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Abstract
Building on convergent insights of resource dependence and business political behavior, this
article attempts to develop a conceptual and typological framework of coopetition in which
cooperation and competition simultaneously coexist in the relationship between multinational
corporations (MNCs) and host governments. The coopetition view does not see the MNC–
government relationship (MGR) as dichotomous or as a continuum between cooperation and
competition but as a simultaneous, inclusive partnership containing cooperation and competition as
two separate yet interrelated continua. This article addresses why coopetition arises, what coopetition
constitutes, and how coopetition configures with environmental and organizational dynamics. It
offers a typology of coopetition that identifies MNCs involving varying cooperation and competition
(estranger, contender, partner, and integrator) and elucidates each identity’s political responses.
D 2004 Elsevier Inc. All rights reserved.
1. Introduction
In the beginning of the twenty-first century, the nature of the relationship between
multinational corporations (MNCs) and host governments can perhaps be best described as
coopetition, that is, cooperation and competition simultaneously function in increasingly
1075-4253/$ - see front matter D 2004 Elsevier Inc. All rights reserved.
doi:10.1016/j.intman.2004.08.004
432 Y. Luo / Journal of International Management 10 (2004) 431–451
where cooperation or competition changes. This paper addresses these issues with a focus
on MNCs in relation to emerging economy governments. MNCs are remarkably more
active in investing and operating in these markets than ever before. For many MNCs,
success depends on how they perform in these markets—which, in turn, depends to some
extent on their relationships with local governments.
Political and economic events in the global economy, coupled with a new generation of
technological advances, have spawned a new scenario for MGRs and accentuated the
interdependence between MNCs and governments (Dunning, 1998; Stopford, 1994).
Coopetition is a reflection of such interdependence. According to Brandenburger and
Nalebuff’s (1996) seminal illustrations, coopetition exists when competition and
cooperation simultaneously occur in the course of relationship development between
two parties. Strategic interdependence between MNCs and governments contains both
bargaining and collaborating elements, with competitive as well as collaborative aims, vis-
à-vis each other, in resource sharing process. Competition is bargaining for respective
benefits and interests that are incompatible between a group of MNCs and a host country
government whereas cooperation is a joint effort for mutual gains. Cooperation and
competition coexist because MNCs and governments depend on each other’s resources
and supports but meanwhile they encounter conflicts arising from different goals and an
absence of mechanisms mitigating possible opportunism. Cooperation and competition are
simultaneously present where an MNC deals with a host government for numerous issues,
areas or projects at the same time, with some of these issues, areas or projects containing
more cooperative elements while others involving more competition.
2.2. Competition
land rent, and local financing) and operational inputs (e.g., distribution, pricing,
information, and infrastructure access). Process-based competition concerns the power
of changing regulatory framework in a host country. This changeability indicates power
asymmetry in the competing process. When asymmetry emerges, FDI rules and policies
are likely to move in a direction desired by the party who holds a dominant bargaining
position (Boddewyn and Brewer, 1994). Finally, outcome-based competition involves
bargains for immediate consequence (market/industry access), intermediate consequence
(local market expansion), and/or ultimate consequence (financial returns).
2.3. Cooperation
We argue that cooperation and competition are not opposite ends of a single continuum
but distinct yet interrelated separate dimensions that often simultaneously occur for a given
MNC that deals with the host government for various issues or projects. Cooperation is
gaining momentum in shaping MGRs, given heightened strategic interdependence
between MNCs and governments. This interdependence can create mutual synergies if
both parties cooperate. These expected mutual gains are crucial as they determine the
departure from cooperative or from competitive behaviors. Unlike competitive behaviors,
cooperative behaviors are not blinded to opportunities for realizing positive-sum benefits
through effective collaboration (Lado et al., 1997). In the presence of competition, each
seeks to control its own resources and uses this control to escalate its bargaining power. In
the presence of cooperation, each seeks to see resource complementarity so as to attain a
stronger reciprocal support from the counterpart. Both MNCs and governments today
better know conditions under which one may, or may not, be expected to contribute to the
other’s well-being (Dunning, 1998). Governments in emerging economies have made
progress in their knowledge and understanding not only of the costs and benefits of
different types of MNC activities, but also of the implications of being integrated into the
global economy, through actions taken by MNCs (Stopford, 1994).
