John A. Parnell - Nonmarket Strategy in Business Organizations-Springer International Publishing (2019)

John
A. Parnell
Nonmarket
Strategy in
Business
Organizations
A Global Assessment
Nonmarket Strategy in Business Organizations
John A. Parnell
Nonmarket Strategy in
Business Organizations
A Global Assessment
John A. Parnell
School of Business
University of North Carolina at Pembroke
Pembroke, NC, USA
ISBN 978-3-319-93241-5 ISBN 978-3-319-93242-2 (eBook)

https://doi.org/10.1007/978-3-319-93242-2
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Preface
When I was an undergraduate three decades ago, business strategy was mostly about
markets: build a better product or produce efficiently and your organization is likely
to succeed. Political and social nonmarket factors were also considered but only on
the periphery.
Today, nonmarket concerns have become much more prominent. On the political
side, many firms support trade associations, hire former government officials, nego-
tiate with bureaucrats, and lobby politicians directly to erect favorable or modify
unfavorable regulations. On the social side, firms are expected to contribute to char-
ities, promote environmental sustainability, and help build stronger societies. For
many firms, an effective market strategy alone is no longer sufficient.
This shift in thinking is significant for several reasons. Existing scholarship sug-
gests that political and social nonmarket strategy (NMS) can drive performance;
many executives apparently agree, or they would not be investing so heavily in this
arena. Many firms integrate nonmarket considerations into the market strategy, so
understanding the influence of political and social intervention is critical as well.
But there are fine lines between managing the political arena and cronyism, and
between genuine social responsibility and image management.
Consider Tesla. CEO Elon Musk claims that the large subsidies his company
receives to produce electric cars are part of a public-private partnership to propel the
transportation industry into a green future. But critics do not understand why market
forces require taxpayer support to develop the best technologies and view the entire
process as corporate welfare. Tesla provides a prominent example of NMS, but
many other companies also address political and social intervention strategically,
often in subtle ways.
NMS is a multifaceted construct that extends from individual firms to govern-
ments, economic systems, and societies in general. Cronyism is often linked directly
to firm-level political intervention, but widespread corruption also creates an envi-
ronment conducive to more political NMS. This viscous cycle of government-level
corruption and firm-level nonmarket intervention is not only a problem in develop-
ing nations but in the world’s most advanced economies as well.
v
vi Preface
An NMS that appears to be effective for one firm may not be for another because
of differences related to top management, firm size, resources, industry, competi-
tors, and other factors. Nonetheless, there are key principles that govern relation-
ships between NMS, market strategy, strategic capabilities, and firm performance.
This book seeks to clarify NMS for both scholars and practicing managers. It
adds context by surveying managers in ten disparate countries and testing models
that integrate emphasis on strategic capabilities, market and nonmarket strategies,
and financial and non-financial performance. This book integrates a scholarly foun-
dation with practical examples to provide a structured means of understanding NMS
and its growing prominence. It does not answer every question about NMS, but it
offers both academic and real-world insights.
Acknowledgements
I am indebted to many individuals for their assistance. Several distinguished schol-

ars have assisted with survey translations and data collection, including Dr. Gaye
Acikdilli (Baskent University) with Turkey, Dr. Edwin “Cliff” Mensah (University
of North Carolina, Pembroke) with Ghana, Dr. Ziad Saeed (Assiut University) with
Egypt, Dr. Zhang Long (China University of Geosciences, Beijing) with China, and
Dr. Chris Ziemnowicz (University of North Carolina, Pembroke) with Poland. My
graduate assistant, Mr. Phillip Parrish, contributed significantly on various aspects
of the research. Ms. Brittani Allen edited an earlier draft of this work.
I also with to thank the Charles Koch Foundation for its generous support of
this project.
vii
Contents
1 Introduction�� 1
The Nonmarket Strategy Nomenclature�� 2
Contemporary Market and Nonmarket Dimensions�� 4
Current Research on Nonmarket Strategy �� 5
Integrating Nonmarket and Market Strategies �� 8
The Plan for This Book�� 11
2 Nonmarket Strategy FAQ�� 13
What Does Nonmarket Strategy (NMS) Mean to Managers? �� 13
What Does NMS Mean to Students in Business and Economics?�� 16
Why Do Nonmarket Issues Receive More Attention Today than
in the Past?�� 17
Do the Competitive Environment, the Industry, and Organizational
Size Drive NMS?�� 19
Can We Determine What a Company Is Really Doing with Regard
to NMS?�� 19
Is There an Ethical Dimension to NMS? �� 21
How Does NMS Influence Firm Performance? �� 21
Can NMS Hurt Firm Performance? �� 23
How Does NMS Vary Across Nations?�� 24
Can and Should Firms Simply Keep Their Market and Nonmarket
Strategies Separate?�� 24
How Should Strategic Managers Approach NMS in Their
Organizations?�� 25
3 Data Collection and Analysis�� 27
The Heritage Foundation’s 2018 Index of Economic Freedom�� 27
The Multinational Data Collection�� 28
Assessing Data Quality�� 34
4 Nonmarket Strategy in the USA�� 37
The Context for Business�� 37
ix
x Contents
Nonmarket Strategy: The USA�� 41

US Data�� 50
5 Nonmarket Strategy in the UK�� 55
Nonmarket Strategy: The UK�� 58
UK Data �� 60
6 Nonmarket Strategy in India�� 65
Nonmarket Strategy: India �� 68
India Data�� 70
7 Nonmarket Strategy in Mexico�� 75
Rule of Law�� 75
Government Size�� 77
Regulatory Environment�� 77
Market Freedom�� 77
Nonmarket Strategy: Mexico �� 78
Mexico Data�� 80
8 Nonmarket Strategy in Venezuela�� 87
Nonmarket Strategy: Venezuela �� 90
Venezuela Data�� 93
9 Nonmarket Strategy in Egypt �� 99
Nonmarket Strategy: Egypt�� 102
Egypt Data �� 105
10 Nonmarket Strategy in China�� 113
Nonmarket Strategy: China�� 117
China Data �� 120
11 Nonmarket Strategy in Turkey �� 127
Nonmarket Strategy: Turkey�� 130
Turkey Data�� 134
12 Nonmarket Strategy in Poland �� 139
Nonmarket Strategy: Poland�� 142
Poland Data�� 145
13 Nonmarket Strategy in Ghana�� 151
Nonmarket Strategy: Ghana�� 155
Ghana Data�� 157
14 Conclusion�� 163
Context Is Critical�� 164
Strategic Capabilities and NMS�� 166
NMS and Performance�� 166
Corruption, Cronyism, and Political NMS�� 168
Ethics and Social NMS�� 169
The Overlap Between Political and Social NMS�� 171
Integrating Market and Nonmarket Strategies �� 171
A Long-Term Perspective on NMS�� 173
Global Trade as an Illustration of NMS�� 174
Unresolved Issues and Future Research�� 176
References �� 179
Index�� 197
xi
List of Figures
Fig. 4.1 The USA model—composite�� 54

Fig. 5.1 The UK model—composite�� 63
Fig. 6.1 The India model—composite�� 74
Fig. 7.1 The Mexico model—composite�� 84
Fig. 8.1 The Venezuela model—composite�� 96
Fig. 9.1 The Egypt model—composite�� 111
Fig. 10.1 The China model—composite�� 125
Fig. 11.1 The Turkey model—composite.�� 137
Fig. 12.1 The Poland model—composite�� 149
Fig. 13.1 The Ghana model—composite�� 161
xiii
List of Tables
Table 3.1 Heritage Foundation’s 2018 world and regional rankings

for economic freedom�� 28
Table 3.2 Sample demographics�� 30
Table 3.3 Summary of data�� 31
Table 3.4 Market and nonmarket strategy survey items�� 32
Table 3.5 Survey items—strategic capabilities�� 33
Table 3.6 Survey items—performance�� 33
Table 4.1 Assessment of national context—USA�� 38
Table 4.2 Assessment of US model—strategic capabilities and strategy�� 50
Table 4.3 US model—strategic capabilities and strategy�� 51
Table 4.4 Assessment of US model—strategy and performance�� 52
Table 4.5 US model—strategy and performance�� 52
Table 4.6 Assessment of US model—composite�� 53
Table 4.7 US model—composite�� 53
Table 5.1 Assessment of national context—UK�� 56
Table 5.2 Assessment of UK model—strategic capabilities and strategy�� 60
Table 5.3 UK model—strategic capabilities and performance�� 61
Table 5.4 Assessment of UK model—strategy and performance�� 61
Table 5.5 UK model—strategy and performance�� 62
Table 5.6 Assessment of UK model—composite�� 62
Table 5.7 UK model—composite�� 63
Table 6.1 Assessment of national context—India�� 66
Table 6.2 Assessment of India model—strategic capabilities and strategy�� 70
Table 6.3 India model—strategic capabilities and strategy�� 71
Table 6.4 Assessment of India model—strategy and performance�� 71
Table 6.5 India model—strategy and performance�� 72
Table 6.6 Assessment of India model—composite�� 72
Table 6.7 India model—composite�� 73
xv
xvi List of Tables
Table 7.1 Assessment of national context—Mexico�� 76

Table 7.2 Assessment of Mexico model—strategic capabilities
and strategy�� 80
Table 7.3 Mexico model—strategic capabilities and strategy�� 81
Table 7.4 Assessment of Mexico model—strategy and performance�� 82
Table 7.5 Mexico model—strategy and performance�� 82
Table 7.6 Assessment of Mexico model—composite�� 83
Table 7.7 Mexico model—composite�� 83
Table 8.1 Assessment of national context—Venezuela�� 88
Table 8.2 Assessment of Venezuela model—strategic capabilities
Table 8.3 Venezuela model—strategic capabilities and strategy�� 94
Table 8.4 Assessment of Venezuela model—strategy and performance�� 94
Table 8.5 Venezuela model—strategy and performance�� 95
Table 8.6 Assessment of Venezuela model—composite�� 95
Table 8.7 Venezuela model—composite�� 96
Table 9.1 Assessment of national context—Egypt�� 100
Table 9.2 Assessment of Egypt model—strategic capabilities
Table 9.3 Egypt model—strategic capabilities and strategy�� 107
Table 9.4 Assessment of Egypt model—strategy and performance�� 108
Table 9.5 Egypt model—strategy and performance�� 108
Table 9.6 Assessment of Egypt model—composite�� 109
Table 9.7 Egypt model—composite�� 110
Table 10.1 Assessment of national context—China�� 114
Table 10.2 Assessment of China model—strategic capabilities
Table 10.3 China model—strategic capabilities and strategy�� 122
Table 10.4 Assessment of China model—strategy and performance�� 123
Table 10.5 China model—strategy and performance�� 123
Table 10.6 Evaluation of China model—composite�� 124
Table 10.7 China model—composite�� 124
Table 11.1 Assessment of national context—Turkey�� 128
Table 11.2 Evaluation of Turkey model—strategic capabilities
Table 11.3 Turkey model—strategic capabilities and strategy�� 134
Table 11.4 Evaluation of Turkey model—strategy and performance�� 135
Table 11.5 Turkey model—strategy and performance�� 135
Table 11.6 Evaluation of Turkey model—composite�� 136
Table 11.7 Turkey model—composite�� 136
Table 12.1 Assessment of national context—Poland�� 140
Table 12.2 Evaluation of Poland model—strategic capabilities
List of Tables xvii
Table 12.3 Poland model—strategic capabilities and strategy�� 146

Table 12.4 Evaluation of Poland model—strategy and performance�� 147
Table 12.5 Poland model—strategy and performance�� 147
Table 12.6 Evaluation of Poland model—composite�� 148
Table 12.7 Poland model—composite�� 148
Table 13.1 Assessment of national context—Ghana�� 152
Table 13.2 Evaluation of Ghana model—strategic capabilities
Table 13.3 Ghana model—strategic capabilities and strategy�� 158
Table 13.4 Evaluation of Ghana model—strategy and performance�� 159
Table 13.5 Ghana model—strategy and performance�� 159
Table 13.6 Evaluation of Ghana model—composite�� 160
Table 13.7 Ghana model—composite�� 160
Table 14.1 Effect sizes in composite models�� 164
Chapter 1
Introduction
Prior to the early nineteenth century, most of the world’s population was employed
in agriculture and was, by today’s standards, poor. The industrial revolution for-
ever changed this trajectory, shifting workers from fields to factories and promot-
ing a steady increase in the standard of living. To benefit from the industrial
revolution, societies needed access to emerging technology and to investors with
the freedom and financial resources to produce. They also needed the respect for
private property and open markets. As a result, the USA, the UK, and other
European nations were among the first to develop as largely capitalist societies and
have remained global economic leaders. Japan, South Korea, China, and others
have embraced free enterprise to varying degrees in the years since. Their eco-
nomic ascensions have been varied and more recent, but no less remarkable.
Inherent in capitalism and the industrial revolution was the idea that private
firms succeed when individual needs are met through relatively free exchange
between buyers and sellers through mechanisms commonly known as markets. The
advances that resulted from this thinking are remarkable. During the last two cen-
turies, the world has become a hundred times wealthier, basic literacy has increased
from 12% to 85%, life expectancy has risen from 30 years to 71, and the proportion
of people living in a democracy has increased from 1% to over 50%. Harvard
Professor Steven Pinker (2018) attributes this progress to the enlightenment, a
replacement of dogma, tradition and authority with reason, debate, and the pursuit
of truth. But enlightened thinking and action cannot flourish in repressed societies.
Built on human freedom, science, technology, and innovation, capitalism is a natu-
ral extension of the enlightenment.
A thriving private sector inherent in free enterprise does not solve all of society’s
problems, but it generates a surplus of resources that can be employed to address
many of them either through market activity or directly through government inter-
vention. Today’s advanced societies can afford clean air and drinking water,
advanced communication networks, and a broad access to healthcare, amenities
reserved for the wealthy in past generations. The notion that business firms should
focus primarily on returns to investors and satisfying customers by producing
© Springer International Publishing AG, part of Springer Nature 2019 1

