also halted the production of the specified model and worked with the gov ernment to resolve the issue. The company was accused of corporate fraud following which GM fired its top executives involved in the fraud. GM worked with the government regulatory agencies and the consumers to address the issue and comply with the regulat ions and demands of its stakeholders.
138 Ordinance S trategy Ordinance strategy is recommended for organizational events with high risk and low dependence on stakeholders. Organizations adopting an ordinance strategy adapt and adjust to the high risk enviro nmental conditions to carry out inn ovative and long term solutions. Accommodation tactics can help organizations to manage high external pressures and influence the environment to benefit the organization. ExxonMobil arbitration case with the Venezuelan g overnment was one of the events with high risk and low dependence on stakeholders. The MNC did not respond favorably to the high political risk in this event. The long legal battle between ExxonMobil and ChÃ¡vez government ended up with ExxonMobil exiting t he country. ExxonMobil did not adopt the ordinance strategy and succeed in managing the mounting political pressure and creating an environment to sustain in Venezuela. high risk and low dependence on stakeholders. The case is still under Federal investigation at present and the organization is working with the agencies to respond to this issue. JPMorgan Chase is following more of a diligence approach as it is observing a nd working with the investigators on the probe. Six other banks are being probed by the Federal agencies and a result is still pending. Hence, the data shows more variance in conflict cooperation scores. JPMorgan Chase paying fine for processing wire tran sfers violating sanctions was a low resolved a number of t he U.S. Department of the a llegations dating back to 2005. The wire transfers were discovered by another U.S. financial institution, which informed JPMorgan Chase about the issue. After conducting an investigation,
139 which confirmed the findings, the results were reported to the management, yet the bank failed to t ake adequate steps to prevent further transfers. The company later worked with the U.S. Treasury to settle the fines. Alliance S trategy Alliance strategy is adopted by organizations under low risk and high dependence on stakeholders. The proposed strateg y aims at convening a variety of stakeholders to find common ground and achieve positive outcomes and greater cooperation among stakeholders in its nonmarket business environment. Alliance strategy is to adjust and change organizational actions according t o the demands of the various stakeholders. II products ban in China was classified under low risk and high dependence on stakeholders. The ban on the cosmetics brand impacted the production and sales of the product. P&G despite of the high depend ence on stakeholders was not receptive to demands of the stakeholders and made the refund procedure difficult for the consumers. The company failed to adopt the alliance strategy and form an association with the stakeholders. When the General Administratio n of Quality Supervision, Inspection , and Quarantine announced it found excessive chromium and neodymium in SK II, the first thing that P&G did was to claim the product was safe. uality control testing detecting high concentrations of the key ingredient. The production plant temporarily halted pro investigation with regard to this case. The low risk situation for J&J adopted an alliance strategy and worked with the regulators to rev iew and address the issue. The company also addressed the consumers and offered an apology.
140 Diligence S trategy Diligence strategy is best implemented with organizations in low risk and low dependence on stakeholders. In such situations, organizations can decide its actions, as there are no stakeholder demands or compelling risk factors. Diligence strategy is an exclusive position any o rganization would like to be in. However, in a global economy, it is less likely for an MNC to have no social or political issues to tackle in host countries. and low dependence on stakeholders. The contingent factors for GM like the Australian economy and costs of production were indicators for the MNC. GM has adopted the diligence strategy and since the announcement has been discussing its plans to move the productio n to Korea. Under the new free trade agreement between Australia and Korea, tariffs on Korean cars coming into the country will be cut down considerably. Toyota motors also announced its exit from Australia by the end of 2017 affecting about 2,500 jobs. As in Australia is ongoing, the coverage for Australia showed greater variance than normal. P&G was fined by the European Union for forming an alliance with Unilever and Henkel to fix detergent prices in eight European countries. This event was categorized as low risk and low dependence on stakeholders. P&G implemented the diligence strategy and agreed to settle the case and co operated with the investigation reducing the fine. An important finding from the stu dy is that although the corporate diplomacy strategies are principles of how MNCs should manage their nonmarket business environment but these strategies cannot be measured by any absolute standard and can change depending on the relative facts of the spec ial events. Although some organizations were classified differently on the risk
141 and dependence on stakeholder parameters, the organizations adopted different strategies with different outcomes. The findings disclose that MNCs have to recognize and reconci le with the forces outside competitive advantage. s nonmarket environment consisting of social, political, and legal arrangements that structure d interactions among organizations and their stakeholders . These nonmarket forces posed challenges and had a major impact on the performance and existence of the organization. The proposed corporate diplomacy strategies can help organizations to address and deal effectively with the nonmarket forces. These strategies are principles that can help organizations reason which actions to take in particular situations. Test of Hypotheses The dissertation explored how MNCs through corporate diplomacy strategies can anticipate and recognize the emergence of nonmarket issues to successfully operate in a host location. The undesired consequences of business decisions can be best predicted by under standing the motivations of nonmarket actors, and often the impact of non market act ors is felt through the media. Based on this rationale, data for each event from the specific host country was gathered from Factiva and further anal South Korea happened in 2013 and one year data for J&J (one year after the event was first covered in the media) was analyzed specific to South Korea alone. J&J baby powder crisis in India was analyzed by looking at news coverage of J&J in India from March 1, 2013 to March 1, 2014.