MNCs and governments cooperate along four levels: Country-level internationaliza-
tion, Industry-level competitiveness, Firm-level capability, and Individual-level produc-
tivity. Governments depend on MNCs for linking national economies with the outside of
the world through various MNC activities. MNCs depend on this openness for more
efficient flows of production factors within their globally coordinated networks and better
leveraging a host country’s comparative advantages. At the industry level, superior
performance of MNCs in a host country requires strong competitive segments (factor
endowment, market demand, related and supporting industries), and they, in turn, can be
substantially framed by government policies such as interest rates, science and education,
infrastructure, taxation, antitrust regulation, and information technology. To governments,
MNCs may be an important force of improving a host country’s industrial environment
(e.g., Xerox helped China to build and upgrade the copy machine industry by establishing
the technical and quality standards and training local employees). They cooperate with
governments in developing sophisticated factors such as skilled workforce, scientific base,
and information industry and in consummating related and supporting industries such as
supply base and technological infrastructure. At the business level, MNCs and govern-
ments cooperate to improve business capabilities. Many emerging market governments
Y. Luo / Journal of International Management 10 (2004) 431–451 435
have offered numerous privileges, such as tax exemption, free land use, and local talent
recruitment to R&D centers built there by MNCs. Meanwhile, governments depend on
MNCs for bringing in technological and organizational skills. Finally, MNCs and
governments cooperate to enhance individual productivity. This is beneficial to MNCs
because improved productivity of workers, managers, designers, and engineers in a host
country increases organizational productivity and operational efficiency of firms, which
leads to cost reduction or revenue growth. From the government viewpoint, MNCs can
play a fundamental role in improving this productivity, especially through joint ventures or
alliances.
Growing interdependence between MNCs and governments has been heightened for
the following four reasons: First, many governments of emerging economies have been
attaching greater importance to the contemporary need for indigenous resources to be used
productively and allocated to best conform to the needs of increasing globalization. They
have steered away from imposing counterproductive actions on MNC activities that can
create social wealth. Second, deregulation and liberalization of national economies creates
a favorable atmosphere for developing MGRs. While this liberalization provides MNCs
with more opportunities, governments also depend on MNCs for helping upgrade the
newly opened sectors. Third, recent shifts of government policies facilitate cooperation.
These shifts include changing the regulatory emphasis from direct intervention to indirect
involvement, from central government interference to regional government (province,
state, or city) supervision, from policy rigidity to treatment flexibility, and from separation
from domestic policies to convergence with domestic policies. Lastly, cooperation is
spurred by heightened competition pressure for attracting inbound FDI among emerging
economies. This implies that the bargaining power of governments versus MNCs is
changing in favor of the latter (Strange, 1997) and that governments now come under
pressure to be more cooperative with MNCs if they want increased FDI inflows (Dunning,
1998).
We want to point out that the above trends do not mean the nonexistence today of MNC–
government conflicts nor suggest an absence of cooperation in the past (before the mid-
1980s). While realizing heightened cooperation at the overall level, we see ample evidence
showing the coexistence of cooperation and competition, as well as variations in
cooperation and competition among different firms and even same firms with different
time periods or dealing with different governments. Some MNCs (i.e., contenders in Fig. 1)
may confront more conflicts or stronger competition with a foreign government than
cooperation with it. We recognize that some cooperation elements also existed in the post-
war period. The main logic for MNCs to go abroad or for governments to use foreign capital
may not markedly change over the past decades, but the interdependence is growing.
The coopetition view suggests that MGRs are a coopetition matrix in which
cooperation and competition simultaneously exist as two axes. MGRs are not
436 Y. Luo / Journal of International Management 10 (2004) 431–451
Degrees of competition and cooperation vary among individual MNCs. While some
MGRs reach high levels of both cooperation and competition, other MGRs may involve
high cooperation but low competition and vice versa. This variance leads to four types of
identifiers (estranger, contender, partner, and integrator) that reflect different arrays of
varying competition and cooperation in the coopetition matrix. MNCs under each identity
can choose from several political tactics, depending mainly on their intention and
bargaining power resulting from contributed resources. This typology is introduced from
the MNC perspective as we attempt to explicate some strategic responses that MNCs
should employ under different cooperation or competition circumstances. Noting that
some of terms for strategic responses used in this article are not new (e.g., Gladwin and
Walter used appeasement, accommodation, and compromise in 1980; Oliver used
challenge, influence, and compliance in 1990), this study nevertheless is among the first
to apply them in the coopetition setting.