J. A. Parnell, Nonmarket Strategy in Business Organizations,
https://doi.org/10.1007/978-3-319-93242-2_1
2 1 Introduction
goods and services for which they are willing and able to pay enhances quality of
life across the board. Market concerns were primary within this traditional view of
free enterprise. Corporate philanthropy, social intervention, and other nonmarket
activities were secondary.
The discipline of marketing followed this line of thinking during the past cen-
tury and has developed around the notion that satisfied customers are key to long-
term financial success. Retail legend Harry Selfridge elevated customer satisfaction
to the forefront in 1909 when he proclaimed, “The customer is always right”
(Skapinker 2010). Widely recognized as a showman, Selfridge understood the
essence of social and political influences on business activity but viewed customer
satisfaction as a key indicator of social progress and as the primary trigger of
investor returns (Woodhead 2013). Within this notion of a market orientation,
firms should concentrate their strategic efforts on customer preferences, product/
service quality, costs, and other market factors, with a focus on financial returns,
including both profits and shareholder value. This primary view of business pur-
pose and activity was generally accepted in the most advanced societies through
most of the twentieth century.
The emphasis on customers touted by icons like Selfridge spread in the decades
that followed. In 1979, retail brokerage firm Smith Barney (now part of Morgan
Stanley) launched a memorable series of television ads featuring John Houseman
with the catchphrase, “They [the brokerage] make money the old-fashioned way.
They earn it” (see https://www.youtube.com/watch?v=yAMRXqQXemU).
Although not a direct reference to capitalism, the Smith Barney ad campaign
exemplified the direct, no-nonsense perspective of business success through mar-
ket orientation. Consumers still expect firms to earn their keep by producing bet-
ter quality and less expensive wares, but their expectations have become much
more complicated.
The Nonmarket Strategy Nomenclature
Before proceeding, it is important to identify and distinguish among multiple

related but distinct terms. As previously mentioned, markets are mechanisms that
allow buyers and sellers to exchange freely. Nations that permit markets to func-
tion with limited government intervention are called market economies. In a
broad sense, the alternative to a market economy (i.e., capitalism) in an organized
society is central planning, often called socialism, collectivism, Marxism (named
for one of socialism’s great intellectuals), or statism. The capitalism-socialism
dichotomy is a useful means of thinking about the economy, although it is an
overgeneralization. At a minimum, capitalism and socialism represent opposite
ends of a continuum. In this respect, a market approach to economics is a matter
of degree, not kind. The Heritage Foundation’s Index of Economic Freedom
(www.heritage.org/index) and the Cato Institute’s Human Freedom Index
The Nonmarket Strategy Nomenclature 3
(www.cato.org/human-freedom-index)—examined in greater detail in future

chapters—approach individual freedom and economic development in this
manner, applying scores to each nation along clearly identified criteria.
The world’s most advanced nations—including the USA and those in Western
Europe, among others—are widely considered market economies, while centrally
planned societies such as Cuba, North Korea, and Venezuela are socialist in orienta-
tion. Other nations are more difficult to classify, however. China is the quintessen-
tial example of this conundrum with an intermediate system often called
state-sponsored capitalism, a literal oxymoron.
There are also issue-specific concerns with the market economy classification
scheme. For example, in a strict market sense, highways could be privately main-
tained and financed by private tolls, education could be financed at the discretion
and ability of parents, and all medical care could be arranged between individuals,
hospitals, and private insurance companies. But some economists argue that certain
types of government intervention in some areas actually promote the development
of markets in others. New roads provide an infrastructure for transporting products,
government schools promote an employment-ready workforce, and universal
healthcare enables workers to change jobs and careers more easily. These debates
will not be resolved in this book, but their existence is worth noting because they
underscore the complexity involved in market systems.
Marketing is a broad term referring to activities designed to promote exchange,
such as product development, pricing, promotion, and distribution. Marketing
occurs primarily in market economies because firms must inform and persuade cus-
tomers to succeed. Markets include multiple buyers and sellers, whereas marketing
activities are undertaken by individual firms. While marketing endeavors tend to
focus on markets and customers, they also include public relations and other non-
market activities.
Market-oriented firms emphasize factors associated with markets and often
engage in marketing in ways that highlight customer satisfaction. In a market
economy, most private firms must be market-oriented save for the extent to which
they can persuade politicians to protect them from competition. Market strate-
gies acknowledge both industry and firm influences on performance and are con-
cerned with customers, competitors, suppliers, and other entities that influence
competitive advantage through strategic orientations, such as cost leadership and
differentiation (Cadogan et al. 2002; van Raaij and Stoelhorst 2008). Put another
way, market-oriented firms respect the market and compete aggressively through
marketing, innovation, cost-cutting, and other means to win over customers who
have choices.
Nonmarket activities include business undertakings outside of the market realm.
Every business activity can be classified as market, nonmarket, or both, although
this can be easier to do in theory than in practice. Arguably, distinctions between
market and nonmarket organizational activities are more complex than those
between market-oriented and centrally planned economies. Note that nonmarket is
considered to be the alternative to market at the micro level—in the context of firm
4 1 Introduction
strategy—but the term is not widely used in the context of national economies.
The alternative to a market orientation at the macro level is socialism.
Nonmarket strategy (NMS) includes such firm activities as broad social
initiatives, lobbying, campaign contributions, and even direct collaboration with
government agencies and regulators (Delmas and Montes-Sancho 2010; Lawton
et al. 2013; Okhmatovskiy 2010). NMS can be broadly subdivided into social and
political dimensions, a distinction made in this book. A firm can employ both mar-
ket and nonmarket strategies, but market-oriented firms emphasize the former.
Contemporary Market and Nonmarket Dimensions
Satisfying customers and “building a better mousetrap” will always drive organiza-
tional success in a market economy. But today, emphasis on a nonmarket strategic
dimension has expanded alongside the more traditional market dimension that
focused primarily on business owners, customers, and suppliers as core stakehold-
ers. Exactly when this shift in thinking entered mainstream academic and business
thinking is uncertain, but nonmarket activity in firms began to gain noticeable trac-
tion in Europe and the USA during the 1970s and 1980s (Aplin and Hegarty 1980;
Doz 1980; Baysinger 1984).
As previously mentioned, some business activities are difficult to categorize as
either market or nonmarket. Human resources (HR) can considered part of the mar-
ket equation because appropriate talent and a committed workforce are required to
meet consumer needs and drive firm performance, a notion emphasized by former
Southwest Airlines CEO, Herb Kelleher. For this reason, HR is often discussed as
part of the market domain as well.
Other (nonmarket) stakeholders with a less direct impact on performance have
also been added to the mix, including governments, communities, society at large,
and even the natural environment. The once positive connotations of profit and
wealth are now neutral at best; the wealthy are now “filthy rich,” and high returns
are often “excess profits.” Today, many people expect firms to integrate and balance
the views of all stakeholders—not just traditional market-oriented ones—when
making strategic decisions (Lux et al. 2011, 2012). Some even expect firms to pri-
oritize nonmarket objectives such as wages and working conditions, urban revital-
ization, and “saving the environment.”
An evolving school of thought does not see market and nonmarket concerns as
mutually exclusive. Its’ adherents emphasize integration of the two realms into a
broader, “enlightened” stakeholder perspective—often called “stakeholder the-
ory” by academics—as a more effective long-term approach. Tools such as the
balanced scorecard reinforce the notion that firm performance extends beyond
profits by including non-financial measures such as customer satisfaction, organi-
zational learning, and community support (Kaplan and Norton 2007; Schulte
2005).
Current Research on Nonmarket Strategy 5
Current Research on Nonmarket Strategy
Proponents of NMS argue that an effective nonmarket approach is not only good
for society but is also good business. Indeed, mush of the current scholarship
assumes the former and seeks to confirm the latter. Logically, numerous economic
and management theories support the notion that emphasizing NMS improves firm
performance (Parnell 2015; Economist 2016; Macher and Mayo 2015; Davis et al.
2010; Liu and Chen 2015). The aforementioned stakeholder theory focuses on the
need for strategists to consider a wide range of groups—beyond suppliers, custom-
ers, and competitors—that influence and are affected by firm actions (Hillman and
Keim 2001). Institutional theory emphasizes how governments and other institu-
tions influence firm structure and strategy (Hadani 2012). Public choice theory
highlights the fact that organizations pursue mutually beneficial arrangements
(i.e., cronyism) with politicians and other government entities (Bonardi et al. 2005,
2006; Wood and Frynas 2006). The behavioral theory of the firm emphasized
imperfect information, bounded rationality, and satisficing—settling on practical,
workable decisions rather than seeking to maximize profits (Ji-Yub et al. 2011; Liu
et al. 2015; Cyert and March 1963). The resource-based view (RBV) of the firm
highlights roles played by governments and other external entities in amassing
strategic resources (Wei et al. 2016). Each of these perspectives helps explain how
and why an effective NMS enhances firm performance (Mellahi et al. 2016b;
Dahan et al. 2013; Hadani and Schuler 2013), although none of them prescribe
specific nonmarket actions.
Theories aside, the notion of an NMS-performance link is intuitive; nonmarket
activity can promote positive relationships with stakeholders. Ostensibly, firms
would not pursue NMS if a performance payoff was not anticipated, but this infer-
ence does not constitute evidence. Some firms do not prioritize NMS, perhaps
because they do not understand the phenomenon or how to address it, or simply do
not perceive a benefit in doing so. A growing body of scholarly research is evaluat-
ing factors that influence a firm’s nonmarket emphasis, as well as the link between
NMS and firm performance (Bach and Allen 2010; Baron 1995; Wei et al. 2016;
Buli 2017). Mellahi et al. (2016b) reviewed 162 NMS-performance studies and
found that 102 identified a significant link. Scholars are focusing more on underly-
ing mechanisms that appear to influence how NMS drives performance, including
how NMS might affect consumer perceptions of the firm (Luo and Bhattacharya
2006), access to financial resources (Madsen and Rodgers 2015), and even access
to political resources (Frynas et al. 2006).
A positive NMS perspective views nonmarket action as a reflection of organiza-
tional strength and enlightenment. As such, political involvement is not just a
means of countering government regulation, but also a proactive approach to soci-
etal development. From this perspective, social challenges such as water depletion,
deforestation, and child labor exploitation occur when governments are unwilling
or unable to foster responsible business practices (Scherer and Palazzo 2011;
6 1 Introduction
Scherer et al. 2006). Given this void, interest groups pressure firms to engage in
political activity by working with nongovernmental organizations (NGOs) and oth-
ers to address insufficient social and environmental standards (Valente and Crane
2010). Hence, firms ultimately address the problems governments cannot or will
not address. Conceptually, this view runs counter to the traditional expectation of
firms as pursuers of profit through market means.
Within this positive NMS perspective, corporate social responsibility (CSR) is
viewed as a building block of NMS because it can influence public policy in a man-
ner consistent with the firm’s social values (Liedong et al. 2015; Mellahi et al.
2016b; Scherer 2017; Scherer and Palazzo 2011; Schneider and Scherer 2016). The
trust created between individuals and organizations when firms campaign for social
change is presumed to benefit the firm economically as well. This perspective on
proactive political interaction is known as political corporate social responsibility
(PCSR) (Wickert 2016).
A number of scholars have promoted the PCSR perspective (Scherer et al. 2014,
2016; den Hond et al. 2014; Matten and Crane 2005), but others are wary (Liedong
et al. 2015; Mellahi et al. 2016b; Scherer 2017; Scherer and Palazzo 2011; Schneider
and Scherer 2016). A negative view of NMS sees nonmarket emphasis as an option
pursued by firms unable to address market concerns effectively (Parnell 2015; Adly
2009). As previously noted, goals vary across stakeholders, and market and nonmar-
ket conflicts are inevitable, requiring strategic managers to make choices (Cavazos
and Rutherford 2012; Baron 1995; Hadani et al. 2015).
The positive and negative perspectives on NMS are associated with two broad
research directions. Through a positive lens, strategic or political corporate social
responsibility focuses on firm actions that seek to advance both social and financial
goals (McWilliams et al. 2006). Through a largely negative lens, corporate political
activity (CPA) emphasizes management of politicians and political institutions in
ways beneficial to the firm (Hillman et al. 2004); social benefit is not necessarily a
concern. Efforts to integrate these two disparate streams have been limited (den
Hond et al. 2014; Hadani and Coombes 2015) and have contributed to a wide range
of research perspectives and nomenclature (dos Reis et al. 2012; Funk and Hirschman
2017; Mellahi et al. 2016a; Vázquez-Maguirre and Hartmann 2013).
The positive and negative perspectives on NMS can be viewed as social and
political dimensions, respectively. Political NMS is associated with lobbying,
political engagement, and related activities (Iriyama et al. 2016; Néron 2016;
Unsal et al. 2016). It is seen as a means of protecting the organization against a
regime or attempting to influence one and typically carries a negative or neutral
connotation. Scholars have investigated political NMS from several perspectives,
including corporate political activity (CPA), strategic political management, and
strategic political emphasis (Oliver and Holzinger 2008; Hillman and Hitt 1999;
Hillman et al. 2004).
At the organizational level, CPA can advance firm interests, minimize the
effects of government policies that threaten corporate goals, or maintain a favor-
able status quo (Baysinger 1984; Keillor et al. 2005; Lawton et al. 2013; Baines
and Viney 2010). In their review of global work on CPA and performance, Rajwani
Current Research on Nonmarket Strategy 7
and Liedong (2015) found a positive link in 44 out of 56 studies. CPA’s impact on
economic value was most notable in emerging economies, largely due to corrup-
tion, cronyism, and weak institutional development (Bunkanwanicha and
Wiwattanakantang 2009; Faccio et al. 2006; Johnson and Mitton 2003; Khwaja
and Mian 2005). Firms work together at the industry level to influence public
policy in areas related to product safety, labor, and the environment (Vázquez-
Maguirre and Hartmann 2013; Porter and Kramer 2006).
The argument for CPA is a practical one. Government oversight typically
responds to firm activity over time rather than anticipating it. Firms not only attempt
to influence government intervention but to also engage in activity to influence or
modify the effects of government regulation (Funk and Hirschman 2017). Through
innovation-driven change, firms engage in activity that is difficult to comprehend
within the existing regulatory regime. By doing so, they alter both the effects of the
regulations and how they are interpreted going forward.
Government action need not be sinister nor elicit a nonmarket response, but can
be difficult to analyze. For example, imagine that all government revenues were
generated by means of a simple flat (i.e., single, across the board) tax, thereby creat-
ing fewer opportunities for cronyism between firms and politicians. But the story
does not end there. Flat tax opponents might contend that such a scheme is inher-
ently unfair to the poor and could argue for exemptions and multiple brackets to
shift the burden more toward higher income earners. Food producers and other firms
might openly support opposition candidates on humanitarian grounds (i.e., a pro-
gressive tax system “helps the poor”). Of course, these and other businesses heavily
involved in the manufacture and sale of consumer staples would benefit from a
progressive system that transfers economic power to lower-income consumers more
likely to spend the difference on food and everyday goods. Although producers of
luxury goods and services such as vacations and upscale automobiles might benefit
from retaining a flat tax, they are much less likely to articulate their views openly,
lest they be maligned for “supporting the wealthy.”
The previous example illustrates a phenomenon inherent in CPA. Corporate
political activities have both practical and political dimension. Practical factors are
presumed to be beneficial to the firm (e.g., lobbying for a subsidy, a tariff on imports,
or barriers to entry for prospective competitors), or the activity would not be pur-
sued in the first place. Political factors are more difficult to predict and can change
over time. Hence, the decision to purse specific CPA is a multifaceted one.
Social NMS is usually viewed favorably as it purports to enhance relationships
with stakeholders and promote CSR (Scherer et al. 2016; Wickert 2016; Morsing
and Roepstorff 2015). CSR is a key component of social NMS, as both seek to influ-
ence public policy together with social values (Mellahi et al. 2016b; Scherer 2017;
Scherer and Palazzo 2011; Schneider and Scherer 2016). Social NMS has been
touted as an appropriate and necessary extension to a firm’s market strategy for
decades (McWilliams and Siegel 2000, 2001).
The notion of CSR infers an obligation for the firm to serve its stakeholders in
ways beyond the normal course of business activity. Serving customers and generat-
ing profits are not sufficient. Many consumers expect firms to preserve engage in
8 1 Introduction
proactive environmental policy, financially support community development, train