142 Similarly, data for specific host countries were downloaded for each MNC. JPMorgan Chase china corrupt hiring practices and JP Morgan Chase sanction violations data was analyzed for China and N. America respectively. GM recalls in India and GM media coverage in Australia was examined for specific periods. ExxonMobil Nigeria news and ExxonMobil Venezuelan cases were studied in the Nigerian and Venezuelan media. P&G Europe fines an d P&G China were two events with extensive coverage in Europe and China respectively. A moving average and second order polynomial trendlines were used to assess the variance in the conflict cooperation scores. Table 4 2 presents the organizations, events, proposed corporate diplomacy strategy, and whether organizations adopted the proposed corporate diplomacy strategy or not. Hypothesis One The first hypothesi s for the study stated that organizations that adopted the identified corporate diplomacy strate gies had higher level s of cooperation and lesser levels of conflict . The second hypotheses s tated that organizations that did not adopt the identified corp orate diplomacy strategies had lesser levels of cooperation and higher levels of conflict. To test f or the first hypothesis, events that adopted the proposed corporate diplomacy strategies were identified. There were six events in which organizations adopted the proposed nol in South Korea, GM Tavera recalls in India, GM exit in the Australian market, P&G paying fines in Europe, and JPMorgan Chase sanction violations. GM India adopted the compliance strategy and addressed the issue to manage the risk and dependence on sta keholders. The recalls were made in June 2013 impacting the level of cooperation among its stakeholders as seen in Figure 4 7 . The compliance strategy to work with
143 the stakeholders and comply with the regulatory agencies helped GM recover from the conflict . The trendline in the figure below shows an improving trend from August 2013. s announcement followed much anticipation from the Australian automobile industry after Mitsubishi Motors in 2008 and Ford Motors in 2013 decided to quit Australian car manufacturing industry. The data below was average using a 10 period moving average. Th e announcement by GM was made in November 2013 and a decrease in the levels of cooperation can be seen through the polynomial trendline in Figure 4 8 . However , following the diligence strategy, GM announced its plan and blame d the closure on the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented market in the world. The discussion in the media has now shifted to industry in Australia. J&J baby powder license cancelation in India adopted a compliance strategy and following investigations by the Maharashtra Food and Drug Administration closed the production plant to conform to the regulations. The investigative age ncy cancelled e for manufacturing cosmetics in April 2013 following which the company recalled the baby powder and cooperated with the agencies. An increase in the levels of cooperation is shown through the polynomial trendline in figure 4 9 . T he company also got their manufacturing license back in October 2013. To restore its reputation, J&J used sensory branding in Indian newspapers to appeal to its by infusing the smell of baby powder into newspaper s . Key media
144 ho uses used a special technology to infuse the trademark fragrance of J&J baby powder into the ink that was u sed to print the newspapers . recall in South Korea was an event with high amounts of risk and dependence on stakeholders. J&J Ministry of Food and Drug Safety to issue recalls. The quality control regulations were violated by J&J when the company manually filled bottles of Tylenol since a filling machine was not working. Fig ure 4 10 depicts the sudden decrease in levels of cooperation in April 2013. J&J post the issue withdrew 1.7 million bottles J&J apologized to the Korean people, corrected the problem with the filling machines and promised it will do its best to prevent t he recurrence of such a problem leading to an incre ase in the levels of cooperation. P&G fines to the European Union adopted a diligence strategy to manage the issue ions by European Union found P&G, Unilever, and Henkel involved in a cartel, which developed out of a valid environme ntal initiative in the industry and ran between early 2002 and March 2005 . Henkel finally blew the whis tle on the arrangements in 2008 that led to the European Antitrust Investigations. Figure 4 11 depicts a decrease in the levels of cooperation among P&G stakeholders in April 2011. P&G and Unilever later settled the matter with the European Commiss ion . The two companies also co operated in t fine was cut by a further 50 % t by a further 25% that led to an increase in the cooperation levels for P&G. JPMorgan Chase sanction violations is another case where the organization adopte d the ordinance strategy. The organization violated several sanctions orders related to transactions in Cuba, Iran, Sudan and Liberia, as well as broader regulations against supporting terrorism and
145 the proliferation of weapons of mass destruction between Dec. 15, 2005 and March 1, 2011. Figure 4 12 illustrates the greater levels of conflict in Augus t 2011 when the probe started. JPMorgan Chase did n o volunteer information related to the viola tions initially . The organization however, agreed to pay $88.3 million in a settlement with the Department of the Treasury over its broa d range of sanctions violations that are seen impacting the levels of cooperation in the figur e below. The first hypothe sis was supported as demonstrated through the increasing levels of cooperation for organizations that adopted the proposed corporate diplomacy strategies. Hypothesis Two T o test for the second hypothesis, organization s that did not adopt the proposed cor porate diplomacy strategies w ere identified. There were four events in which organizations did not adopt the proposed corporate diplomacy strategies; ExxonMobil in Nigeria, ExxonMobil in Venezuela, P&G SK II brands recall in China, and JPMorgan Chase corru pt hiring practices in China. Exxon Mobil oil spills in Nigeria did not adopt the proposed compliance strategy and had higher levels of conflict among its stakeholders for a long duration of time. ExxonMobil handling of five oil spills in less than five mon ths was neither supportive of the communities in Nigeria nor the Akwa Ibom state be seen in F igure 4 13 , which started in November 2012 after a pipeline from an offshore facility spilled at least 200 barrels of crude oil. The longer duration of the event and its impact on ExxonMobil was magnified by the delay in the clean up process in the region. The company southeast coast.