An estranger is an MNC that is relatively distant from government involvement,
maintaining low competition as well as low cooperation with regulatory authorities. In this
type of relationship, MNC–government interdependency is low. In the context of an
emerging foreign market, this identity often exists in highly deregulated, labor-intensive
industries (e.g., toys and shoes) in which a host government does not significantly
intervene in MNC activities and MNCs depend largely on their own resources. Kim (1988)
and Ring et al. (1990) demonstrate that corporate political responsiveness is linked to
industrial characteristics such as rivalry, regulation, and structure because improved MGRs
are used as a counterforce against competitive threats. An estranger runs its foreign
business in a relatively independent fashion, with no strong needs for governmentally
controlled resources defined as not only physical resources but also financial and
operational treatments stipulated in various government policies. A corresponding
governance mode may have low dependence on local resources and high integration
with the MNC’s own network (e.g., subcontracting, franchising, and wholly owned
subsidiaries). Such governance modes satisfy an estranger’s needs for transactions under
low market uncertainty and low regulatory stringency.
The political response of an estranger emphasizes either compliance or circumvention.
Compliance is conscious obedience to government regulations, rules, laws, and policies,
while circumvention is an organizational attempt to preclude the necessity of conformity
by maneuvering around governmental pressures or avoiding from governmental rules or
interventions (Oliver, 1991). Several institutional theorists have acknowledged the
importance of compliance as a response to institutional pressures. DiMaggio and Powell
(1983) and Pfeffer and Salancik (1978) suggest that an organization consciously and
strategically chooses to comply with institutional pressures in anticipation of specific self-
serving benefits that may range from social support to operation predictability. MNCs
opting for compliance are often those estrangers facing relatively simple, nondiscriminated
FDI rules that are embodied in the host country’s laws on domestic economic, procedural,
administrative, or civil legislation. They choose compliance because the costs of
complying with these laws are low and virtually same as those incurred by local
businesses. Circumvention is used by estranger MNCs whose resources suffice for
operational requirements in a deliberately selected market domain in which they are largely
free from government intervention after avoidance. Circumvention is possible because
estrangers are virtually self-sufficient and do not rely on governmentally controlled
resources.
A contender (or bargainer) is such an MNC that is vying with a host government for
local resources (including regulatory stances), maintaining high competition and low
cooperation with regulatory authorities. A contender MNC must depend on local resources
to fulfill its international expansion. These resources are controlled by local governments
and manifested in various forms such as input-based resources (e.g., natural resources, raw
materials, land use, local financing, and infrastructure access), process-based resources
(e.g., regulations), and outcome-based resources (e.g., market access and product
marketing). Since these resources are not limitless, a host government inevitably exerts
high control over their use. Moreover, the growth of local economy is strategically
bolstered by pillar industries using these resources (Porter, 1990). Bargains between
MNCs and governments become more combative if they compete for location-specific
resources that fuel host-country competitiveness (Moran, 1985). As natural resource
exploitation often adds less value to economic and social development than other FDI
activities, governmental attitude toward exploitation is likely to be less cooperative.
Further, local firms have grown up and dominated in the exploitation and utilization of
these resources. In fact, several emerging economies have recently formed local business
Y. Luo / Journal of International Management 10 (2004) 431–451 439
groups in respective resource sectors in a bid to better battle against foreign companies in
these sectors (Khanna and Palupe, 1997). This suggests that strategic interdependence
between contender MNCs and governments are asymmetrical, to the extent that the former
depend more on the latter than vice versa.
The political responses of contender MNCs include bargaining and challenging.
Resource dependence theorists assume that organizational relations with the environment
are open to negotiation and the exchange of concessions (Pfeffer and Salancik, 1978, pp.
143–187). Bargaining tactics involve the effort of the organization to exact some
concessions from an external constituent in its demands or expectations (Oliver, 1991).