unemployed workers, contribute to education and the arts, and provide certain
employee benefits designed to enhance society as a whole. In the past, public stands
on social issues were not common. With greater acceptance of the CSR imperative,
however, many firms have become more proactive, an approach supported by most
consumers in the USA and other advanced economies.
Consider two recent examples. Citing contradictions with its own human rights
policies, Dow and Monsanto fought bills in Indiana and Missouri that allowed
firms to deny same-sex couples certain benefits as a matter of religious freedom,
an issue not directly related to the firm’s course of business. The National
Basketball Association (NBA) even relocated its 2017 all-star game from Charlotte,
North Carolina, when the state did not repeal HB2, a measure that required men
and women to use restrooms in government buildings in accordance with the gen-
der noted on their birth certificates (Peters and Silverman 2016). When legislators
eventually decided to repeal HB2, the NBA agreed to return to Charlotte for the
2019 game.
Integrating Nonmarket and Market Strategies
Existing research underscores what most managers already inherently understand,

but recognizing the importance of NMS is only a starting point. Managers and firms
approach NMS in very different ways and putting NMS into practice can be diffi-
cult. The strategic implications of viewing nonmarket and market strategies as inde-
pendent or integrated can be substantial. The current thinking among both scholars
and practitioners has shifted toward integration, but formulating clear, cohesive, and
mutually reinforcing market and nonmarket strategies can be challenging.
Simply distinguishing between market and nonmarket factors can be difficult.
Public-private partnerships can be regarded as effective, collaborate activities or as
mere cronyism. Firms in developing economies may view corrupt political activities
as a part of the market strategy because they may be required simply to secure
access to critical resources and customers. They might be required to trade resources
or favors in exchange for the privilege of competing, whether in the form of a bribe
or through political contributions or other less direct means. As such, research has
supports a stronger NMS-performance link in less developed nations (Bunkanwanicha
and Wiwattanakantang 2009; Faccio et al. 2006; Johnson and Mitton 2003; Khwaja
and Mian 2005). However, this finding does not preclude the importance of NMS is
developed economies. With sophisticated regulatory regimes and more resources
available to support social imperatives, the potential payoff of an effective NMS
could be even greater.
One’s broader perspective on free enterprise and the role of organizations can
also influence one’s view of NMS. As previously discussed, it can be viewed posi-
tively from a corporate social responsibility (CSR) perspective (Morsing and
Roepstorff 2015; Scherer et al. 2016; Wickert 2016) or negatively through the lens
Integrating Nonmarket and Market Strategies 9
or cronyism and corruption (Iriyama et al. 2016; Néron 2016; Unsal et al. 2016).
Broadly speaking, strong advocates of free markets are likely to see cronyism and
squandered resources when firms emphasize NMS, while progressives are likely to
view such behavior as “blunting the sharp edges” of capitalism.
While most scholars and executives recognize the importance of relationships
between the organization and all affected entities—not just shareholders, custom-
ers, and suppliers—conflict between owners (shareholders) and other stakeholders
are clear and can be problematic. In general, shareholders typically seek maximum
profits, creditors prefer organizational stability, customers desire the best products
at the lowest possible prices, governments seek tax revenues, politicians seek reelec-
tion, and communities value employment opportunities. Executives charged with
balancing diverse stakeholder interests must make difficult choices, especially when
their own managerial interests are considered. Stakeholder theory advocates
acknowledge this reality but underscore common ground that exists across stake-
holders and the need for a firm’s management to pursue a middle ground. They also
argue that managing a firm for the benefit of all stakeholders can build goodwill and
help secure long-term survival.
If a firm accepts the notion that financial performance is an insufficient indica-
tion of success—a view inherent in the stakeholder approach—then non-financial
factors must be considered as well. The balanced scorecard represents a quasi-
solution to this dilemma by including different measures valued by competing inter-
ests (Harris and Mongiello 2001; Kaplan and Norton 1992, 1996, 2001, 2004;
Laitinen 2004; Madanoglu et al. 2014; Norreklit 2000; Phillips 1999; Phillips and
Moutinho 1999). Put another way, the difficult choices inherent in executing a
stakeholder approach can be managed and justified if compromises are required to
achieve competing expectations on a balanced scorecard that moves beyond profits
and share values. Financial measures (e.g., return on assets, stock price, and revenue
growth) might be assigned greater weights on the scorecard, but other factors (e.g.,
customer satisfaction, employee satisfaction, and sustainability) would be included
as well. Weights can vary widely across firms, so a broader balanced scorecard
enables stakeholder-oriented firms to claim strong performance by integrating non-
financial and social measures.
One might consider the stakeholder and balanced scorecard perspectives as a
continuum anchored by a traditional, financial, market orientation at one end and a
broad, integrated strategic orientation at the other. Organizations on the first extreme
acknowledge the need to consider disparate stakeholder views while basing strate-
gic decisions on market concerns. For these firms, balanced scorecards can be struc-
tured to include only measures with strong, direct links to core, market-oriented
stakeholders, such as return on assets (ROA), revenues, market share, customer sat-
isfaction, share price, and the like. In contrast, organizations on the other end of the
continuum seek to balance the interests of all market- and nonmarket-oriented
stakeholders and typically adopt a broad perspective on performance that includes
market and nonmarket measures. While such a continuum is simplistic, it distin-
guishes between the two competing strategic perspectives and provides a solid start-
ing point for deeper analysis.
10 1 Introduction
A robust stakeholder orientation and a broad perspective on performance (e.g., a

balanced scorecard) are, by definition, consistent with a nonmarket strategy
emphasis. NMS simply reflects the increased weight given to nonmarket stakehold-
ers and non-financial performance measures. As its proponents note, NMS promotes
firm performance by helping the organization achieve broader, social objectives
(Singer 2013). If organizations should strive to balance concerns from diverse, yet
interrelated stakeholders, then a single, comprehensive strategic approach that inte-
grates market and nonmarket considerations would logically follow (Deng et al.
2010; Mellahi et al. 2016b; Wei et al. 2016; Dorobantu et al. 2017a).
Linking CSR (i.e., social NMS) with the market strategy is not easy, however. It
is also difficult to judge the extent to which executives genuinely seek positive
social change because they tend to present NMS in terms or corporate social respon-
sibility (CSR). For example, when a large manufacturer negotiates with politicians
or regulators on packaging requirements, it is typically justified on safety, environ-
mental, or other social nonmarket grounds. The fact that such requirements might
disproportionally raise costs for smaller competitors and/or create an entry barrier
for potential competitors—a political nonmarket issue—is not mentioned. This
problem challenges scholars, as it makes it difficult to interpret and categorize stra-
tegic actions when considering how they might influence firm performance.
The notion of integrating market and nonmarket considerations into a single,
comprehensive approach has received considerable scholarly support, but it is not
the only option (Doh et al. 2012; Henisz and Zelner 2012; Kingsley et al. 2012;
Sawant 2012; Meyer and Peng 2016). Executives who reject a broad stakeholder
orientation can evaluate nonmarket concerns separately, provide lip service—what
activists call “greenwashing”—or avoid them altogether. For example, a firm might
support a trade association and sponsor certain charitable events to address nonmar-
ket concerns without fully considering how such activities might support or even
contradict its market strategy.
An argument can be made for avoiding NMS or at least minimizing its influence
relative to market strategies. Trade-offs exist between market and nonmarket strate-
gies, and firms unable or unwilling to compete through market mechanisms might
pursue and begin to rely on nonmarket ones instead (Parnell 2015; Adly 2009).
Goals vary across stakeholders, and conflicts between market and nonmarket
domains are inevitable, requiring strategic managers to make choices (Cavazos and
Rutherford 2012; Baron 1995; Hadani et al. 2015).
A standalone approach to NMS could be appropriate in certain situations and can
be influenced by the content of the market strategy (Wei et al. 2016; Dorobantu et al.
2017b; Funk and Hirschman 2017). NMS might not be central to a firm that pro-
duces low-involvement products like nuts and bolts. Moreover, NMS appears to be
more common—perhaps crucial—in certain industries, in larger firms (Bach and
Allen 2010), and among those in developing and emerging economies with less
sophisticated regulatory regimes (Doh et al. 2012; Henisz and Zelner 2012; Kingsley
et al. 2012; Meyer and Peng 2016; Khanna et al. 2005; Marquis and Raynard 2015).
Nonetheless, just as all activities in a firm should be aligned, the trend in scholarship
favors integration of market and nonmarket strategies.
The Plan for This Book 11
The Plan for This Book
This book addresses a wide array of compelling questions about NMS, its links to
market strategies and capabilities, and its ability to drive firm performance. Built on
previous research, it integrates a multinational data collection and analysis and
numerous examples to provide practical answers to current questions about NMS.
This chapter provides an introduction to the nonmarket arena and an overview of
current scholarly thinking in the field. Chapter 2 addresses a series of practical ques-
tions about NMS. Chapter 3 outlines the plan for assessing NMS in ten nations,
including research methods and a framework for analysis. Each country is presented
individually in Chaps. 4–13. Chapter 14 offers a robust set of conclusions.
Chapter 2
Nonmarket Strategy FAQ
The previous chapter defined nonmarket strategy and its parameters and
explained its increasing prominence. This chapter is organized as an “NMS FAQ”
and addresses important practical questions about NMS from a managerial
perspective.
What Does Nonmarket Strategy (NMS) Mean to Managers?
As discussed in the previous chapter, NMS includes any and all strategic consider-
ations outside of the market realm. However, NMS is a default, catch-all expres-
sion that many practitioners do not recognize, especially those concerned primarily
with ongoing and immediate challenges to their firms. Typically, line managers
concentrate on production, sales managers seek to move inventory, HR managers
focus on procuring and retaining talent, and so forth. But top managers must take
a broader view, as they are charged with overseeing the organization’s long-term
strategic direction. Whether or not they are familiar with NMS as a term, the con-
cept rings true to executives. It becomes a more salient topic and one advances
within the management structure.
To understand what NMS means to managers, one must first understand the strat-
egy development process. Strategy is neither formulated nor executed in a vacuum,
so there are no simple formulas for assimilating nonmarket concerns. The process
requires executives to integrate their own experiences and biases with pressure from
owners (shareholders) and outsiders. Charting an effective strategy that includes
only market considerations is difficult enough in its own right; making sense of
nonmarket considerations can add an unwelcome layer of complexity.
Some top managers—especially those in small businesses—are consumed with
troubleshooting and do not think much about organizational direction anyway.
Their firms still have (market-oriented) strategies, but they emerge around patterns
of decision-making rather than conscious planning (Mintzberg and Waters 1985).

https://doi.org/10.1007/978-3-319-93242-2_2
14 2 Nonmarket Strategy FAQ
The same is true in the nonmarket realm. A top manager might claim that his or her
firm does not have an NMS, but it is more accurate to say that one has emerged and
has not been intentionally developed. Hence, whether or not a firm should have an
NMS is not the question. The NMS already exists; managers should evaluate its
content and the extent to which it affects other strategic activities in the firm.
Market boundaries are not always clear, so what falls into market and nonmarket
strategy categories can also be ambiguous. As noted earlier, HR is not usually con-
sidered a market force per se, but it has strong market implications because procur-
ing and retaining the right people is central to the success of most market strategies.
Of course, it is common for firms to claim such emphasis on their websites and
elsewhere; slogans such as “our people are our most important asset” are ubiqui-
tous. Companies like Google, SAS, and Southwest Airlines appear to take this com-
mitment seriously and should be distinguished from the long list of firms whose
actions do not follow their claims.
But the distinction between market and nonmarket realms is only one strategic
consideration. While issues like sexual harassment and discrimination are univer-
sally important and may be greater considerations in entertainment and other high-
profile industries, each firm also has a unique set of important social and political
considerations that can vary across geographic regions and especially across bor-
ders. For example, producers and marketers of alcoholic beverages should under-
stand how society views responsible drinking and how regulators seek to control it
through legislation pertaining to the legal consumption age, driving while impaired,
bartender liability, and so on. Food producers should understand changing societal
views on genetic modifications, the use of pesticides, and health concerns pertain-
ing to specific foods and food preparation, as well as regulatory efforts in areas such
as labeling requirements and packaging.
Social and political dimensions of NMS are inexorably linked, as social forces
often trigger political responses. For example, consumers concerned about air
quality, sharp edges on packaging, or food poisoning might lobby politicians to
regulate the firms that create these problems. Activists representing consumer
interests, or claiming to do so, might lobby on their behalf as well. Alternatively,
empowered consumers could simply support the manufacturers, food producers,
and restaurants that resolve these problems without government intrusion. Of
course, voting with one’s pocketbook requires buyers to be informed about the
myriad products and services they consume and take an active interest in their pur-
chases. The availability of information about companies, products, and services is
far greater today than ever before, but the immense number of choices coupled with
the proliferation of unverified or outright deceptive online reporting (i.e., “fake
news”) and other forms of misinformation on the Internet makes it difficult for buy-
ers to make educated decisions.
Large customers garner the most influence through the market because they gen-
erate the greatest financial impact; they have the most incentive to become deeply
involved in purchase decisions. For example, retailers like O’Reilly Auto Parts and
AutoZone are better equipped than local, standalone dealers to negotiate terms with
the producers of oil filters and other commonly used parts. They have more to gain
What Does Nonmarket Strategy (NMS) Mean to Managers? 15
or lose from each contract. But the nonmarket realm can be a game-changer by
enabling non-customers (e.g., members of the community or social activists) to
impact firm activities as well. In this respect, those who oppose a firm or industry,
its products, or its practices can promote restrictions without ever making a pur-
chase. Hence, firms that focus on large customers—proverbially the 20% of cus-
tomers that account for 80% of revenues and profits—are ignoring nonmarket
influences at their own peril.
The 2018 shooting at Marjorie Stoneman Douglas High School in Parkland,
Florida, illustrates how nonmarket issues can be difficult, if not impossible, for
firms to avoid. Activists seized on the tragedy to campaign for gun control, calling
out supporters of the Second Amendment to the US Constitution guaranteeing the
right of American citizens to keep and bear arms. The National Rifle Association
(NRA), the leading advocate of gun rights in the USA, is considered by some to be
strident and non-negotiable in its political positions. Opponents began to pressure
firms to disassociate themselves with the NRA lest they be considered “supporters
of gun violence.” Facing threats of boycotts, companies without any direct link to
the issue such as Hertz, MetLife, Best Western, Delta Airlines, and United Airlines
rescinded the discount programs they provided to NRA members (Strasburg et al.
2018). According to a company statement, Delta did so to reflect “the airline’s
neutral status in the current national debate over gun control and recent school
shootings.” But Delta’s move prompted a response from Georgia state legislators
who ultimately withdrew support for a $50 million jet-fuel tax break for the Atlanta-
based carrier. Republican Lieutenant Governor Casey Cagle noted, “Corporations
cannot attack conservatives and expect us not to fight back” (McWhirter 2018).
Hence, a political debate provoked by a national tragedy pressured firms seemingly
unrelated to the calamity to take a social position, with a potential for economic
loss on either side. Most analysts accepted the notion that all firms should have
already adopted formal social positions on issues such as gun rights.
As the previous example illustrates, NMS can be critical to large, prominent
companies that are common activist targets. For example, in 2011, more than 550
health professionals and organizations signed a letter to McDonald’s demanding
that the firm stop marketing “junk food” to kids, retire Ronald McDonald, and
issue a report on its “health footprint.” Corporate Accountability International, a
nonprofit group that organized the campaign, succeeded at filing a resolution to
require McDonald’s to produce the report, but the measure was supported by only
6% of its shareholders. CEO Jim Skinner defended the clown, but later in the
year—amid pressure from regulators and other government entities—McDonald’s
agreed to change its Happy Meal by replacing 2.4 ounces of french fries with a
quarter-cup of apples (without the caramel dipping sauce) and 1.1 ounces of fries.
The change reduced the calories and fat content for the Happy Meal from 520 and
23 g to 410 and 17 g, respectively, but did not placate the activists. A spokesperson
for the Center for Science in the Public Interest—another advocacy group—
referred to the move as “a step in the right direction,” adding, “McDonald’s clearly
has a lot more to do, for both kids and adults” (Jargon 2011). Hence, social activist
pressure and the threat of regulation can force a company to respond.
Managers—particularly those in large companies in the USA and other