1 46 Exxon Mobil arbitration case in Venezuela was another event for ExxonMobil, which failed to manage the risk and dependence on stakeholders. The company did not adopt the proposed ordinance strategy and as a result the levels of conflict were extremely high for a long duration of time. S pills in 2012 were recorded on August 13, and 24, as well as Nov ember 9 and December 16 and 19. ExxonMobil did not work with local non governmental organizations that reported negative toll on the environment because of frequent oil spil ls. Figure 4 14 represents the declining levels of cooperation consistently across many months as shown by the polynomial trendline. The seven period moving average describes the data towards higher levels of conflict than cooperation. orrupt hiring practices case has been under scrutiny since August 2013 when U.S. authorities opened an investigation into whether JPMorgan Chase hired the children of powerful Chinese officials to help it win business in China. The organization did not ado pt the ordinance strategy and neglected internal signals and employee concerns regarding its hiring practices. Figure 4 15 details the increasing levels of conflict following the probe. JP Morgan Chase began an internal investigation into the bank's hiring practices in Hong Kong and expanded across Asia, looking at interns and full time workers . The organization earlier declined running such a program but later gave U.S. authorities spreadsheets and e mails gram . The probe was expanded to five Wall Street firms operating in China. The case is still under investigation, which can be seen, through the variation in conflict cooperation scores for the organization. II brand recall in China was another e vent that was included in testing the second hypothesis. The organization in this event did not adopt the alliance strategy and mismanaged its risk, and power and urgency of its stakeholders. Figure 4 1 6 provides a clear
147 indication of how the levels of co nflict were varied and low for a longer period time. Earlier analysis of the event described the corporate response and failure to address the stakeholder demands and timely manage the issue. The second hypothesis was supported as well as there was a delay in increasing levels of cooperation for the organizations that did not adopt the proposed corporate diplomacy strategy. In summary, t he two hypotheses of the study were supported and data from each event clearly indicated the conflict cooperation scores for each organization that adopted and did not adopt the proposed corporate diplomacy strategy . One interesting finding was the correlation among duration of an event, corporate response, and conflict cooperation. The quicker the organization managed the issue the shorter was the duration of an event and lesser the levels of conflict. The amount of risk and power of stakeholders also impacted the duration of the event. approach to the issue and its response was found to impact the conflict cooperation scores the most. The study at the outset had described how corporate diplomacy is a strategic function for ting corporate diplomacy strategies can be seen via increased levels of cooperation and decreased levels of conflict among its stakeholders. MNCs need to address socio political risk in a situation and the power and urgency of the concerned stakeholders to survive and succeed in a host country. The analysis of conflict cooperation scores specific to the time period of the event in the host country had interesting results. The researcher explored to see if there were effects of these events on the companie researcher further looked at the stock prices for each company for the time period w hen the event
148 happened and found a clear pattern of a decrease in the stock prices around the time when the event occurred. prices. A similar pattern was also seen for JP the stock prices. Boudokh, Feldman, Kogan, and Richardson (2013) used textual analysis to study the relationsh ip between news and stock price changes. Boudokh et al. (2013) identified relevant news, both by type and by tone, and found that news days with identified news about the organization are more likely than unidentifie d news to be associated with increases i n volatility. The stock prices are in the appendices and highlight the time period the event with the decrease in the stock price.
149 Table 4 1. Organizatio n Event Dependence on stakeholders Risk Risk and Dependence Power Urgency Social Political Low/high Exxon Mobil Oil Spills in Nigeria High risk and high dependence Arbitration case with Venezuela High risk and low dependence General Motors Shutting plants in Australia Low risk and low dependence Recalls in India Low risk and high dependence Johnson & Johnson Baby Powder Recall, India High risk and high dependence Children Tylenol Recall, Korea High risk and high dependence JP Morgan Chase China corrupt hiring practices Risk high and low dependence Iran and Cuban Loans Fine High risk and low dependence Procter & Gamble SK II recall in China Low risk and high dependence Price fixing in Europe Low risk and low dependence
150 Table 4 2. The p roposed corporate diplomacy strategy for each event Organization Event Corporate Diplomacy Strategy Adopted/not adopted Exxon Mobil Oil Spills in Nigeria Compliance Did not adopt Arbitration case with Venezuela Ordinance Did not adopt General Motors Shutting plants in Australia Diligence Adopted Recalls in India Compliance Adopted Johnson & Johnson Baby Powder Recall, India Compliance Adopted Children Tylenol Recall, Korea Alliance Adopted JP Morgan Chase China corrupt hiring practices Or dinance Did not adopt Iran and Cuban Loans Fine Ordinance Adopted Procter & Gamble SK II recall in China Alliance Did not adopt Price fixing in Europe Diligence Adopted
151 Figure 4 1 . ExxonMobil global media coverage over 10 years Figure 4 2. General Motors global media coverage over 10 years
152 Figure 4 3. Figure 4 4.
153 Figure 4 5. bal media coverage over 10 years
154 Figure 4 6. Identified risk and dependence on stakeholders for each event Compliance Strategy Exxon Mobil Oil Spills in Nigeria J& J baby powder recall in India General Motors recall in India Ordinance Strategy Exxon Mobil arbitration case with Venezuela JP Morgan Chase China Co rrupt Hiring Practices JP Morgan Chase Iran and Cuban Loans Fine Diligence Strategy General Motors shutting plants in Australia P & G Price fixing fine in Europe Alliance Strategy P& G SK II cosmetics recall in Chin a J&J Children Tylenol recall in Kor ea Low Risk High Risk High Dependence Low Dependence Low Dependence High Dependence High Risk Low Risk
155 Figure 4 7. GM India Tavera Recalls in 2013 Figure 4 8. 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 10 Period Moving Avg.