Although limited, a contender MNC’s bargaining power originates from its technological
and organizational capabilities that improve the efficiency of resource exploitation and
utilization. Challenging is a political tactic that contests regulatory requirements.
Institutional theorists suggest that organizations that challenge institutional pressures go
on the offensive in defiance of these pressures and may indeed make a virtue of their
insurrection (Scott, 1987). MNCs are more prone to challenge host governmental rules and
policies when they have greater bargaining power and their strategic goals in entering the
host country are short-term (Gladwin and Walter, 1980).
A partner (or ally) is an MNC that collaborates with a host government, maintaining
high cooperation and low competition with regulatory authorities. A partner relationship
exists when MNCs and governments have formed alliances or coalitions (e.g., in
infrastructure building), and when MNCs and governments depend highly on each other
without rigorously competing for host-country resources due to relatively compatible or
congruent interests (e.g., in high-tech development). In infrastructure sectors such as
power generation and transportation construction, MNCs and governments form partner-
ships through build–operate–transfer (BOT) or joint ventures. In high-tech sectors, MNCs
and governments cooperate like partners in the sense that the latter improve the investment
climate on which MNCs depend and the former diffuse innovation on which national
competitiveness depends. Although both depend on each other, an MNC’s bargaining
power and its underlying contributions are expected to be significantly high—to the point
that the host government will renounce some power in resource or market control and
would rather commit to synergy creation through the partnership (thus leading to low
competition). When MNC–government partnerships are not formally structured, inter-
dependence and mutual commitment hold the partnership together.
The political response of partner MNCs emphasizes accommodation, cooptation, or
adaptation. Accommodation refers to the extent to which an MNC has been responsive and
contributive to social needs or concerns (e.g., education, employment, training, pollution
control, research funding). Accommodation signals an MNC’s political commitment to
social needs, thus determining a level of reciprocation from governments (Gladwin and
Walter, 1980). From the government’s standpoint, an MNC’s political accommodation
shows its commitment to the host society, which, in turn, reduces its liability of
foreignness as perceived by officials and amplifies its credibility and legitimacy as
perceived by the public (Kostova and Zaheer, 1999).
Cooptation is about an MNC’s commitment to enhancing legitimacy or neutralizing
possible conflicts with governments (e.g., inviting a senior official as a board member or
chief consultant). Cooperation may be improved if one side coopts the other into adopting
440 Y. Luo / Journal of International Management 10 (2004) 431–451
each other’s goals (DiMaggio and Powell, 1983; Oliver, 1991). Mutual assimilation of
goals and attitudes becomes more likely when each side gains a greater understanding of
the other’s mission and behavior through various contacts. Cooperation arises when
mutual understanding, rather than mistrust, is at the root of the relationship (Stevens and
McGowan, 1983).
Adaptation is defined here as an MNC’s efforts to accept, mimic, and comply with the
host country’s social norms, standards, and practices including those for business culture.
Adaptation is the product of investment strategies consciously aimed at establishing or
reproducing social relationships with bureaucrats in power (Oliver, 1991). Partner MNCs
seek informal or social approaches such as network-based, personalized exchanges with
political institutions to better safeguard operations under uncertainty. As social exchange
theorists have stated, social ties can institutionally undergird market activities (Gran-
ovetter, 1985) and nourish cooperation.
Finally, an integrator is an MNC that mutually depends with a host government for
achieving respective goals, integrating high competition and high cooperation with
regulatory authorities. Contrary to partners, integrators do not necessarily share compatible
or convergent goals with local governments in all areas or projects, and they compete with
the latter for local resources. Goal differences create different imperatives for the MGR
interaction and interdependence (Dunning, 1995). In situations that involve the allocation
of limited resources, competition may be a natural and possibly inevitable result of
interaction (Dowling and Shaeffer, 1982). If all parties cannot be fully satisfied from the
stakes available, then there must necessarily be some elements of competition (Porter,
1990). An integrator relationship typically exists in newly opened but not yet completely
deregulated industries (e.g., telecom, automobile, pharmaceutical, Internet, insurance, and
banking) in which MNCs bargain with local governments for securing limited resources
(e.g., preferred financial treatments and local partner selection) and privileges (e.g., broad
scope of business or market and free investment modes). Since these industries are
generally more critical to the stability and prosperity of local economies than others,
governments still control industry access, market breadth, business activities, and financial
conditions. This control compels an MNC to use its bargaining power based on the
resources it can contribute to boost these emerging sectors (Osland and Bjorkman, 1998).