developed economies—are broadly familiar with the social and political dimen-
sions of NMS, although they probably use different terms. But while they have
general notions of CSR and the interplay between firms and governments, many are
not sure how to address NMS, especially where it overlaps with the firm’s tradi-
tional, market-oriented strategy (Bach and Allen 2010; Hadani et al. 2015). In the
previous example, McDonald’s seems to have been more reactive than proactive.
Other large firms like Tesla and General Electric (especially under the guidance of
former CEO Jeff Immelt) have been heavily involved in both dimensions, while
many small firms seem to carry out their daily activities with little concern for NMS.
hat Does NMS Mean to Students in Business

W
and Economics?
Aspiring business leaders and economists are often introduced to NMS concepts in
their coursework. For students, some historical context is germane.
The influence of external forces on managerial decision-making in the market
context is well understood. The origins of a formal PEST (i.e., political, economic,
social, technological) analysis as a precursor to strategic decision-making can be
traced to Francis Aguilar’s work in the 1960s, but this approach relegates political
and social considerations to external preliminaries. The idea was to consider the
external and internal environments before formulating and executing strategy, but
the notion that nonmarket factors should be considered across the entire strategy
process—including strategy content—is a more recent phenomenon. Nonmarket
issues have been addressed in western business schools for some time—at least
indirectly—but the relative amount of emphasis on nonmarket issues in textbooks,
their integration into the formal business curriculum, and the tone inherent in NMS
discussions has changed markedly during the last few decades.
Prompted by accrediting bodies like the Association to Advance Collegiate
Schools of Business (AACSB), textbook authors typically include one or more
chapters on ethics and/or social responsibility. This material is central to social
NMS. In decades past, strategy courses were more likely to be taught by profes-
sors with more practical business experience, but without advanced academic
training in strategic management. Today’s strategy professors typically have
earned doctoral degrees in the discipline, and their strategy worldviews are typi-
cally built on nonmarket-oriented concepts such as stakeholder management and
the balanced scorecard.
The AACSB has also had a profound influence on curriculum. Although the
association does not decree specific courses in business programs, the mandated
inclusion of ethics and social responsibility has prompted many universities to add
required or optional courses specifically dedicated to these topics. Political issues
Why Do Nonmarket Issues Receive More Attention Today than in the Past? 17
are also addressed indirectly in such courses because business regulation seeks to
correct and/or influence management behavior. The effectiveness of this approach is
debatable, as it could reinforce a standalone mentality, whereby social NMS is con-
sidered an afterthought or a necessary evil.
Finally, economic and social assumptions underpinning NMS discussions have
changed substantially. Most foundational, first- or second-year economics courses
invoke a profound Keynesian logic, which assumes that markets create social ills
and cannot function appropriately without considerable government intervention.
Unfortunately, some introductory textbooks do not even mention the Austrian
school or the contributions of Carl Menger, Friedrich Hayek, Ludwig von Mises,
Henry Hazlitt, and other economists whose ideas challenge Keynes.
For business majors, the broader notion that capitalism needs tempering perme-
ates junior- and senior-level courses, particularly those in marketing, management,
and strategy—the capstone experience in many programs. This logic is frequently
reinforced by faculty with compatible views on the profession. Rather than provide
an informed reflection of practice, some business professors seek to shape the role
of the discipline to address income inequality, global poverty, social challenges,
and other perceived shortcomings of free enterprise (Ghoshal 2005; Parnell and
Dent 2009; Waddock and Lozano 2013). In the USA, a version of the nation’s
ongoing political schism between left and right can be seen in the classroom, as
professors with diverse worldviews approach content in different ways. Ironically,
some see strong, pervasive capitalist undercurrents in business curricula (Wickert
2016), while others see a marked anti-capitalist agenda taking hold (Parnell and
Dent 2009). Academics in the former camp often focus on NMS as a means of
addressing the shortcomings of a market economy, while those in the latter tend to
see NMS as a potential impediment to market vitality. This two-faction view is
overly simplistic, but it underscores a key point about NMS. How professors view
markets in general can influence how they interpret NMS and ultimately, how they
address it in the classroom.
hy Do Nonmarket Issues Receive More Attention Today

W
than in the Past?
Several reasons explain this shift in thinking. The proliferation of the Internet has
heightened transparency in the business world. A social media response to real or
imagined company activity can create an instantaneous crisis. An offhanded remark
by a company executive, a smartphone video of a rat in a restaurant, or newly pub-
lished, unfavorable results of a safety test can create customer anxiety and prompt a
quick response (Crandall et al. 2014). Transparency raises the bar for organizations
and requires their managers to face nonmarket issues directly or potentially suffer
the consequences.
There is another side to this coin. While firms are less able to hide unscrupulous
activity from consumers and regulators in a highly connected world, they are also
subject to errors, innuendo, and other forms of “fake news.” Activists assert that
fast-food restaurants are destroying the health of our children, automakers are
destroying the environment with fossil fuels, and insurance companies refuse to
pay claims. Otherwise respectable firms find themselves embroiled in ongoing
social and political battles and are forced to take positions on issues they might
prefer to avoid.
A second explanation emanates from the evolution of the modern corporation.
Centuries ago, most firms were small, family enterprises. Because owners were
more involved in daily operations and most managers were family members or
friends, there was little disconnect between ownership and management. Today,
most large firms are publicly traded and widely dispersed. Boards representing
shareholders hire executives, who hire other managers to collectively represent
the interest of shareholders in their absence. In theory, managers behave as dutiful
agents of the owners, but this does not always occur in practice and creates an
agency problem. Because owners and managers do not share equally in the risks
and benefits of running the business—a problem known as moral hazard—man-
agers must balance their own interests with those of the owners.
The extent to which company policies, structures, and procedures “force” man-
agers to act in the best interest of shareholders (or be terminated) is widely debated
and varies across industries and organizations. In a broad sense, this balancing act
can be viewed from two perspectives. Because they are not heavily invested in the
company, hired managers might act as the firm’s conscience by insisting that it
employs a stakeholder orientation with a responsibility to satisfying multiple non-
market constituencies, not just market ones. This line of reasoning assumes that if
the shareholders were running the company directly, they would only be con-
cerned with market issues and short-term financial returns. If this is true, then
CSR advocates are suggesting that managers promote social objectives by par-
tially misrepresenting shareholders and diverting resources to nonmarket stake-
holders. In this respect, (non-owner) managers temper the hardline financial
interests of shareholders.
But there is another perspective. Managers might work against the firm’s share-
holders in a different way, by pursuing their own interests—higher salaries, career
advancement, and job security—at the expense of long-term firm value. Many who
would interpret the notion of shareholder misrepresentation in the first perspective
as ethical would have a problem with this one. They might argue that independent
managers in the former example are using nonmarket levers to address problems
caused by market inefficiencies, while those in the latter are disrupting a poten-
tially efficient market by siphoning away resources for personal gain. How one
views examples such as these can directly influence how one approaches
NMS. Either way, professional managers become critical change agents in ways
that distant owners cannot.
Can We Determine What a Company Is Really Doing with Regard to NMS? 19
o the Competitive Environment, the Industry,

D
and Organizational Size Drive NMS?
All firms should be concerned with NMS, but competitive, industry, and organi-
zational factors influence both the extent to which nonmarket issues are consid-
ered and how they are approached. Any competitive action viewed favorably by
customers can prod other firms to reciprocate. This includes market-oriented
activity such as lowering a price or introducing new product features, as well as
nonmarket-oriented activity such as supporting a social cause or lobbying for or
against certain regulations.
Whereas market strategy issues typically coalesce around products and services,
distribution, and pricing, NMS issues can differ considerably across industries.
Many automobile producers seem to constantly promote green vehicles and curry
favor with legislators. Financial institutions are heavily involved in lobbying politi-
cians over regulations. In a relative sense, grocers seem to be less engaged than the
aforementioned companies in social and political factors altogether.
Large firms appear to be involved than smaller ones in the nonmarket arena
(Bach and Allen 2010), perhaps because they face more public scrutiny or are better
able to wield more influence. Many consumers view regulating small business
activity as harming neighbors but regulating large business activity as controlling
“corporate monsters.” Precisely when a friendly, growing small business evolves
into a corporate leviathan is a matter of interpretation and further illustrates the
political divide addressed previously in this chapter.
an We Determine What a Company Is Really Doing

C
with Regard to NMS?
As with market strategies, it is difficult to identify strategic intentions clearly. There

are multiple ways of learning about company strategies, but each has its shortcom-
ings. Indeed, we can observe company actions, but we must also interpret the
observations. Pundits often claim (emphatically) that a given firm is pursuing a
certain strategy; their hubris is striking when they criticize firm strategies spontane-
ously as wrong or misguided. Consider the ill-fated launch of “New Coke” in 1985.
At the time, most analysts viewed the move as a change in formula to align the
beverage with better-tasting Pepsi. When consumers rejected the change, some
dubbed it as a massive blunder, while others claimed it was a publicity stunt. Even
today, the initial change and ensuing reversal of course are analyzed from various
engineering, marketing, and social perspectives (Palmer 2015; Dubow and Childs
1998). History suggests that the move was not beneficial to Coca-Cola, but the
intentions behind the action—the strategy—remain unclear.
Going directly to the source is problematic as well. Of course, information