156 Figure 4 9. a Figure 4 10. J&J child 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 Conflict Cooperation Value Data Polynomial Trendline 7 Period Moving Avg. 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 2 Period Moving Avg.
157 Figure 4 11. P&G Price Fixing in Europe Figure 4 12. JPMorgan Chase Sanction Violations 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 10 Period Moving Avg. 0 2 4 6 8 10 12 14 16 18 Conflict Cooperation Value Data Poylnomial Trendline 10 Period Moving Avg.
158 Figure 4 13. ExxonMobil Oil Spills in Nigeria Figure 4 14. ExxonMobil Arbitration Case in Venezuela 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 5 Period Moving Avg. 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 7 Period Moving Avg.
159 Figure 4 1 5. JPMorgan Chase corrupt hiring practices in China Figure 4 16. II brand recall in China 0 2 4 6 8 10 12 14 16 18 20 Conflict Cooperation Value Data Polynomial Trendline 8 Period Moving Avg. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 Conflict Cooperation Value Data Polynomial Trendline 15 Period Moving Avg.
160 CHAPTER 5 DISCUSSION The Art and Science of Corporate Diplomacy The disserta tion aimed to study and explore corporate diplomacy on the rationale th at market and nonmarket forces are different and require their own unique strategies (Baron, 1995). The purpose of the study was to further conceptualize and understand corporate diplomacy, as it should belong to global public relations as much as it belon gs to international business. The dissertation intended to propose and test corporate diplomacy strategies that get to the heart of u nderstanding a diffuse nonmarket business environment . The literature review, chosen methodology, decisions pertaining sam ple organizations, selected events, data mining for 10 years of news media coverage, and coincidence with the stock prices were important steps to offer theoretical beginnings for a nascent field of study, corporate diplomacy. As the dissertation alluded t o earlier, organizations operate in a remarkably and fundamentally changed global reality. This reality is characterized by globalization and liberalizatio n, facilitated by information and communication t echnology, but also by dysfunctional global financia l and economic structures, radically shifting geo political trends, security and environmental threats , and public health crises. This reality differs in every country and is created by many sociopolitical factors, which constitutes the nonmarket business environment. Hence, it is important for organizations to understand the pulse of this dynamic environment and make strategic choices to succeed. The practice of corporate diplomacy requires both art and science to skillfully practice and effectively deal w ith the interests, institutions, ideas , and rules that fall outside market domain.
161 Corporate diplomacy is the art of competently managing sociopolitical risk and dependence on its stakeholders. It also requires the scientific ability to apprehend the nonmarket business environment and the contextual indicators and cues. Art is usually described in judgment based work and in situations where the variability is very high. Corporate diplomacy is the art of managing such changing environme nts and assessing the risk and dependence parameters for each unique situation. Whereas a scientific process aims at c ontrolling the variability in the organizational env ironment and creating rules that adds rigor to the decision making . The proposed corpo rate diplomacy strategies can guide organizational decisions on how shareholder returns. The study provides some rules and guidelines and some techniques and st rategies but the question is to tackle the uniqueness of each situation. Each situation cannot be fully codified and thus requires the skill and the art to identify the distinctiveness of each situation. The discussion section examines the art of corporate diplomacy by looking at the risk and dependence indicators as found in the study. The section then analyzes the science in corporate diplomacy to scrutinize nonmarket business environment and contextual indicators. The discussion section also details out the limitations of the study, future research, and implications for theory and practice. Managing Risk s The findings emphasized the significance of navigating complexities and risk in host locations. The results restate that MNCs must more clearly recog nize the importance of integrating a broader set of ri sks into management decisions, and developing expertise in understanding the impact of soc ial and political issues on organizational performance. Political risk in the case of ExxonMobil in Venezuela an
162 explains the challenges an organization is confronted with. Other risks like product recalls and manufacturing defects can escalate into social risks and negatively impact the corporate reputation. In all the eve nts examined for the study, the implications of risk, political or social, adversely impacted the operations of the MNC. Political unrest, change in policies, probes, investigations, economy rates, consumer choices, and corporate frauds were some unexpecte d factors and choices that most impacted organizational survival and success. This finding supports effectiveness (Conklin, 2002; Hagigi & Sivakumar, 2009; Hale y, 2003; Howell & Xie, 2000) and may arise from macro environmental factors, unanticipated behavioral choices, or combinations of the two (Lessard, 2003). Using event studies, the results reveal that organizations evaluate their risks in a given situatio n based on the situation urgency, matching interests, and power positions among its stakeholders. J&J recall in South Korea was one such event in which the MNC realized the urgency and power of the consumers to impact product sales and production. J&J imme diately position cooperated in the probe and paid the fine for fixing detergent prices in Europe. These ernatives to manage conflict between MNCs and nonmarket business environment, (1) assessing the stakes, (2) the overall global strategy of the individual firm, (3) firm financial condition and resource availability, (4) situation urgency, (5) determination of power positions, and (6) determination of matching interests.