Integrator MNCs are more likely to choose joint ventures as the entry mode and partner
with local firms that have superior relations with government authorities. If FDI
regulations permit, they may opt for a majority equity status so as to exercise greater
control over joint venture activities. Thus, a joint venture mode may spur cooperation
while a majority ownership may nurture bargaining.
The political response of integrator MNCs emphasizes compromise or influence.
Compromise concerns appropriate balance of conflictual interests between governments
and MNCs (Gladwin and Walter, 1980). It represents organizational attempts to achieve
parity between regulatory requirements and an organization’s own interests (Oliver, 1991).
MNCs are prone to balance when they attach importance to long-term cooperation with
local governments that control critical resources on which MNCs must depend. When
governmental expectations conflict with organizational ones, an MNC’s interests may be
best served by obtaining an acceptable compromise on competing objectives and
expectations (Stopford and Strange, 1991).
Y. Luo / Journal of International Management 10 (2004) 431–451 441
The resource dependence theory assumes that organizations vary in terms of the degree
of dependency on other organizations (e.g., government) or identifiable environmental
components (e.g., regulations) for reducing uncertainty or acquiring critical resources
(Pfeffer and Salancik, 1978). We assume that MNCs seek their economic gains from the
relationships with local governments through leveraging degrees of cooperation and
competition with the latter. In other words, we assume that, from the MNC perspective,
cooperation and competition embedded in MGRs are not predetermined (fixed) but
variable such that degrees of cooperation and competition are arrayed optimally and cost-
efficiently to meet the firm’s needs. It does so through adjusting the level of cooperation or
442 Y. Luo / Journal of International Management 10 (2004) 431–451
Political stability concerns how stable of a focal country’s political environment is,
comprising not only governmental transition but also governmentally enacted legal and
political policies (Kobrin, 1982). The resource dependence theory suggests that environ-
mental instability increases the costs of dependence on external resources, thereby
hampering a firm’s cooperation behavior (Pfeffer and Salancik, 1978). The political
science perspective holds that a host country’s political stability influences not only
existing business operations but also future business plans (Kofele-Kale, 1992; Moran,
1985). Political stability constitutes a key element of the feasibility study when an MNC
enters a foreign market (Kobrin, 1982). It affects investment outlook as perceived by MNC
managers and impacts cash inflow as reflected in net income remittance (Dunning, 1995).
High stability creates better outlook and accentuates investment confidence, ceteris
paribus, which will likely make MNCs more cooperative in dealing with governments.
Low stability, in contrast, hampers investment confidence and generates more uncertainty,
which in turn give rise to higher transaction costs associated with local operations and
lower cooperation with governments. An example would be an escalated hostility between
MNCs (e.g., Exxon, Ford, Otis, Coca-Cola, and GM) and the government of Argentina in
1973–1974 when the political and legal systems were chaotic. Since MNCs entering
emerging markets tend to have a long-term orientation, political stability affects their
strategic planning, reinvestment, and global integration (Bartlett and Ghoshal, 1989).
More stabilized political environments provide them with more predictable and verifiable
climates and thus help them better strategically plan and design their long-range
transactions (Caves, 1996). Under these circumstances, MNCs will commit more to
improving MGRs (Dunning, 1998). Cooperation is thus expected to be higher and
competition is lower when political environment is more stabilized. Instability such as
abrupt changes of the ruling party is likely to unpredictably change the regulatory
framework, thus increasing investment sunk costs, exit costs, and switch costs (Kobrin,
1982). In this event, firms have to focus on very short-term benefits and may fortify their
competition with governments. We thus predict:
Proposition 2. In the coopetition matrix, cooperation will be positively, and competition
will be negatively, associated with a host country’s political stability, ceteris paribus.