posted on a company website provides limited insight into real strategic inten-
tions. Most firms attempt to cover the market bases, claiming to prioritize cus-
tomer service with the industry’s best people while offering the best quality,
value, and/or price. Many also address nonmarket factors such as environmental
sustainability, employee diversity, and corporate philanthropy. This online pre-
sentation is incomplete at best, misleading at worst. Statements that infer strategy
typically read more like public relations releases. It is not possible for all firms to
hire only the “best” employees or provide superior value and service; by defini-
tion, most firms are no better than average. Moreover, controversial and less pop-
ular issues are rarely presented in objective detail, aside from required disclosures.
Webpage photos of executives meeting with politicians are not common, lest
viewers infer cronyism.
We can also analyze financial data as surrogates of strategy. Just as increased
spending (relative to competitors) on research and development (R&D) activities
could suggest a product development market strategy, line items associated with
corporate philanthropy could infer a nonmarket strategy. This line of reasoning
assumes accounting expenditures always and directly reflect strategic intent, a more
debatable assumption in the nonmarket realm.
Likewise, we can ask managers what they do, but we must construe what they
mean. For example, after the US Tax Cuts and Jobs Act was passed in December
2017, Boeing, Comcast, Sinclair, Wells Fargo, and other firms announced immedi-
ate bonuses to workers, ostensibly because these companies were good corporate
citizens responding to a reduction in the corporate tax rate (Snider 2017). However,
these firms might have issued the bonuses to help retain workers in an increasingly
competitive labor environment, gain positive publicity, or simply to reward
employees at 2017s higher marginal tax rate. Company representatives typically
provide a positive spin for such decisions, leaving analysts and the public to specu-
late on what was really going on behind the scenes.
Following the previous example, if the motivation for the bonuses was linked
to an emphasis on innovation, high-quality production, or industry-leading cus-
tomer service, then it would be part of the market strategy. However, if the moti-
vation was simply to elicit publicity and customer goodwill, then it would be a
core part of social NMS. Hence, why companies do what they do is central to a
firm’s strategy.
Arguably, employing multiple methods (i.e., observation, analysis, and sur-
veys) solves the strategy inference problem, but doing so is time-consuming and
costly, assumes that managers will provide accurate responses in a survey when
identifying information is also provided, and requires researchers to make sense
of strategy data in disparate formats. Moreover, even with the most robust of
studies, there is always some degree of extrapolation involved. Indeed, the
ancient Chinese warrior Sun Tzu emphasized that effective strategies are, by
definition, cloaked in disguise. While we must learn from their successes and
failures, retaining a healthy skepticism of what we hear from company executives
is also important.
How Does NMS Influence Firm Performance? 21
Is There an Ethical Dimension to NMS?
Yes, but this dimension is a matter of dispute. The agency problem discussed
earlier in this chapter provides competing views on the judgments of independent
management, each with ethical ramifications. Arguably, it is unethical for manag-
ers—as agents of the owners—to make decisions that do not reflect shareholder
interests regardless of whether they purport to advance personal or social consider-
ations. The notion that it is desirable for managers to expropriate company resources
for social causes but not for individual gain is widely taught as managerial ethics,
but it skirts the issue of fiduciary responsibility of managers to shareholders regard-
less of intent. Managers promoting the former are often deemed to be promoting
CSR, while those engaging in the latter are seen as skimming or even embezzling
company resources.
The link between ethics and NMS extends beyond the agency problem. For
example, realtors and homebuilders that lobby individually or collectively for a
mortgage interest tax deduction claim that such a provision makes homes more
affordable and is, therefore, in the public interest. Of course, this subsidy encour-
ages consumers to purchase more and larger homes—at least in the short run—so
these companies benefit directly from the provision. This type of provision distorts
markets; by lowering after-tax monthly payments, subsidies can actually push
home prices upward in the long term. Whether the mortgage interest tax deduction
represents sound economic policy that benefits families or cronyism that manipu-
lates taxpayers is a matter of perspective.
While a firm’s social initiatives could have an ethical dimension, these two
concerns should not be conflated. Like market and nonmarket strategies overall,
social initiatives represent organizational activity. In contrast, ethics reflects indi-
vidual management behavior. Just as it is imprecise to suggest that an individual is
(or is not) socially responsible based on corporate decisions, it is technically incor-
rect to suggest that a firm is (or is not) ethical because the collective management
decisions appear to reflect a certain ethical direction. Analysts frequently inter-
change “ethics” and “social responsibility” when they discuss company actions,
but this only obfuscates the issues. When an executive pilfers company funds, it is
an ethical problem. When a company financially supports the development of a
new community park, it is social responsibility, assuming the move is not merely a
disguised form of promotion. This distinction between individuals and organiza-
tions is important because the argument for ethical leadership is different from the
argument for social responsibility.
How Does NMS Influence Firm Performance?
NMS can influence firm performance in various ways. First, because firms typi-
cally generate profits through market activity, NMS can influence financial per-
formance through a link to the firm’s market strategy. This link can be obvious, as
fast-casual restaurant Chipotle claims CSR when it touts its commitment to fresh
ingredients—no added flavors, colors, or preservatives—while marketing its
products to a more health-conscious segment of consumers. The connection can
also be subtle or even unintended, as corporate philanthropy can engender cus-
tomer goodwill that translates into more business. Consider the previous example
of a company supporting the development of a new community park. Pediatricians,
orthodontists, and other “firms” that seek to promote their businesses with parents
of young children frequently contribute to such efforts and receive signs or
plaques in exchange. Analysts often note that CSR efforts like this are simply
good business as well. While there is nothing inherently wrong with contributing
to a new park in exchange for company exposure, if an orthodontist practice
intends to gain business from the contribution, then it should be considered as a
marketing expenditure and part of the market strategy, not as CSR. This is an
important distinction, but social NMS includes both CSR activity ostensibly
beyond profit concerns and social initiatives designed to promote firm perfor-
mance. Regardless of performance motivations, social NMS is usually presented
with soft, elusive language such as of “giving back” to the community, doing the
“right thing,” or corporate citizenship.
Second, NMS can promote non-financial performance such as customer and
employee satisfaction, as these outcomes may not be linked to market transac-
tions. Following the previous example, contributing to development of a local park
could make individuals feel good about their employers, thereby promoting satis-
faction in the workplace. In this respect, the performance impact of NMS is a
function of a broader, stakeholder-oriented perspective. This illustrates in part
why the survey employed in this book distinguishes between financial and non-
financial performance.
Third, financial performance can be attributed directly to NMS in some instances.
When governments subsidize clean energy, they make payments directly to firms or
reimburse buyers for a portion of their expenditures on specific products or ser-
vices. In both instances, a portion of the revenue that would otherwise have been
made (or not made) by buyers is covered by a nonmarket entity. For example, the
2018 US federal tax credit for the purchase of an electric vehicle (EV) ranged from
$2500 to $7500. Hence, EV producers receive taxpayer subsidies in exchange for
promoting a social agenda.
Finally, but no less important, is the indirect, subtle effect NMS can have on
financial performance. For example, when US corporate tax rates were reduced
in 2017, many politicians suggested that the policy’s success (or failure) would
be measured by the number of firms that “do the right thing” and use the extra
funds to among other things, hire more employees and increase wages (Snider
2017). Through this lens, large firms that responded with employee bonuses and
announcements of expansion plans could be embarking on NMS designed to
reinforce the wisdom of the tax cuts, lest politicians decide to change course. Of
course, this gives firms the incentive to link expansion to government activity
directly beneficial to the firm whether or not the latter had anything to do with the
Can NMS Hurt Firm Performance? 23
former. While this type of NMS-financial performance link is complex,

firm-specific, and difficult to demonstrate empirically, it is valid, nonetheless.
Can NMS Hurt Firm Performance?
Just as an effective NMS can potentially improve firm performance, an ineffective

NMS (or a lack of a deliberate one) can hinder it. Whether helpful or harmful, the
NMS can be carefully crafted or can simply emerge from a series of company
actions or even CEO statements. Papa John’s provides an interesting illustration.
John Schnatter founded the pizza chain in 1984 and amassed 3400 units in the USA
and 1600 abroad by 2017. He stepped down as CEO in 2005, returned in 2008,
shared the role in 2010, assumed the sole post again in 2011, and resigned again in
2017. Schnatter made various provocative comments that—intended or not—can be
viewed as a social NMS. He criticized the Affordable Care Act in 2012, saying it
would drive up pizza prices. In his book chronicling the success of Papa John’s,
Schnatter (2017) argued that regulations have hurt US business. In November 2017,
he publicly criticized the NFL for not addressing problems associated with players
not standing for the national anthem, blaming a drop in profits on declining viewer-
ship of the games (Flint 2018; Jargon 2017). Pizza Hut replaced Papa John’s as the
NFL’s official sponsor in 2018.
Various boycott threats never materialized on a widespread basis. Some potential
customers likely chose to purchase their pizza elsewhere, but others might have
increased their support because of the comments. Social media activity suggests
both positive and negative effects (Flint 2018; Jargon 2017), although media reports
generally tend to emphasize potential negative impacts of comments interpreted by
some as controversial. One might count positive and negative social media posts or
compare pre- and post-comment revenues to gain insight to the net effect, but it is
difficult to determine the strength of social responses in both directions.
This complexity is underscored by a second case in the restaurant industry.
Chick-Fil-A has actively promoted Christian family values since its founding by
Truett Cathey in 1967. Individual restaurants have always closed on Sunday, encour-
aging employees to spend the time with family and participate in religious activities
while ostensibly foregoing an opportunity to increase revenues. The company
stoked controversy when Cathey voiced opposition to same-sex marriage in 2014.
When opponents organized boycotts, sales actually appeared to rise as loyal cus-
tomers turned out to show their support for the company and its social stance. While
it is obvious that the controversy affected Chick-Fil-A, it is difficult to determine if
it actually hurt or helped the company (O’Connor 2014).
While it is a difficult task to decouple the performance impacts of firm and indus-
try specific factors, NMS adds another level of complexity. Like a market strategy,
an effective NMS can improve both financial and non-financial performance, while
an ineffective NMS—or no deliberate NMS—can be a hindrance.
How Does NMS Vary Across Nations?
All strategy is contextual, as industrial, political, economic, social, and techno-

logical factors directly and indirectly influence firm success. Differences across
nations can be substantial and can affect the influence of NMS and performance in
numerous ways. For example, some activities, such as bribery, are illegal in most
countries, but other, subtle activities such as collusion with competitors, lobbying
legislators, and seeking regulatory favor do not always have a clear legal standing
(Cavazos and Rutherford 2012; Kingsley et al. 2012; Rival 2012; Vázquez-
Maguirre and Hartmann 2013; Parnell and Dent 2009; Parnell et al. 2013; Mantere
et al. 2009). This problem is more pervasive in developing and emerging econo-
mies because they typically lack efficient legal frameworks that protect property
rights, established institutions, and an appropriate infrastructure (Mantere et al.
2009; Barron 2010; Lailani Laynesa and Mitsuhashi 2013; Vázquez-Maguirre and
Hartmann 2013; Holburn and Vanden Bergh 2008). The prominence of NMS out-
side of the world’s most advanced economies has been noted by numerous schol-
ars and practitioners (Galang 2012; Sun et al. 2012; Planet Plutocrat 2014; Decker
2011; Obeng et al. 2014; Obi Berko 2013; Papaioannou et al. 2016).
Contextual differences across borders underscore the need for an NMS tai-
lored—at least to some extent—to each nation or region. Such complexity renders
cross-border NMS impractical and ineffective without multilaterally accepted
norms, processes, and rules (Kobrin 2015). A different set of strategic capabilities is
required to implement each NMS as well (Frynas et al. 2006; Oliver and Holzinger
2008; Kobrin 2015; Boddewyn 2016; van Kranenburg and Voinea 2017; Shirodkar
et al. 2017). The different capability-NMS links identified in the countries discussed
in this book underscore this point.
an and Should Firms Simply Keep Their Market

C
and Nonmarket Strategies Separate?
Many firms attempt to sidestep integration of their market and nonmarket

approaches. Some, particularly small enterprises, do not perceive a strong NMS-
performance link. Some see NMS as having a strong potential downside, perhaps
the case in industries such as oil production or pawnshops with commonly per-
ceived negative ethical or social implications. Others may not understand the NMS
phenomenon and simply decide to concentrate their efforts on the market factors
they know better. While each of these arguments has some merit, avoiding strategic
action in the nonmarket arena due to a lack of understanding is not an effective
long-term approach.
Conflict between market and nonmarket strategies cannot always be avoided.
Consider that sports programming giant ESPN leans substantially to the left on
political and social issues, promoting programs that suggest African-Americans,
How Should Strategic Managers Approach NMS in Their Organizations? 25
gays, and others are frequent victims of bias in the athletic community. Analyst
Curt Schilling was fired in 2016 after his social media posts concerning HB2, a
North Carolina law that mandated the use of restroom facilities in government
buildings in accordance with the gender stated on one’s birth certificate, offending
members of the LGBT community. Analyst Jamele Hill was neither fired nor sus-
pended when she tweeted that President Trump was a “white supremacist,” despite
severe pushback from the network’s fans, the White House, and sponsors. She was
suspended shortly thereafter, but only for 2 weeks following a tweet suggesting that
Dallas Cowboys fans should boycott their team’s sponsors after the owner threat-
ened to suspend players for kneeling during the national anthem. The disparity in
responses to Schilling and Hill could be attributed to ESPN’s political stance as an
organization. It is noteworthy that Hill’s latter tweet had direct, economic implica-
tions for ESPN, which likely provoked the network to take action (Bruell 2017).
Moreover, connections between market and nonmarket strategies can be difficult
to untangle. For example, after investigations identified factually incorrect news
reports in users’ news feeds in 2017, Facebook invested more than $8.4 million in
its team of 36 federal lobbyists, including several new positions dedicated to strat-
egy. Facebook also conducted focus-group sessions to assess user views. According
to the participants, the company was seeking to resolve its own challenges regarding
the flow and control of information (Bykowicz 2017). This response has both mar-
ket and nonmarket dimensions.
Most of the discussion of NMS prior to this point has focused on its perfor-
mance effects, not content per se. NMS should also be genuine and reflect the true
intentions of the firm. Indeed, it can be awkward when a firm’s social or political
NMS appears to counter market reality. For example, months prior to acknowledg-
ing millions of its customers’ personal data had been compromised, Equifax was
heavily involved in a lobbying campaign to ease its regulatory burden. The firm
spent over $1 million in 2015 and 2016 lobbying on behalf of its interests, which
included information sharing related to cybersecurity. In 2017, Equifax actually
lobbied congress to limit its liability in the case of a data breach (Rapoport and
Andriotis 2017). This lack of consistency between values and action did not repre-
sent the company well and can create long-term trust problems.
ow Should Strategic Managers Approach NMS in Their

H
Organizations?
It depends. This book is dedicated to unraveling the issues associated with NMS,
but there is no simple formula. Firm capabilities and other organization-specific
factors, industry characteristics, and context are important considerations. As we
shall see, NMS can more complex than market strategy. The true intentions behind
political NMS were commonly masked as social NMS. Moreover, broad NMS links
to capabilities and performance are intuitive, but the impact of firm-specific factors
is more difficult to discern.
Chapter 3
Data Collection and Analysis
National differences can have a profound effect on market strategy, NMS, and firm
performance. This chapter outlines the approach employed to examine NMS in ten
countries and is intended primarily for scholars who wish to understand the meth-
ods inherent in the analysis. Indeed, it is important to acknowledge the strengths
and shortcomings of any research design. A detailed assessment of statistical tools
is beyond the scope of this book, but the most salient issues are presented herein.
The Heritage Foundation’s 2018 Index of Economic Freedom
Discussions of each nation addressed in this book are grounded in the Heritage
Foundation’s 2018 Index of Economic Freedom (referenced henceforth as the
Index). The Index ranks 180 nations from 0 to 100 along four categories: rule of law,
government size, regulatory efficiency, and market openness. Table 3.1 presents a
summary of overall Heritage evaluations for each nation assessed herein. Detailed
explanations of measures, the Heritage methodology, and data for other nations are
available online (http://www.heritage.org/index). The Index also provides a com-
mon framework for introducing the context for each nation in subsequent chapters
of this book.
The first category in the Index, rule of law, incorporates several facets, including
a nation’s respect for private property—both physical and intellectual—through a
clear, enforceable legal framework. Judicial effectiveness considers such factors as
the political independence of judges and the likelihood of obtaining favorable deci-
sions in the courts. Government integrity includes public trust in politicians, the
prevalence of bribery, cronyism, government transparency, and general corruption.
The second category, government size, is also calculated by evaluating multiple
indicators. The tax burden is assessed via top marginal individual and corporate
income tax rates, as well as the total tax burden as a percentage of gross domestic
product (GDP). Government spending gauges the burden imposed on the populous