163 The findings also support the institutional theory that MNCs operating in different countries with varying institutional environments will face diverse pressures. MNCs institutional environ ment constitute of diverse factors like political systems, legal systems, labor market structures, and culture ( Henisz & Delios, 2002). Host country institutions can be broadly classified as political, legal, and societal institutions (Demirbag, Tatoglu, & Glaister, 2007). All f ive industry types included in the study faced multiple and conflicting pressures, rules, and belief systems to survive in the host locations (Pache & Santos, 2010). ExxonMobil in Nigeria had demands from the community stakeholders and in Venezuela faced strong government interference and control . P&G with its cosmetic crisis in China and fines for violating business rules in Europe both reflected the belief systems in the business environment. J&J with its baby products r ecalls in t wo key Asian markets, India, and South Korea , is the case of gross negligence and legal institutional environment of the host countries. JPMorgan Chase flouting the hiring rules in China and for illegal sanctions in multiple countries resulted in political and legal consequences. GM in India neglecting regulatory institution and GM Australia on the rough end of changing labor structures and economy were another examples of risks in the nonmarket business environment. Dependence on S takeholders G rowing thr eats and risks faced by MNCs have led to an even greater necessity to find, establish, and strengthen political and social support for their operations (Henisz, Dorobantu, & Nartey, 2011). The dissertation found support for previous research that states th at MNCs need to interact and build relations with a wide range of stakeholde rs specific to the host country. These interactions include even the public opinion that can challenge the smooth operations of MNCs (Hillman & Wan, 2005).
164 R elationships with the social, political, and legal actors can greatly impact organiza tional strategy and performance ( Geletkanycz & Hambric k, 1997) . The study proposed corporate diplomacy strategies based on two key influences, risk and dependence on stakeholders. Each event an alyzed the dependence on stakeholders and found that the greater the risk associated with an event, the greater was the dependence on stakeholders as well . J&J product recalls in South Korea and license cancellations in India were high risk events where th e organization was highly dependent on the stakeholders as well. Corporate response in a timely manner managed the stakeholder expectations and decreased the amount of risk the organization faced. However, in two high risk events the dependence on stakehol ders was low. Both these events, JPMorgan Chase hiring practices in China and ExxonMobil arbitration case in Venezuela were long term events and involved political implications for the organization in question. ExxonMobil arbitration case lasted for more t case in China is still under Federal investigation since 2013 . Results also found that o ne of the important undertakings in managing any MNC is to manage relationship between the firm and its su rrounding environmen t including different stakeholders . Ackoff (1970) considered stakeholde rs as an environmental variable and systems theory focuses on the external link that are important for every organiz ation (Freeman & McVea, 2001). The corporate dipl omacy strategies evaluated the critical dependence of a n MNC on different stakeholders to adopt a particular strategy. Results report that organizations that did adopt the proposed strategy had better support from its stakeholders and resolved the issue fa ster than those companies that did not adopt the proposed corporate diplomacy strategies. Results also report that the dependence on stakeholders is an evolving process and the dependence on stakeholders may change based on the power they can exert on the organization
165 and the urgency with which the organization has to address their demands. Also, the power of a stakeholder often evolves in the course of the conflict. For example, the bargaining power of consumers to demand refunds for their SK II products in China increased when P&G declined to cooperate with the consumers. Using descriptive stakeholder theory, a study by Jawahar and McLaughlin (2001) found that certain stakeholders, based on their ability to help organizations achieve their objectives, a re more important than other stakeholders. Previous r esearch has shown that MNCs have relations with actors within the MNC (Bartlett & Ghoshal, 1989) as well as outside the MNC organization, often in the local national environment (Andersson, Forsgren, & H olm, 2007). Global companies can no longer maintain an arm's length relationship with foreign host governments since their drive toward greater local presence has significantly expanded the ir exposure to local conditions (Saner et al., 2000). This was foun d consistently in each event and the dependence on stakeholders in the national environment was a determining factor for dence on the Australian government are illustrations of how the power and urgency of stakeholders impacted the decisions of the organization. Non m arket B usiness E nvironment The dissertation aimed to study how MNCs through corporate diplomacy strategies ma nage their nonmarket business environment . The institutional environment, factors outside of the market pressures, and different stakeholders with competing interests raise many issues for multinational firms. The results confirm the importance of further exploring the nonmarket
166 business environment and studying how these environmental factors can influence an organization. The results reported the failure of some organizations to manage the risk and stakeholder expectations, which supports earlier studies on how MNCs do not neces sarily know how to manage no nbusiness environment in all the countries where th ey operate (Saner et al., 2000). The results also reveal that the formal and informal rules and regulations vary significantly across countries. These r nonbusiness environment. The nonmarket environment includes social, political, regulatory , and legal considerations that cannot be controlled or managed through an organization's mark et based interactions. rvival in Australia. Previous literature has emphasized that MNCs are influenced by nonmarket stakeholders beyond their market strategies and must develop socio political strategies that enhance their legitimacy and incre ase their acceptance in the non mark et environment (Boddewyn, 1 995; government or the fine paid by P&G for flouting the strict laws and regulations by EU are few of the many events studied that elucidates t he significance of nonmarket environment. Each individual event had a challenge in the shape of social or political factors that impeded organizational market conditions as well. The study attempted to bring attention to the nonmarket environmental factors and its implications for the organization. Another important finding worth discussing is the life cycle an iss ue can take depending on the adopted strategy. II in China, started with an