When political environment is more stabilized, estranger MNCs may choose
compliance, rather than circumvention, as the primary political response. This stability
ascertains lower costs or better returns associated with this compliance. Contender MNCs
may emphasize bargaining rather than challenging when they operate in a highly stabilized
political environment. Challenge is usually necessary if political environment is volatile
and unpredictable (Boddewyn and Brewer, 1994). Partner MNCs may use all three tactics,
including accommodation, cooptation, and adaptation, with an emphasis on adaptation.
Political stability helps ensure steady income stream accrued from evolving adaptations.
Whether integrator MNCs should emphasize compromise or influence in this situation will
Y. Luo / Journal of International Management 10 (2004) 431–451 445
depend on the new status of an MNC’s strategic needs and bargaining power. Political
scientists suggest that under political stability, the political market still exists where
businesses can influence and internalize government decision makers (Moran, 1985).
Regulatory deterrence concerns the extent to which business operations are hampered
and deterred by administrative regulations enacted by host government authorities. This
deterrence prevents market efficiency by obstructing the movement of market force, often
resulting in more deviations from market equilibrium (Caves, 1996). From an organiza-
tional viewpoint, this deterrence elevates environmental impediments and increases
information search costs (Oliver, 1991). From the resource dependence viewpoint, this
deterrence increases the uncertainty of external resources, pushing the firm to either look
at resources from alternative sources or cut down the existing interdependence (Pfeffer
and Salancik, 1978). When regulatory deterrence is high, MNCs are likely to reduce their
dependence on government-instituted production input and operational resources.
Motorola built its own supply base in Tianjin, China, in the late 1980s, instead of
relying on state-controlled local suppliers, to respond to regulatory deterrence in the
telecom industry. With this response, it reduces both competition and cooperation with
the government in the area of telecom parts and components. Without this reduction,
firms are deemed to be highly susceptible to regulatory changes and interference, that is,
MNCs will engage greater economic exposure in local operations. To mitigate such
economic exposure, MNCs may keep some distance from government control and from
regulatory disturbance. In doing so, they may shift from previous dependence on
governmentally controlled resources to more collaboration with local business
community (suppliers, distributors, competitors, and marketers) or more dependence on
other units within the MNC network that is globally integrated (Bartlett and Ghoshal,
1989). This shift then reduces both cooperation and competition with the host
government. Thus, we envisage:
Proposition 3. In the coopetition matrix, both cooperation and competition will be
negatively associated with a host country’s regulatory deterrence, ceteris paribus.
When the regulatory environment becomes more hazardous, estranger MNCs may
emphasize circumvention more than on compliance. Circumvention is more efficient than
compliance in terms of diluting organizational vulnerability to regulatory hazards (Oliver,
1991). Contender MNCs may bargain or challenge governmental rules and policies if they
have relatively greater bargaining power over the government or appease if they do not
have this power. Partner MNCs may consider cooptation as the major tactic with
accommodation and adaptation as supplementary tactics. Because governments and
partner MNCs are highly interdependent, cooptation may forcefully attenuate regulatory
disturbance. Similarly, integrator MNCs may choose influence if they have enough
bargaining power compared to that of the government or choose compromise if they do
not. In any event, this bargaining power derives from the extent to which the other party
depends on this party and the extent to which this party actually contribute resources
anticipated by the other party.
446 Y. Luo / Journal of International Management 10 (2004) 431–451
Alliance theorists maintain that firms favor cooperative strategies if they portray
industry growth opportunities that can only be seized by joint forces, or prefer competitive
strategies if their distinctive resources or bargaining power enable them to dominate the
competition (Khanna et al., 1998; Lado et al., 1997). Despite challenges, emerging foreign
markets provide foreign ventures with tremendous preemptive opportunities. These
opportunities, however, vary across different industries within an emerging market. Such
opportunities largely arise from decentralizing industrial structures previously controlled
by the government and dominated by a few state-owned monopolistic enterprises. The
growth variance in sales and profit across industries reflects the differences in market
demand, as well as the outcome of different government policies regulating different
industries (Porter, 1990). When the host industry in which an MNC participates grows
faster, the firm may face a greater need for cooperation as well as competition with
government authorities. For example, Anheuser-Busch saw increased cooperation (e.g.,
eliminating performance requirements and joint venture equity ceilings) as well as
competition (e.g., the government increased its institutional protection for the market share
of local brewers such as Grupo Modelo) with the Mexican government (the Zedilto
administration) in 1990–1991 when the beer industry there grew fast. More cooperation is
generally needed because MNCs and governments tend to be more interdependent in fast-
growing industries in which governments need MNCs’ technologies and organizing
principles to efficiently modernize these sectors, while MNCs need governments’
assistance in stabilizing their overseas operations. Luo (2002) demonstrates that fast-
growing industries in emerging economies are accompanied with greater structural
uncertainty. To reduce this uncertainty, MNCs need governmental support in ascertaining
resource procurement, product distribution, and mediation conflicts with local businesses.