https://doi.org/10.1007/978-3-319-93242-2_3
28 3 Data Collection and Analysis
Table 3.1 Heritage Foundation’s 2018 world and regional rankings for economic freedom
Country Region World rank Region rank Overall score
United Kingdom Europe 8 4 78.0
United States Americas 18 2 75.7
Poland Europe 45 21 68.5
Turkey Europe 58 28 65.4
Mexico Americas 63 12 64.8
China Asia-Pacific 110 24 57.8
Ghana Sub-Saharan Africa 122 19 56.0
India Asia-Pacific 130 30 54.5
Egypt Middle East/North Africa 139 11 53.4
Venezuela Americas 179 32 25.2
by expenditures at national, state, and local levels. Fiscal health evaluates national
debts and deficits. Although the appropriate size of government is a matter of debate
and arguably nation-specific, the Heritage analysis assumes that lower taxes, spend-
ing, debts, and deficits facilitate economic freedom by limiting restraints on the
private sector.
The third category, regulatory efficiency, contains a broad business freedom
measure that includes such factors as the ease of starting a business, obtaining
required permits, and securing licenses. Labor freedom evaluates restrictions on
employment, including minimum wages, required hours, difficulties terminating
workers, and required severance pay. Monetary freedom measures the ideal state of
high price stability with low price controls.
The final category, open markets, comprises trade freedom, including both tariff
and nontariff barriers. Investment freedom evaluates restrictions on the flow of
investment capital. Financial freedom reflects both banking efficiency and indepen-
dence from government control.
The Index provides a consistent approach to national context, thereby setting the
stage for a closer look at organizations operating in each country of interest.
Additional data, including composite scores at the national level for each of the
categories, is provided in subsequent chapters. Supplementary evaluations from
Cato’s Human Freedom Index (http://www.cato.org/human-freedom-index) and
other sources are also provided.
The Multinational Data Collection
The remainder of this chapter outlines the approach to a multinational data col-
lection that addresses firm-level factors associated with NMS, including strate-
gic capabilities, market and nonmarket strategies, and financial and non-financial
performance. Of course, capabilities are not the only drivers of strategies, and
The Multinational Data Collection 29
strategies not the only drivers of performance. Nonetheless, this approach

accentuates prominent links identified in previous research in a manner that
informs one’s understanding of NMS in each nation and overall.
Market and nonmarket strategies can be viewed as a function of strategic capa-
bilities—the complex bundles of skills and accumulated knowledge that enable
firms to deploy resources effectively (Assudani 2008; Teece et al. 1997). Firms
build capabilities to execute their strategies and modify their strategies to leverage
their capabilities (Baysinger 1984; Bonardi et al. 2005, 2006; Frynas et al. 2006).
Strategic capabilities are linked to idiosyncratic organizational competencies
(Berchicci et al. 2012; Vogel and Güttel 2013; Peteraf et al. 2013; Peng 2003) and
are often scarce, somewhat immobile, and difficult to imitate (Desarbo et al. 2005).
A symbiotic relationship exists between strategy—both market and nonmarket—
and strategic capabilities.
A thorough evaluation of NMS also includes links between market and nonmar-
ket strategies and firm performance. Positive links between market strategies and
performance have been found in a wide variety of scholarly work spanning several
decades (Dess and Davis 1984; Gopalakrishna and Subramanian 2001; Murray
1988). This book employs Michael Porter’s cost leadership-differentiation frame-
work as a surrogate for emphasis on market strategy. A positive NMS-performance
link is also intuitive but would reinforce limited, more recent work in the field
(Mellahi et al. 2016b).
Previously developed measurement scales and items were employed where fea-
sible to minimize problems related to validation. Measures for business strategy
along Porter’s typology (i.e., cost leadership and differentiation) were based on
items originally identified by Nayyar (1993). Scales developed and previously vali-
dated by Desarbo et al. (2005) were employed to assess strategic capabilities in
marketing, market-linking, technology, and management categories. Organizational
performance was operationalized as a reflective construct stemming from the satis-
faction of the firm with respect to return on assets, return on equity, sales growth,
and related aspects of organization-level performance (Harris and Mongiello 2001;
Laitinen 2004; Kaplan and Norton 1996, 2001, 2004; Madanoglu et al. 2014;
Norreklit 2000; Phillips and Moutinho 1999; Phillips 1999; Venkatraman and
Ramanujam 1986).
A 7-point Likert scale was employed with items adopted from multiple sources
(Harris and Mongiello 2001; Kaplan and Norton 1992, 1996, 2001, 2004; Laitinen
2004; Madanoglu et al. 2014; Norreklit 2000; Phillips 1999; Phillips and Moutinho
1999; Venkatraman and Ramanujam 1986).
Survey-based measures of NMS are not as well developed as those for other
constructs of interest. Moreover, the analysis presented herein distinguishes between
political and social dimensions of NMS. Some of the NMS items were based on
those identified in the Deng et al. (2010) taxonomy, but others were developed from
examples in the literature specifically for this book. New items were assessed and
refined by multiple scholars, employed in a pilot investigation, and scrutinized fur-
ther before initiating a 10-nation study.
Table 3.2 Sample Variable n %

demographics
Management level of respondents
Middle 1690 70.5
Upper 706 29.5
Functional background of respondents
General management/HR 579 24.2
Production/engineering 516 21.5
Marketing/sales 361 15.1
Accounting/finance 232 13.9
Law 60 2.5
Other or not provided 648 27.0
Gender of respondents
Female 1469 61.3
Male 907 37.9
Not provided 20 0.8
Industry
Manufacturing 736 30.7
Services 731 30.5
Healthcare 161 6.7
Hospitality 149 6.2
Not provided 619 25.8
Firm size
Small (11–50 employees) 557 23.2
Medium (51–250 employees) 785 32.8
Large (251+ employees) 872 36.4
Not provideda 182 7.6
a
Respondents in Egypt did not provide firm size
Data collection was overseen by scholars in four nations and was conducted
through online insight exchange platform CINT in the other six. Surveys were
back-
translated as appropriate for data collection in China (Chinese), Egypt
(Arabic), Turkey (Turkish), Poland (Polish), Mexico (Spanish), and Venezuela
(Spanish). Response details are summarized in Tables 3.2 and 3.3.
The items employed to measure emphases on market and nonmarket strategy,
strategic capabilities, and performance are presented in Tables 3.4, 3.5, and 3.6;
item wording in these tables is abbreviated in the interest of parsimony. Items
for several other constructs not evaluated herein were also included in the
survey.
Cross-national research is challenging and requires numerous judgment calls
that balance methodological concerns and study objectives. The overarching con-
sideration regarding this work is the adoption of a survey approach. The benefits
of a survey design are well documented. By asking the same questions of a large
number of managers, researchers can compare and contrast relationships across
groups. Surveys can also refine measures for latent constructs like strategy by
Table 3.3 Summary of data

Nation Data source management level organizational size
Middle Top Small Med. Large
USA (n = 442) CINT (online) 300 142 78 149 215
(67.9%) (32.1%) (17.6%) (33.7%) (48.6%)
UK (n = 226) CINT (online) 185 41 31 109 86
(81.9%) (19.1%) (13.7%) (48.2%) (38.1%)
India (n = 249) CINT (online) 161 88 25 80 144
(64.7%) (35.3%) (10.0%) (32.1%) (57.8%)
Mexico (n = 249) CINT (online) 171 78 43 84 122
(68.7%) (31.3%) (17.3%) (33.7%) (49.0%)
Venezuela (n = 256) CINT (online) 179 77 85 103 68
(69.9%) (30.1%) (33.2%) (40.2%) (26.6%)
Egypt (n = 182) Paper and pencil 136 46 n/a n/a n/a
(74.7%) (25.3%)
China (n = 210) Paper and pencil 179 31 52 61 97
(85.2%) (14.8%) (24.8%) (29.0%) (46.2%)
Turkey (n = 170) SurveyMonkey 59 111 70 59 41
(34.7%) (65.3%) (41.2%) (34.7%) (24.1%)
Poland (n = 246) CINT (online) 184 62 107 90 49
(74.8%) (25.2%) (43.5%) (36.6%) (19.9%)
Ghana (n = 166) Paper and pencil 136 30 66 50 50
(81.9%) (18.1%) (39.8%) (30.1%) (30.1%)
Total (n = 2396) 1690 706 557a 785a 872a
(70.5%) (29.5%) (25.2%) (35.4%) (39.4%)
Totals do not include Egypt; organizational size data was not available
a
asking multiple questions. Reliability and validity are important considerations

and are reported for each nation in the subsequent chapters.
Surveys also have their shortcomings. By employing a survey approach,
researchers assume that most respondents share common interpretations of the
questions and exercise good faith in providing accurate responses. More detailed,
critical assessments of surveys and other data collection methods are widely avail-
able. Nonetheless, some discussion is warranted to address considerations directly
related to this project.
The survey approach inherent in this work assumes that asking managers about
their organizations—while imperfect—is the best way to obtain a large, useful sam-
ple. Concerned about the subjectivity of responses, some scholars prefer to use
“objective data” in their work. The use of objective data is more appealing for con-
structs where surrogates are readily available. Firm performance is an accurate
example because various accounting measures are available in financial statements.
This approach is particularly useful in research limited to one or a few industries in
a single country. It is not error-free, especially considering that data available for
private and public firms across developed and developing nations is not always
readily available or consistent.
Table 3.4 Market and nonmarket strategy survey items

Item Summary
Strategy-differentiation
Differ1 New products and services
Differ2 Superior products and services
Differ3 Strong brand
Differ4 Innovation
Differ5 Advertising expenditures
Strategy-cost leadership
Cost1 Operating efficiency
Cost2 Competitive pricing
Cost3 Efficiency in procurement
Cost4 Process innovation
Cost5 Cost reductions
NMS-political
NMSP1 Lobbying government officials for favorable legislation
NMSP2 Contributing to politicians, candidates, political parties, or political action committees
NMSP3 Serving on government advisory boards, panels, and task forces to develop industry
standards and other regulations
NMSP4 Seeking to influence politicians whose decisions can impact our industry through
taxes, subsidies, and trade policies
NMSP5 Consulting with or hiring former government officials who maintain connections with
current government officials
NMSP6 Working with trade associations and other industry groups
NMSP7 Asking government officials for input before taking strategic action
NMSP8 Frequent meetings with government officials to promote goodwill
NMS-social
NMSS1 Involvement in public events and social initiatives to improve image
NMSS2 Partnering with other organizations whose reputation and political networks can help
our firm
NMSS3 Taking social positions that advance our reputation and favorability
NMSS4 Taking action to improve society where governments are unwilling or unable to do so
NMSS5 Taking action to generate stakeholder support
NMSS6 Engaging in philanthropy to enhance our status
NMSS7 Taking action to minimize negative publicity from NGOs
In a similar vein, some scholars prefer the use of financial data such as return on
assets (ROA), revenues, and share prices to measure organizational performance in
concert with survey data to measure other constructs, but this approach has its
weaknesses as well. Respondent anonymity—at least as perceived by respon-
dents—is compromised, potentially increasing bias in the survey responses. Like
strategy, performance is best understood in the context of industries, as a given
ROA could be considered high or low in different sectors. It is also difficult to
identify the appropriate lags between causes (e.g., strategy) and effects (e.g., per-
formance). The length of time required to see performance effects of strategies is
Table 3.5 Survey items—strategic capabilities

Item Summary
Marketing capabilities
Capmkt1 Knowledge of customers
Capmkt2 Knowledge of competitors
Capmkt3 Integration of marketing activities
Capmkt4 Skill to segment and target markets
Capmkt5 Pricing programs
Capmkt6 Advertising programs
Market-linking capabilities
Caplink1 Market-sensing capabilities
Caplink2 Customer-linking capabilities
Caplink3 Durable relationships with suppliers
Caplink4 Ability to retain customers
Caplink5 Channel-bonding capabilities
Caplink6 Relationships with channel members
Technology capabilities
Captech1 New product development
Captech2 Manufacturing processes
Captech3 Technology development
Captech4 Predicting technological changes
Captech5 Production facilities
Captech6 Quality control
Management capabilities
Capmgt1 Integrated logistics
Capmgt2 Cost controls
Capmgt3 Financial management
Capmgt4 HRM capabilities
Capmgt5 Forecasting
Capmgt6 Marketing planning
Table 3.6 Survey Item Summary

items—performance
Financial performance
PerformF1 Return on assets (ROA)
PerformF2 Growth in revenues
PerformF3 Growth in market share
PerformF4 Growth in stock price
and returns to investors
Non-financial performance
PerformN1 Competitive position
PerformN2 Customer loyalty
PerformN3 Employee loyalty
PerformN4 Capability development
debatable and, even if known, would likely differ across organizations as well.
Of course, dealing with the “lag effect” is a challenge in any research design.
It is also worth noting that competitive strategy and other latent constructs could
be assessed by analyzing data from financial statements. Employing R&D expendi-
tures as a percentage of revenue as a surrogate for new product development is one
example. While this approach would be free from respondent bias and knowledge
limitations, it assumes a common definition of R&D expenses across organizations,
that R&D expenditures reliably measure strategic intent, and that R&D efforts in
different organizations seek similar outcomes such as new products or greater pro-
duction efficiency. This approach is also problematic for cross-industry studies
because strategy (like performance) is a relative construct; the notion of a high or
low strategic emphasis depends on that of competitors.
Ultimately, measurement error is a critical problem in all strategy-performance
research. Tight controls and measurement redundancy can improve validity, but
trade-offs typically include data collection costs, time for analysis, and scope limi-
tations to one or a few industries or nations. Relaxing controls can create validation
challenges but enable broader assessments and cross-national comparisons. The
survey design employed for this project reflects a balanced approach and is but-
tressed by a conservative approach to data quality assessment, construct reliability
and validity, and interpretations of findings.
Assessing Data Quality
The previous section addressed the merits of a survey research design. There are
other imperfect methods for collecting data not addressed in this chapter, from ana-
lyzing press releases to conducting executive interviews. Regardless of approach, it
is important to take appropriate steps to maximize data quality. Toward this end, the
following steps were taken to systematically cull highly questionable responses
from the survey data collected. These steps reflect judgment calls that eliminate
potentially questionable data. Doing so could arguably reduce coefficient alphas
and p-values in the model testing stage—see the discussion of straightlining
below—but is necessary to reinforce the integrity of the analysis:
1. Length of interview (LOI): For data collected online, any responses known to be
completed in an average of less than 3 s per Likert item were eliminated. Such
responses suggest that the manager did not read each item carefully before iden-
tifying an answer.
2. Missing data: Respondents who failed to complete more than 10% of the Likert
items in the survey were eliminated.
3. Nation of employment: For data collected online, any responses that indicated a
nation of employment not included in the survey were eliminated.
4. Management level: Although the survey was intended to be completed only by
practicing managers at middle and upper levels, respondents were asked to
Assessing Data Quality 35
p rovide management level as a check on this qualification. Distinctions among