167 investi gation and turned into a boycott of the products and to losing market share. The of the situation. Results show that an issue can take different stages and can increase in its implied risk and consequences for the organization. For ExxonMobil in Venezuela, the risk Risk for J&J in India increased with government inv estigation leading to product manu facturing license cancellation. MNCs need to understand the sociopolitical stakeholders that are not part of a contractual relationship with the company. The presence of these constituencies presents both challenges and o pportunities for business leaders. Another result from the study showcased the impact of the nonmarket action as felt through the media. Prakash (2002) cited globalization of media as a reason for how local nonmarket issues get global dimension immediately . He further added that Organizations thus need to consider how to anticipate news media coverage g iven the details of a situation . The five different industry types included in the study, oil refineries, motor vehicles and parts, commercial bank, consum er goods, and pharmaceuticals, were all similar in the kind of challenges they faced in their host countries. JPMorgan Chase (a commercial bank), and P&G (a consumer goods company) were fined by the authorities for violations in their market space. ExxonMobil (an oil and gas business), and General Motors (motor vehicles and parts) were on impacted by changing government policies and regulations. These examples reinforce why organizations must devise strategies to cope with the nonmarket forces that confront
168 organ izations of all sorts and deal with stakeholders that can impose their will on an organization from the outside. (2007) defin ition on risk and its basis on three sources : D ependency, vulnerability, and direct threats. Dependence in the nonmarket business environment is the exten t to which an organization depends on the nonmarket business environment for its financial performance . This was clearly seen in the case of GM, which was affected by the market factors of auto manufacturing in Australia . Vulnerability is based on the indu stry type of the organization and the market acti vities with c ertain industries more vulnerable to nonmarket forces. J&J, a pharmaceutical company, was most prone to recalls and dependency on stakeholders. Direct threats are the barriers that may restrict the organization and can be in the form of po from the ChÃ¡vez government and his rules and policies. The direct threat to ExxonMobil was seen factually as well when Hugo ChÃ¡vez threaten ed to stop supplying oil to United States. Contextual Indicators The results highlighted the contextual indicators for each event and the success of the cation of shifting market factors were important signals for essential internal indicators that organizations should have identified and addressed. The results support and ju stify the five contextual variables that outline the practice of global public relations . The five variables political ideology, economic system, degree of activism, culture, and media systems in a country are the defining variables for international publ ic relations practice ( et al., 1996) . The political ideology of ChÃ¡vez regime in the
169 in Australia was evident in the failure of the two organizations. Degree of activism in ExxonMobi l Nigeria oil spill crisis was depicted through the demands made by the local communities. The Chinese II issue. The media systems across different countries depicted how media coverage varies and depend on the media system of the country. The results also emphasized that organizations should be highly susceptible to disruption from external forces and should have strategies that are external facing. Another important finding of the study is that the contextual environment is not unidimensional. The context in which an organization operates takes in various factors incl uding those outside its control . Each factor can impact the organization positively or negatively and organizations should have a compre hensive understanding of these contextual variables. exit of Australian market is a perfect example of how multiple contextual factors, including economy, market cost, competitiveness, and government policies, may imp act the organization. Another key learning from the study is to learn from past disruptions and challenges. Understanding multidimensionality of contextual variables means increasing the chances of success in a host country. But, before reinventing the whe el and designing approaches for each complex environment, organizations must learn from other organizations across in dustries. J&J with its increased product recalls world over could have incorporated measures to avoid similar issues in India and S. Korea. Limitations of the study and lessons learnt As was mentioned in the introduction of the dissertation, this study was an ambitious project to study a topic not studied before. The researcher learned some important lessons to help
170 define future research. One of the key limitations of the study was the sample size. Although, the study looked at five different industry types and 10 different events, including more events to find clearer patterns would have been helpful. Another limitation of the study was t he lexicon borrowed from the business field. The lexicon was developed for one particular industry type and had certain words most specific to the industry. The researcher adapted and modified the lexicon for the study but more accurate findings could have been possible with a specially developed lexicon, which would take time , expert opinion, and resources. One of the limitations of an under studied area like corporate diplomacy often is lack of relevant literature and scholarly work. The study looked at corporate diplomacy from a multi disciplinary perspective and included literature from international business, business strategy, public relations, and public affairs. However, more empirical work in the area could have better informed the researcher. Ped ersen (2006) stated that c orporate diplomacy clearly mandates definitive leadership roles by the CEO. This entails getting access to organizational leaders and senior executives in charge of corporate diplomacy function. But this is a challenge as large or ganizations are difficult to get access to, and more difficult is to get the senior executives share the strategies that the organization adopted in its nonmarket business environment. This was one of the biggest challenges of the study and is an important avenue for future research. The study developed a special computer software code for data mining and though this was the strength and uniqueness of the study , it was a limitation too. A computer engineer who was not well versed with business and public relations jargon developed the code. The researcher had to spend countless hours training and working with the software developer. The researcher fears that there could have been some loss of information in the process and that could have impacted the accu racy of the results.