Meanwhile, more competition with governments may also arise due to the fact that MNCs
rely more on local resources (e.g., capital and infrastructure) that are still controlled by
government agencies. Since governmental policies on FDI in fast-growing industries are
shifting from rigidity to elasticity (Dunning, 1998), MNCs have more leeway in
bargaining with governments for more, better, or cheaper resources. MNCs in fast-
growing sectors have generally brought distinctive resources to local operations, which in
turn increases their bargaining position. Thus, we hypothesize:
Proposition 4. In the coopetition matrix, both cooperation and competition will be
positively associated with the growth of a host industry in which an MNC participates,
ceteris paribus.
Estranger MNCs depend less on a host industry’s market conditions including industrial
growth. Thus, their political response will remain either compliance or circumvention.
Contender MNCs, however, may emphasize bargaining and focus less on challenge, given
the fact that faster growth of the industry often requires greater interdependence between
MNCs and governments. Partner MNCs may respond to the above situation by
emphasizing adaptation and accommodation. Participating in a prosperous local industry
necessitates more adaptation or polycentric orientation (Ring et al., 1990). Accommoda-
tion is needed because those MNCs in fast-growing industries may confront more pressure
Y. Luo / Journal of International Management 10 (2004) 431–451 447
from the indigenous society for social responsiveness. Lastly, integrator MNCs may select
a more active or offensive political tactic (i.e., influence) in response to the industry’s
stronger growth. In the presence of bargaining power, integrator MNCs may gain more
from MGRs by using influence strategy than using passive compromise when they operate
in a more promising industry.
The above four environmental factors are often interactive, jointly impacting
cooperation or competition. In this situation, MNCs need to identify the dominant
strategic response(s) from those we outlined above and unify these responses such that
they are not only consistent with each other but also congruent with the overriding
organizational needs and adaptive to the leading environmental factors. We also note that
the above political behavior to respond to these environmental factors by different types of
MNCs is suggested from the normative perspective based on the logic of the institutional
theory, resource dependence, network, and political behavior. It remains to be verified by
future empirical research or case studies.
5. Conclusion
To international executives, their political responses must align with the requirements
of competition and cooperation. When involving low competition (estranger and partner),
their political responses to governmental regulations should be less confrontational (e.g.,
compliance, circumvention, co-optation, or adaptation). When involving high competition
(contender and integrator), their responses should be more aggressive (e.g., bargain,
challenge, or influence). As cooperation increases from low (estranger and contender) to
high (partner and integrator), political responses become more socially responsive and
politically accommodated. For this purpose, international executives may use resource
commitment, personal relations, lobbying, and political accommodation to improve their
relations with governments, which in turn affect the outcome of international expansion.
These political responses should not remain at a standstill when the coopetition matrix
changes. International executives need to adjust their political behavior as well to align
with changed cooperation or competition with governments caused by new conditions of
environments and organizations. This adjustment is necessary because these new
conditions also change conditions under which expected gains of political tactics are
calculated. When economic, political, regulatory, and industrial environments become
more favorable or when an MNC’s resource complementarity and goal congruence with
governments are strengthened, MGRs become more cooperative and less competitive. In
this situation, estranger MNCs may emphasize compliance more than circumvention;
contender MNCs may use less defiant tactics such as bargaining instead of challenging;
partner MNCs may place political emphasis on adaptation; and integrator MNCs may
consider compromise or influence, depending on their bargaining power vis-à-vis
governments. When strategic orientation becomes more proactive, partner MNCs may
heighten accommodation and adaptation while contender and integrator MNCs may
sharpen bargaining or influence if their bargaining power is present.