management levels can be difficult to discern. However, any responses indicat-
ing a non-managerial position were purged. Those indicating a low-level mana-
gerial position were eliminated unless other response categories suggested
managerial responsibilities consistent with a middle level.
5. Straightlining: Respondents who do not pay close attention to individual survey
items often select the same response for consecutive items. While entering the
same response for a number of sequential items does necessarily mean a case is
invalid, discarding those with significant instances of straightlining is appropri-
ate. Seven variance measures were calculated to identify questionable responses;
a variance of zero on any of these measures indicates that the same response was
entered for every item in the group. For example, straightlining was presumed if
the same response was entered for all the strategy items (i.e., cost leadership and
differentiation) or for all of the items in the capability scales. Any responses with
zero as one of the variance measures were eliminated.
6. Visual inspection: Each case was inspected for clear indications of a lack of
attention to item wording or problematic comments. Examples included a
response pattern of 1–2–1–2–1–2–1–2–1–2–1–2 or the comment, “I am cur-
rently unemployed.”
The approach just outlined is systematic and places a premium on data quality.
Although a small number of valid responses may have been eliminated by this pro-
cess, type II error was a greater concern than type I error. Put another way, a slightly
smaller dataset for each nation is preferable to one that retains additional but dis-
puted cases.
A multistage analytical approach was applied to the responses from each
country:
1. Reliability, validity, and collinearity tests were employed to assess data quality.
Commonly accepted minimum standards were employed, including item load-
ings within factors of 0.700, coefficient alphas of 0.700, composite alphas of
0.800, and average variance explained (AVE) of 0.500 for all constructs. The
Fornell-Larcker criterion was also applied to assess discriminant validity. A table
that summarizes the results of these preliminary tests is provided for each nation.
Scores for variance inflation factors (VIF) were evaluated to assess collinearity.
2. A partial least squares (PLS) model evaluated links between strategic capabili-
ties and strategy. SmartPLS (version 3) software was utilized to analyze the data
(Hair et al. 2011, 2012a, 2018). Advances in partial least squares modeling is
well documented in the strategic management literature and is especially appro-
priate for exploratory research and complex modeling with latent constructs
(Hair et al. 2012b). Saturated and revised versions that eliminate nonsignificant
links (i.e., p-values greater than 0.050) are presented for each nation.
3. A second PLS model evaluated links between market and nonmarket strategy
measures and organizational performance from both financial and non-financial
perspectives. As with the previous model, saturated and revised versions that
eliminate nonsignificant links are presented for each nation.
4. Based on results from the previous models, a composite model was developed
for each nation that integrates the effects of capabilities and strategies on perfor-
mance. Effect sizes were assessed and interpreted following Cohen’s bench-
marks of 0.02 (small), 0.15 (moderate), and 0.35 (large) (Hair et al. 2012b).
Links were removed individually based on p-values, and models were reevalu-
ated until all remaining links were significant at the 0.05 level and all f2 values
were 0.02 or greater. Reliability and validity were assessed, and additional modi-
fications made—if needed—to confirm model integrity. An optimal model is
presented for each nation.
Although common constructs, scales, and items were systematically employed
in multiple, disparate countries, they were assessed at the national level; modifica-
tions were made when required by statistical protocol. Hence, strict adherence to
western scales and connotations of strategy and other issues was not assumed,
although some degree of construct consistency was retained to facilitate cross-
national comparisons. This approach represents a compromise between rigorous
conformity to western constructs and scales and a nation-specific interpretation that
complicates country-level comparisons.
It is also noteworthy that firms represented in the sample were not placed into
capability, strategy, or performance categories. Emphasis on and success in these
constructs was considered a matter of degree. For example, there is no attempt to
compare firms with a strong NMS to those with a weak NMS. The approach
employed herein does not require difficult and sometimes arbitrary groupings of
businesses, but it does allow them to be assessed according to their relative position
as compared to others in the same nation.
This contextual approach focused on understanding NMS as it relates to capa-
bilities, strategies, and firm performance in each nation. Theory testing and scale
validation are not the primary objectives. Any scale modifications made when ana-
lyzing data from a specific nation are presented when models are evaluated. Chapters
4–13 provide a nation-specific assessment of NMS as outlined previously.
Chapter 4
Nonmarket Strategy in the USA
The Context for Business
With deep roots in free enterprise and its status as the world’s leading economy,
the USA represents an intriguing starting point for a cross-national assessment on
nonmarket strategy. To facilitate comparisons, NMS in the USA is presented in the
greatest detail of the ten nations addressed in this book. Indeed, many of the firms
discussed in this book have substantial operations in multiple countries, so the
selection of an appropriate chapter for discussion can be arbitrary. To be clear,
NMS may be viewed differently across borders, but it is not a US-centric phenom-
enon. The presentation of nation-specific findings beginning with the USA should
not be interpreted as such.
Since its founding in the eighteenth century, culture in the USA has reflected the
ideas of freedom, limited government, and the rule of law. Although free markets
created the right conditions for an industrial revolution, which led to an unprece-
dented increase in the standard of living, the USA has since drifted from its limited
government heritage. Woodrow Wilson’s progressive movement, Franklin Delano
Roosevelt’s New Deal, Lyndon Johnson’s Great Society, and Barack Obama’s
Affordable Care Act reflect a gradual encroachment of government in both personal
and commercial affairs. Pro-market economists like Friedrich Hayek (Austrian
School) and Milton Friedman (Chicago School) were influential during this time,
but the government-intervention logic of John Maynard Keynes (i.e., Keynesianism)
introduced in the 1930s and the rise of corporate social responsibility (CSR) since
the 1960s has changed the fabric of American business. Firms—especially large
ones—expect activism and even pushback from social and government entities
seeking to influence and regulate their activities. They employ NMS in part to meet
these challenges proactively.
Changes during the last century notwithstanding, the USA remains a largely free
society. A score of 75.7 ranks 18 out of 180 nations in Heritage’s 2018 Index of
Economic Freedom, placing the USA in the “mostly free” category (see Table 4.1).

https://doi.org/10.1007/978-3-319-93242-2_4
38 4 Nonmarket Strategy in the USA
Table 4.1 Assessment of national context—USA

Heritage Index of Economic Freedom (2018) Rank/scorea Change
World rank 18 +1.00
Region rank (Americas) 2 −1.00
Overall score 75.7 +0.56
Property rights 79.3 −1.97
Judicial effectiveness 76.9 +1.75
Government integrity 71.9 −6.19
Tax burden 65.1 −0.21
Government spending 56.5 +0.56
Fiscal health 54.8 +1.52
Business freedom 82.7 −1.70
Labor freedom 91.4 +0.39
Monetary freedom 78.6 −1.48
Trade freedom 86.7 −0.42
Investment freedom 85 +5.00
Financial freedom 80 +10.00
Heritage data
Tariff rate 1.6%
Income tax rate 39.6%
Corporate tax rate 35.0%
Tax burden/GDP 26.4%
Government expenditure/GDP 38.1%
Population (millions) 323
GDP (billions, PPP) $18,569
GDP growth rate 2.4%
5-year GDP growth rate 2.1%
GDP per capita (PPP) $57,436
Unemployment 4.9%
Inflation 1.3%
FDI inflow (millions) $391,104
Public debt/GDP 107.4%
Cato Human Freedom Index (2017)
World rank 17
Personal freedom score 8.83
Economic freedom score 7.94
Human freedom score (overall) 8.39
A positive change in world or region rank denotes a lower number versus the previous year’s rank,
a
whereas a positive change in a score denotes a higher number versus the previous year
The overall score in the Index increased by 0.60 over the previous year, but the
nation’s rank actually declined from 17 to 18, due to a broad global improvement in
economic freedom. With a population of 323 million and a gross domestic product
(GDP) of $18.6 billion in terms of purchasing power parity (PPP), the USA boasts
the world’s largest economy. Services account for about 80% of the economy, but
The Context for Business 39
the USA still ranks second globally in manufacturing. Large budget deficits and
increasing debt levels remain problematic, but the effects of President Trump’s
regulatory reform efforts launched in 2017 and passage of tax reform that took
effect in 2018 have not been factored into the rankings (Miller et al. 2018).
Despite a gradual but significant decline in economic freedom over the past
decade, the USA has maintained its position as one of the world’s leaders in free-
dom of international trade, business freedom, and labor freedom. The nation’s
decline in economic freedom is mostly driven by a decline in government integrity,
the protection of property rights, increases in government spending, and a decrease
in the effectiveness of government regulation (Miller et al. 2018).
International Trade
The USA’s ability and willingness to engage in mostly free trade with other nations
is one of its greatest economic strengths. The USA exchanged almost $1.8 trillion
worth of goods with its top three trading partners—Canada, China, and Mexico—
in 2017 (United States Census Bureau 2017). In fact, the health of the US economy
relies upon international trade so heavily that CEOs of 32 major US companies
wrote a letter to the newly elected President Trump urging him to rethink his cam-
paign position on renegotiating the North American Free Trade Act (NAFTA)
entirely and limit any changes exclusively to updating the current framework
(Mauldin 2017). On the surface, the letter appears to have reflected support for free
trade, but many trade restriction advocates see letters like this as cronyism from
corporatists seeking to leverage government policy to maintain their access to
cheaper goods produced abroad. By 2018, Trump shifted much of his concern to
China, insisting on fair trade between the two nations. Presidents and politics
aside, the USA will likely maintain a relatively high degree international trade
freedom in the future.
Business and Labor Freedom
Despite a notable increase in the size and scope of the federal government’s regula-
tory burden under President Barack Obama (2008–2016), the USA remains one of
the world’s freest labor markets and business environments, with minimal hin-
drances to hiring and firing workers, modest unionization, and a federal government
that has generally avoided regulatory overreach in labor markets. Nonetheless,
recent government interventions have threatened the country’s position as one of the
world’s leaders. Estimated compliance costs for US businesses increased substan-
tially during Obama’s two-term presidency, much of which can be attributed to the
Affordable Care Act. Although Obama-era regulations increased the US regulatory
burden, President Trump has moved in the opposite direction, but the long-term
effects remain unclear (Miller et al. 2018).
Government Integrity
Government integrity, a key element in Index’s rule of law measure, has hovered
around historically low levels since 2008 and has declined nearly 20 points since
1995, when the USA was among the world leaders in the category. Public trust in
politicians and perceptions of corruption are important factors in a country’s gov-
ernment integrity score; Obama-era whistleblowing, corrupt practices uncovered
during the 2016 national election, and allegations that foreign nations intervened in
the election appear to be the main reasons for a recent decline in the score. The
Index cites a growing perception of cronyism, elitism, and corruption as reasons for
the decline in the US government’s integrity score, but it also notes positive devel-
opments related to rule of law, citing rollbacks of federal regulation in certain areas,
American society’s general distain toward government corruption, and a free press
remain reasons for optimism (Miller et al. 2018).
Government Spending
Excessive government spending misallocates resources and inhibits economic

efficiency. Congress responded to the 2008 financial crisis with a massive “eco-
nomic stimulus package.” With this hike in expenditures, the US rank fell to an
all-time low in government spending in the Index, well below the world average.
The US economy has since recovered, and the nation’s rank on government spend-
ing will likely improve with the general economic conditions. Nonetheless, its
government spending score has not returned to previous highs (Miller et al. 2018).
Government Regulation
President Barack Obama’s administration (2008–2016) was characterized by

weak economic growth—about 2% per year—and an expanding regulatory
agenda that raised compliance costs to over $100 billion annually. The passing of
the Affordable Care Act (i.e., “Obamacare”) and the Dodd-Frank Act in the
healthcare and financial sectors, respectively, contributed to the increase. Although
the USA generally benefits from high government regulation scores, the regula-
tory burden varies substantially across industries. Agriculture, healthcare, and
sustainable energy tend to be heavily subsidized (Miller et al. 2018). For example,
the US government imposes emission and fuel economy standards on automobile
manufacturers, while also subsidizing firms that produce electric vehicles (Spector
and McKinnon 2017). Federal regulatory agencies such as the Environmental
Protection Agency (EPA), the Federal Drug Administration (FDA), the Security
and Exchange Commission (SEC), and the Consumer Financial Protection Bureau
Nonmarket Strategy: The USA 41
(CFPB)—created in 2010—are notorious for creating regulatory burdens for

firms in numerous industries.
Tax Burden
Perhaps the area in which the USA’s Index ranking has suffered the most in recent
years is government size, a decline attributed mostly to the country’s tax burden
(Miller et al. 2018). The Tax Cuts and Jobs Act that took effect in 2018 reduced the
top corporate and individual income tax rates to 21% and 37%, respectively, improv-
ing competitiveness with Western Europe’s social democracies and Asian countries
such as Singapore and Hong Kong (Miller et al. 2018).
The election of President Trump marked a decline in federal regulations overall,
a repeal of Obamacare’s individual mandate, and an immediate uptick in economic
growth. But his pursuit of “fair trade” with China and other nations threatens to
reduce market openness, and infrastructure programs could expand budget deficits.
The long-term effects of Trump’s policy, including impacts on government spend-
ing and debt, are still uncertain. Moreover, the USA remains the only world eco-
nomic power without universal health coverage, and many Americans on both
sides of the issue are dissatisfied with the status quo. Future healthcare policy
changes could have a substantial effect on economic freedom.
Nonmarket Strategy: The USA
Nonmarket strategy in the USA is intriguing from both political and social perspec-
tives. Its strong economy is buttressed by a constitution that secures the rights of
individuals and corporations to engage in free speech and electoral activity.
Consumer expectations of business firms in both market and nonmarket areas are
robust and dynamic. It is no surprise that the forms of political and social interaction
at the business level are sophisticated and constantly evolving.
For many US firms, it is difficult to categorize actions as market or nonmarket
and, in the case of the latter, as political or social. For example, following a high-
profile shooting in Las Vegas, player protests before National Football League
(NFL) games, and subsequent pressure by political activists, YouTube altered its
search engine algorithms, ostensibly to eliminate “fake news” from customers’
news feeds. The company ultimately removed multiple videos with millions of
views from its site (Nicas 2017). It is unclear whether YouTube’s removal of
controversial material reflected political or social motivations was simply a market-
based business decision or represents a combination of all three. While conceptual
boundaries are frequently crossed—and perhaps should be—this chapter examines
the two NMS dimensions individually before considering how they comingle.
Political NMS
A prominent form of political NMS in the USA is direct political intervention, a