171 Future Research: The road ahead Despite the limitations of the study, the line of research has promising opportunities for the future. Corporate diplomacy has implications for organizations across all industry types and operating in every part of the world. Future research can explore the levels of conflict cooperation among stakeholders on social media. Organizations have moved along the social media trend and according to a Burson Marsteller research report, Global 100 companies par ticipate in at least one social media platform. An extension of this study can examine how organizations managing their sociopolitical environment interact with its stakeholders and the organizations should be cognizant of the structural homophily of the stakeholders. Homophily, or the fact that similar individuals tend to interact with each other, is a prominent feature of economic and social networks and would be worth studying from a corporate diplomacy perspective . Future studies can aim at getting ac cess to organizations and conducting in depth interviews with senior executives in organizations and confirming the proposed corporate diplomacy strategies. Including the organizational point of view will further strengthen the strategic outcomes as seen i n the media coverage. Another key area s worth exploring would be issues management, social performance of MNCs, strategic coalition building, and corporate political activity. Nonmarket business strategy has been increasingly studied in the business world as in a global economy; sustained competitive advantage for organizations arises from tack l ing social and political issues as part of their corporate strategy. Future research in the topic can explore how corporate diplomacy strategies can reinforce nonma rket business strategies. It would be interesting to situate corporate diplomacy strategies with the market strategies of an organization
172 and examine the results. Researchers can also develop best practices in corporate diplomacy as a standard for other or ganizations to follow. One of the key findings of the study underlines a careful examination of interactions between large, complex businesses and governmental agencies. Organizations make their important decisions after taking into consideration the impo rtant role and involvement of government entities especially in developing countries and emergent economies. Analyzing government as key nonmarket force can be the focus of future studies to better grasp the relationship building strategies MNCs adopt. Fu ture research can also examine the strategic making process in a nonmarket business environment, a process consists of issue perceiving and priority, issue analyzing, selecting, and acting. Future studies can examine the impact of timing of strategy implem entation and the link to stakeholder benefits. Another important area of research is the way MNCs negotiate with the powerful nonmarket actors. It would be interesting to study negotiation styles and study what negotiation strategies and tactics do MNCs us e in a given issue. Reviewing the extensive literature on issues management can also offer promising areas of research on how MNCs choose to manage an issue and what factors define those decisions. One other area of research very apt for future research is cross national conflict shifting. As MNCs face similar issues and challenges across the globe, it would be noteworthy to find how MNCs respond to conflicts in their host country and how much impact does these conflicts have on their home market and nonmar ket environment. Public relations scholars can also look at how MNCs through stewardship build and maintain relationships with its nonmarket actors. Scholars studying business strategy and international business can build on the proposed corporate diplomac y strategies to further study successful nonmarket strategies.
173 Implications for Theory The area of corporate diplomacy has great implications for theory building. This study can form the basis of future studies to explain the influence of nonmarket bu siness environment on organizational success. Shoemaker, Tankard, and Lasorsa (2004) define d the primary goal of a theory is not so much to explain things as much as to use the explanations t o predict things. Corporate diplomacy strategies can help organiz ations predict the risk and dependence on stakeholders in a given situation and ways to manage those two critical constituents. The study can also help researchers to classify the relationships between an organization and its host environment consisting of nonmarket stakeholders. The study creates opportunities for global public relations scholars to explain and predict how the nonmarket environment, including the media, government, NGOs, and activists can help an organization gain greater legitimacy in t he host country. The research findings can also provide a new perspective on resource dependence theory by looking at the amount of risk associated with the dependency on stakeholders. The dimension of risk in a nonmarket business environment can influence the dependence on stakeholders and this can further predict how stakeholders might respond to certain situations. One of the main implications of the study for theory building in public relations is to ability to improve relations hips through increasing cooperative exchanges while reducing confrontations and ties may impact its ability to operate and, in some cases , its ability to survive. Conflict cooperation scales used in political science and business has great releva nce for global public relations scholarship and can be further explored. Another direction for theory building can lead to identification and prediction of early contextual indicators and serve as a basis for action for organizations. Contextual environme nt
174 has been discussed extensively in international public relations literature but not many studies have analyzed its greater impacts on organizational survival and success. The concepts of contextual environment and how that can shape the amount of risk a nd dependence on stakeholders can help organizations in handling issues and challenging situations. Theory development in corporate diplomacy can also evaluate the current relationships of the organizations to stakeholders and how those can define the dev s network over time. subsequent ties and relations with stakeholders in a broader network. A closer look at relationships among organizational sta keholders and how that may shape the relationship stakeholders have with the organization has si gnificant implications for nonmarket business strategy . This concept can be studied from international global public relations perspective and can have practica l implications for MNCs. Implications for Practice The implications for theory building as discussed in the earlier section can be best summarized in the words of Kurt Lewin that there is nothing as practical as a good theory. The study aimed to develop corporate diplomacy from a strategic viewpoint and create knowledge, which can be practical and easily applicable to organizations. The study identifies corporate diplomacy as an area of research and practice much different from corporate social responsib ility or crisis communication. Corporate diplomacy environment. The study discusses corporate diplomacy, a topic that is becoming highly relevant for organizations as they a ddress issues outside of their market environment. The study offers