Naturally, our propositions need to be empirically validated by future research. To
maintain conceptual clarity and parsimony in illustrating predictors of coopetition, we
have focused on several prominent variables that are most likely to affect the levels of
cooperation and competition. In our model, we might have missed other contingencies that
affect these levels. For example, cooperation or competition may be shaped by corporate
reputation, strategic goals, entry mode, and entry order. In testing our model, future efforts
may examine how cooperation and competition co-evolve along with new conditions of
environments and organizations and in what different domains cooperation and
competition simultaneously take place. Identifying their coevolvement and domains is
an intriguing area for further exploration.
A second promising area is to place the coopetition framework within a broader
organizational context—an MNC’s geographically dispersed yet globally integrated
network. Within this broader network, various foreign subunits will likely be characterized
with different identities. For example, a subsidiary in Latin America may be a contender
while its sister subsidiary in Asia may be a partner. In this situation, headquarters
coordination of MGRs with multiple host-country governments is warranted. Each MNC
might need to establish a system not only to share international experience in handling
MGRs but also to tie resource deployment with the coopetition types of different
subsidiaries. Resource deployment is an organizational lever to adjust individual subunits’
bargaining power and dependence on local resources (Boddewyn and Brewer, 1994;
Y. Luo / Journal of International Management 10 (2004) 431–451 449
Kostova and Zaheer, 1999; Poynter, 1985). Coordination may also enable MNCs to better
bargain with individual governments. This occurs if MNCs pressure one government over
another when these governments are competing for inbound FDI. Coopetition includes
both simultaneous cooperation and competition with an individual government and
simultaneous interactions with multiple foreign governments. MNCs may leverage the
latter to bolster their bargaining power. Further, MGRs with a home government may be
interrelated with MGRs with a host government, as MNCs can use home government
resources or institutions (e.g., U.S. Trade Representative Office) to facilitate their
relationships with host governments.
Third, this article has not addressed how MNCs should specifically improve MGRs in
the coopetition framework. Recent studies find that resource commitment, personal ties,
social accommodation, and corporate credibility are important building blocks for
improving MGRs (Luo, 2001). Future efforts may seek to advance this line of research
by differentiating estrangers, contenders, partners, and integrators with respect to MGR
cultivation. Since MNCs with different coopetition identities are not homogeneous in
terms of their resource dependence on indigenous resources and their vulnerability to
regulatory disturbance, required commitments to establishing MGRs accordingly differ.
Thus, it would be useful to assess how such different MNCs emphasize different building
blocks and how they leverage their bargaining power to simultaneously benefit from
differently configured cooperation and competition.
Finally, this study emphasizes governments in developing economies, especially
emerging markets. Our conceptual model may be also applicable to developed market
economies since coopetitive MGRs are deemed to exist in every economy. Governments
in developed economies share many concerns such as domestic employment, export
growth, environmental protection, and technological advancement as those in emerging
economies. Nonetheless, specific strengths of cooperation and competition as well as
specific environmental parameters that influence cooperation or competition may vary
according to different types of economies. Because governments in developed economies
do not regularly intervene overall inbound FDI policies but instead carefully oversee
competition and antitrust situations in specific industries, coopetition may be more
contingent upon industry-level structural variables than national-level environmental
factors. Further, as most developed economies provide a national treatment to foreign
MNCs, domestic firms can be leading counterparts with which MNCs compete for local
resources. Similarly, with continued privatization, local firms in emerging markets are
becoming powerful rivals competing both local resources and market shares. Future
research, whether emphasizing developed or emerging economies, should incorporate
domestic firms as a moderating force in assessing MGRs.
In conclusion, this study presents a coopetition perspective toward MNC–host
government relations, with an emphasized interest in foreign emerging markets. This view
may help enrich our understanding of new profiles, behaviors, and structures of MGRs that
emerged in the beginning of this new century. We see this effort as important and necessary
because MGRs today differ from what we saw in previous decades and from what earlier
studies described. Nevertheless, this article represents only one of the systematic efforts
required in addressing this increasingly critical yet inherently complicated issue in a broader
economic, political, and social contexts in which such relations are so richly embedded.
450 Y. Luo / Journal of International Management 10 (2004) 431–451
Acknowledgement
The author would like to thank JIM’s anonymous reviewers for their helpful comments.
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