175 insights into how organizations have to address the sociopolitical risk along with the growing dependence on stakeholders in a host country. The study offers practical implications for or ganizations to understand how the explicit and implicit assertions from its nonmarket actors can be assessed to adopt corporate diplomacy strategies. The corporate diplomacy strategies present organizations with a solution to look at in challenging times. The way organization respond to the levels of risk and dependence on stakeholders is proposed as a strategic decision making process. The study can be used by practitioners to mitigate reputation risk in host countries and cceed and gain legitimacy in its nonmarket business environment. The researcher aimed to develop a well researched and structured approach to manage an One of the practical impli cations for organizations is to understand the increasing media scrutiny, public eye, and the cooperative and conflictual ties with its stakeholders, which are most visible in news media coverage. This finding has direct implications for public relations p ractitioners to address and manage media effectively. The multitude of stakeholders and diverse sociopolitical issues are key determinants of nonmarket environment, which an organization has to address. The study recommends and mandate that corporate diplomacy requires definitive leadership roles by the CEO and is conducted via the passports of company executives whose purviews often range the world over. The study also specifies that crisis management and issues management are important walking on The study can be applied by MNCs
176 operating in host countries to deal with governments, interest grou ps, activists, and the public that competitive advantage. unique situation. The study th oughtfully did not take into account the cultural aspect of host countries as that is a binding force for stakeho lders in every nation. The risk and dependence on stakeholders approach can be applied by organizations across all industry types and in any ho st country. By not including culture as a determinant of strategy, the researcher tried to widen the approach and application of the study. The rationale was to propose corporate diplomacy strategies that organizations could adopt after assessing their sit uation on two important parameters that can define success or failure in a nonmarket business environment. Organizations and managers can use the results to base their strategic decisions on and pay attention to the contextual indicators that most organiz ations seem to ignore. Public relations professionals can use the results to present a stronger case to organizational leaders on the impact of relationship building with the nonmarket actors . The media coverage, conflict cooperation scores, and an evident pattern in the stock prices can be the basis of an important discussion on the immense and more tangible value of strategic global public relations. More sophisticated research methods, marketing mix modeling, and econometric modeling are some approaches public relations researchers and professionals can use to further measure the impact of conflict Based on the events examined, the study provides organizations with a decision making matrix, which can be used in a fragmented host environment. The study also emphasizes that MNCs face higher environmental and social responsibility than their national counterparts due to
177 the concern of international or global reputation and license to ope rate, which affects their levels of acceptance in markets everywhere, as well as the concern of foreign stakeholder salience. The study recommends viewing corporate diplomacy strategies as a dial, which moves along the dimensions of risk and dependence on stakeholders. With increasing risk or increasing dependence on stakeholders along the issue, managers can choose a different strategy that best resolves the issue and prevents a crisis to happen. The study builds a strong case for organizations to practice c orporate d iplomacy as an art and science of making strategic choices to recognize, respect, and respond to its nonmarket business environment.
178 APPENDIX A DEGREE OF CONFLICT COOPERATION SCALE Level of Conflict C ategory Details or Cooperation I Violent attack w/ actual or potential/intended deaths or serious injury II Threaten to violently attack w/ actual or potential/intended deaths or serious injury III Restrain, imprison, hold against will, blo ckade, arrest, expel, capture, sequester IV Financially undermine deploy financial resources against (including sale of financial position at or below market price) V Threaten to financially undermine threaten/offer financial resources against( including sale of financial position at or below market price) VI Oppose, veto, impose, force, break, halt, reject, flee, default on obligation, rally in opposition, overturn, lose, national political decision in opposition (e.g., Supreme Court, Pa VII Investigate, demand, alert, restrict, repeal of administrative, local or regional supportive policy VIII Deny, complain, criticize, denounce, negative comment, reject, accuse IX Call for action, request assistance ag ainst, request information on X Neutral statement of fact XI Yield, comply, solicit, request assistance with, vote for, am encouraged by XII Mediate, agree, travel to meet, engage, offer, positive comment XIII Host, praise, empathize, apolo gize, forgive, assure, thanked XIV Agreement or receipt/provision of information XV Rally in support, ratify, win election, policy decision in support (e.g., Supreme XVI Offer financial support/defense/protectio n (including acquisition of a financial stake at market price or above) XVII Provide financial support/defense/protection (including acquisition of a financial stake at market price or above) XVIII Relax/ease major financial or security penalty /sanction/constraint XIX Offer armed support/defense/protection XX Provide armed support/defense/protection
179 APPENDIX B STOCK PRICES FOR EXXONMOBIL Source: Yahoo Finance Nigeria Oil spill (October 2012) Venezuela Arbitratio n Case (2011)
180 APPENDIX C STOCK PRICES FOR GENERAL MOTORS Source: Yahoo Finance Holden Plants Australia (October 2013 ongoing) Recalls in India (Ma y 2013)
181 APPENDIX D STOCK PRICES FOR JOHNSON & JOHNSON Source: Yahoo Finance Recalls in India and S. Korea (May 2013)
182 APPENDIX E STOCK PRICES FOR JPMORGAN CHASE (CHINA HIRING) Source: Yahoo Finance China Hiring Practices ( October 2013 ongoing)
183 APPE NDIX F STOCK PRICES FOR JPMORGAN CHASE (SANCTION VIOLATIONS) Source: Yahoo Finance Sanction Violation Fines ( August 2011)
184 APPENDIX G STOCK PRICES FOR PROCTER &GAMBLE (CHINA SK II BRAND) Source: Yahoo Finance May September , 2006
185 APPENDIX H STOCK PRICES FOR PROCT ER &GAMBLE (PRICE FIXING FINES) Source: Yahoo Finance April 2011
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207 BIOGRAPHICAL SKETCH Sarab Kochhar received her Ph.D. in Mass Communication from the College of Journalism and Communications at the University of Florida. She earned a M aster of A rts in St rategic C ommunication from the University of Oklahoma. In India she received a B achelor of A r ts in English literature and a Master of A rts in Mass C ommunication. She worked with the Indian government as a public relations manager. She has also worked with the University of Oklahoma as strategic communication specialist, and with the Institute of Research and Training in the U.S. As a consultant in Bangalore, she handled Burson Marsteller technology clients. As a doctoral student she has authored book chapte rs and refereed conference papers, received the top paper award from PRSA Educators Academy, Chester Burger Award for Excellence in Public Relations from PRSA, and the Ketchum Public Relations Research Award presented by the Institute for Public Relations.