complex phenomenon that can be analyzed at the party level (e.g., Democrats vs.
Republicans), at the state or local level (e.g., West Virginia vs. California), among
political icons (e.g., President Trump vs. President Obama), or even among factions
based on their support for or opposition to a specific issue. Organizations support
candidates, parties, policies, and causes for a variety of reasons. The most obvious
examples of direct political intervention are seen during elections. Explanations for
business political activity is sometimes clear but is often difficult to discern.
Business spending on US political campaigns continues to rise, although its
effect on outcomes is less than certain. An estimated $6.5 billion was spent on the
2016 presidential campaign; Hillary Clinton outspent Donald Trump two to one
(Ingraham 2017), but Trump and the Republicans won the White House and both
houses of Congress. Wall Street alone spent approximately $2 billion on the 2016
US elections overall, about 25% more than the previous high in 2008 (McKinnon
et al. 2017). Calculations of actual expenditures in the presidential election depends
on how political action committee (PAC) advertisements, congressional and senate
funding, unpaid media exposure, and other factors are treated, so the real total is
arguably much higher. This methodological debate is beyond the scope of this book,
but it is clear by virtually all accounts, that the 2016 US national election was the
most expensive in history.
Political contributions create an interesting context for NMS. For starters, it is
often impossible to identify the preferred candidates for many donors, as large orga-
nizations frequently hedge their bets by supporting multiple campaigns. This might
appear irrational in a nation where two parties—Democrats and Republicans—
dominate the political scene, but a closer look could reveal that support is linked to
one or a few specific issues aligned with each candidate. Although large banks and
hedge fund managers appeared to support President Trump’s promises to ease the
regulatory burden on the financial sector, campaign contributions were roughly
equal across party lines among presidential and congressional candidates
(McLannahan and Jopson 2017).
Contributing to both sides in a two-sided election can reinforce the status quo
and might suggest that from the donor’s perspective, differences between the candi-
dates and parties are much smaller than their campaigns might perpetuate.
Regardless, funding both sides can serve as an insurance policy of sorts, guarantee-
ing a “seat at the table” from which to negotiate plunder or minimize retribution
after the election. For example, US technology firms—most of which supported
Hillary Clinton in the 2016 presidential election—grew nervous after Donald
Trump’s victory because of his campaign positions on immigration and trade. Many
industry leaders met with the president shortly thereafter, including one Microsoft
executive who urged him to “maintain an ‘enlightened’ immigration policy” and
ample government research funding. President Trump responded by urging other
CEOs to keep their comments “a little shorter” (McKinnon et al. 2017).
Firms seek to influence public policy both collectively and individually and, on
all levels, long after the elections. Consider that in 2017, a group of US technology
giants organized a petition urging both Republican and Democratic legislators to
allow individuals brought to the USA illegally and raised in the country to obtain
legal status, arguing that the group protected in President Obama’s Deferred
Action for Childhood Arrivals (DACA) contribute over $200 billion in nominal
GDP and over $24 billion in tax revenues (Weaver 2017). In the same year, a
group of 32 top US chief executives wrote a letter to President Trump urging him
to update NAFTA rather than completely renegotiate the regional trade deal as he
promised in his campaign. The CEOs argued that he should avoid doing anything
to harm a deal that “supports 14 million American jobs and a trading volume of
more than $3.5 billion daily.” The Trump administration has reiterated its intention
to renegotiate NAFTA during the first 2 years of his term, while most business
leaders call for (Mauldin 2017).
The two previous examples could support an alternative view on direct political
intervention by businesses. In many instances, firms appear less interested in either
side of a political issue and more concerned with predictability and consistency.
Voters might be attracted by campaigns that emphasize change, but significant
shifts in policy can alter the formula for business success. The Affordable Care Act
passed in 2009 illustrates this reality well, as it created both opportunities and
threats for healthcare providers, insurance companies, and pharmaceutical firms.
The company mandate required all businesses with 50 or more full-time equivalent
workers to offer medical coverage, raising employment costs for those above the
threshold and creating an incentive for smaller companies to employ fewer workers
in part-time arrangements. Public policy and regulation changes require firms to
modify their strategies and structures, and some can even invite competition from
new firms, so the default preference for many established firms is often predictabil-
ity and the status quo.
The general preference for political stability is only one consideration, however,
and does not explain all political activity. Some firms—especially large ones—pur-
sue aggressive political change more than others. Political NMS often becomes
apparent during changes in presidential administrations, especially when the ruling
political party changes as well. During the Obama administration, one of Google’s
chief executives continually met with the president. Critics suggest that these meet-
ings contributed to the defeat of an antitrust probe, favorable “net neutrality” legis-
lation, and modified online liability rules regarding copyright issues that benefit the
company. Google employees contributed $1.6 million to Hillary Clinton’s presiden-
tial campaign in 2016, but her defeat spelled potential trouble for the firm, including
a different stance on immigration (McKinnon and Mullins 2017). In 2017, the FCC
(under President Trump) took steps to eliminate some of the Obama-era net neutral-
ity rules, and the new Congress began discussing new legislation would also allow
alliances between Internet providers and content firms, designed to promote higher
speed and better Internet quality. Large Internet providers like Google viewed the
reversal on net neutrality as a threat because it opened the door for more vigorous
competition (McKinnon 2017).
Uber also provides an interesting example of political NMS. Uber spent $1.8
million lobbying state legislators during the first 6 months of 2017 to facilitate its
expansion into upstate New York, more than the American Association of Retired
Persons (AARP), teachers’ unions, pharmaceutical companies, and manufacturers.
The effort paid off, as state lawmakers voted to allow expansions into Buffalo,
Rochester, Syracuse, and Albany (Capitol watch: Uber leads lobbying, heastie on
fall session 2017).
But Uber’s political NMS is multifaceted and extends beyond the USA. In 2017,
the company hired former US Department of Justice official, Tony West, to be its
chief legal officer as it has faced recent battles with regulators in China, the UK, and
the US West served at law firm Morrison & Foerster during its involvement with a
prominent Microsoft antitrust case. His support of Barack Obama’s 2008 presiden-
tial campaign led to a position in the administration, where he ultimately occupied
the third most senior position in the Department of Justice. US West is a compliance
specialist, an area of particular weakness for Uber at the time, and was likely hired
for his combination of experience and political ties (Bradshaw 2017).
The Biotechnology Innovation Organization (BIO), the lobbying association for
US drug makers, has argued that America’s inter partes review (IPR) system gov-
erning patents favors manufacturers of generic drugs. One company in particular,
Allergan, has actually transferred patents to Native American tribes on multiple
occasions to avoid competition from generic rivals. Large drug manufacturers have
used the lobby to their benefit while publicly speaking out against it on other occa-
sions (Crow 2017).
Political NMS is a key consideration for many Internet-focused companies. In
2017, Arizona Senator John McCain proposed legislation to require any social
media platform with over 50 million monthly users to monitor political advertise-
ments bought for more than $500. Facebook and Twitter responded with a willing-
ness to work with US legislators to solve the problem of “fake news.” David Marcus,
the head of Facebook Messenger, also suggested Facebook should vet its new prod-
ucts more carefully and be more cognizant of how advertising can be leveraged to
disseminate misinformation (Kuchler and Bradshaw 2017).
Google, Facebook, Twitter, and other large Internet-based firms also became tar-
gets of a federal probe into a potential election influence by Russians and other
outsiders launched after the 2016 election. Facebook’s troubles compounded in
2018 when it was revealed that UK-based Cambridge Analytica gained access to
private data from over 50 million Americans with Facebook accounts as part of a
2016 political campaign, a debacle that ultimately led to 2 days of congressional
testimony by CEO Mark Zuckerberg.
Amazon seemed to avoid scrutiny, but not for long. Like most Internet compa-
nies, Amazon spent significant resources lobbying Democratic candidates during
the 2016 election, arguably to protect the firm from potential regulation. Of the
roughly $12 million the internet industry spent financing the election, 74% of the
contributions went to Democrats, and Amazon ranked fourth on the list of political
contributors spending about $1.4 million (Lynch 2017). Its history of political
involvement (and Amazon CEO Jeff Bezos’ ownership of the Washington Post)
likely contributed to criticism from President Trump in 2018 over the company’s
state sales tax collections and favorable arrangements with the US Postal Service
(Nicholas 2018).
Perhaps the most prominent example of political NMS for Amazon began in
2017, when the online retailing giant began shopping for a city to host its second
headquarters, where it will invest a projected $5 billion over the next two decades.
Official considerations include labor pool, culture, and access to infrastructure, but
Amazon was also courting the best deal, which includes direct government subsi-
dies and tax incentives. Amazon’s efforts were orchestrated by its new economic
development team, a well-connected group that features a former
PricewaterhouseCooper (PwC) consultant and a former Lockheed Martin executive
(Laura Stevens 2017).
Political NMS is not limited to contacts between firms and elected officials. In
many instances, they involve staffers, bureaucrats at administrative agencies, and
even members of the Federal Reserve. Jerome Powell, who succeeded Janet Yellen
as Fed Chair in early 2018, met with numerous Wall Street executives prior to his
nomination in 2017. Before his nomination, Powell took on new responsibilities
earlier in the year as the Fed’s point person on bank regulation. His schedule in
January–September 2017 revealed meetings with executives from Wells Fargo, JP
Morgan, Goldman Sachs, and Deutsche Bank. Some might dismiss them as routine,
but executives at these firms were meeting with a man they knew might be a future
Fed Chair (Timiraos 2017).
Political NMS in the USA exists at both the firm and industry levels. What many
insiders downplay as industry-government partnerships can also be interpreted as
collusion. Consider that in 2017, 17 US public pension funds and insurers filed a
lawsuit alleging that ten banks—including JPMorgan, Barclays, UBS, Goldman
Sachs, and Morgan Stanley—colluded to fix the price of US government securities
and keep nonbank investors out of interdealer platforms to rig the system (Joe
Renninson 2017).
Many industries are well organized and respond aggressively to regulatory
attempts. In 2017, Ohio voters soundly rejected the proposed Drug Price Relief Act,
a measure many supporters claimed would cap drug prices and reduce costs overall.
The main proponent spent $14 million in support, but industry opposition included
a $49.1 million TV ad campaign, making this “one of the most expensive ballot
campaigns in Ohio or US history” (Loftus 2017).
Industry groups can be proactive as well. Wireless providers have lobbied the
California state government to simplify rules regarding the installation of short-
range networking devices, which are typically installed on streetlights, traffic lights,
and other structures owned by municipalities. Governor Brown vetoed a bill that
would have eased restrictions and allowed wireless providers to use the devices,
which allowed companies to improve network traffic without building additional
cellphone towers (FitzGeralz 2017).
While political NMS at both the firm and industry levels often carries a crony
connotation in the USA, small firms without a deliberate political strategy—
and accompanying political clout—can easily become victims of regulation.
A Manchester, Connecticut “goat yoga” operator, Mary Bowen, battled her local
zoning board in 2017 after it ruled that she could not use her farm for goat yoga
because it was not zoned for health and recreational use. After winning her appeal
at the state level, she inquired about expanding her business into other states and
was shut down by local health departments, the DC animal services program, and
even the US Department of Agriculture (Nasaw 2017).
Social NMS
The social dimension of NMS includes social activities whether or not they are
initiated specifically to support the market strategy and/or enhance firm perfor-
mance. When the notion of firm performance is broadened to include non-financial
factors, the presumed links between social NMS and performance become clearer.
Of course, social NMS can generate direct financial benefits for firms and create
interesting conflicts of interest. For example, US universities typically receive a
cut of the revenue generated from lenders that are permitted to promote their ser-
vices to students on campus. A Wall Street Journal review of disclosures found that
112 institutions received nearly $18.7 million from banks in fiscal 2017, including
about $1.7 million received by the University of California, Berkeley, through its
contract with Bank of the West. Through the partnerships, many banks and univer-
sities allow students the “convenience” of linking banking services to campus
identification cards (Korn and Rexrode 2018). The desire to build long-term finan-
cial relationships with students is logical, but the bank presence on campus can be
confusing for those who do not fully understand their college financing and other
options. Universities whose administrators often decry “predatory practices” in the
private sector generate revenue each time a student becomes a bank customer.
Similar arrangements exist when soft drink firms bid for exclusive access to col-
lege campuses.
As a second example, pharmaceutical companies donate hundreds of millions of
dollars to US charities each year to help low-income patients pay for expensive
prescriptions. While this improves healthcare access for the poor, each million dol-
lars contributed can also translate into as much as $21 million in sales. These
patient-assistance charities help patients avoid the system established by insurance
companies to control costs, including copays, co-insurance, and deductibles. When
a foundation covers the patient’s cost of a prescription, it gets filled, and the drug-
maker is paid the balance as provided by the insurance plan. This is a sophisticated
means of price discrimination on the basis of patient income, and it has proved
profitable for drug companies (Rockoff 2017).
This practice is most pervasive in the USA because it is the only economic
power without a formal system of universal healthcare. Medical services are pro-
vided to the poor through various government and private programs, including
charities. Many consumers expect pharmaceutical firms to create or support pro-
grams that make expensive drugs available to those who cannot afford coverage,
but few understand (or seem to care) that they are really paying for the programs
indirectly through higher insurance premiums and reduced government revenues
due to corporate charitable write-offs. The true motives of pharmaceutical company
executives are impossible to discern and presumed to be at least somewhat altruis-
tic. Nonetheless, a critical analysis of this particular NMS requires one to acknowl-
edge its direct link to the bottom line.
Integrating Political and Social NMS
Insomuch that it lessens the government burden to finance healthcare for low-income
citizens, the pharmaceutical company support for healthcare charities discussed in
the previous section can be viewed as a form of public-private collaboration. In some
such partnerships, direct links among social initiatives, government funding, and
political connectedness are clear. For example, solar panel manufacturer Solyndra
was working toward an initial public offering (IPO) and promised to create 1000
“green jobs” when it received $535 million in guaranteed loans as part of President
Obama’s $787 billion American Recovery and Reinvestment Act (ARRA) of 2009.
When the company was audited in 2010, its auditor, PwC, declared, “the company
has suffered recurring losses from operations, negative cash flows since inception
and has a net stockholders’ deficit that, among other factors, raise substantial doubt
about its ability to continue as a going concern.” Solyndra pulled the plug on the IPO
shortly thereafter, shut down one of its factories, and ultimately declared bankruptcy
(Schiff 2014). Interestingly, Solyndra’s largest shareholder provided substantial sup-
port to President Obama’s campaign (Solyndra Setback 2011). This example illus-
trates how political considerations are commonly linked to social initiatives.
Monsanto’s $1 billion investment to develop a powerful herbicide paired with
genetically engineered seeds resistant to the spray yielded dicamba, but farmers
who use non-genetically engineered seeds complained that their crops suffered
when dicamba applied by their neighbors drifted onto their land. Led by Arkansas,
states responded by erecting tighter restrictions for the herbicide, including prohibi-
tions during certain times of the year. Monsanto officials touted the social benefits
of greater food production and claimed that regulators were overstepping their
boundaries. Dicamba represents an estimated potential $350 million in annual prof-
its for Monsanto (Bunge 2017).
The Affordable Care Act requires employers with 50 or more full-time equiva-
lent workers to offer affordable health insurance to those working 30 h or more per
week. In 2013, the year before the employer mandate was scheduled to take effect,
some companies—especially those in fast-food and other low-wage industries—
began reducing the hours of full-time workers and hiring more part-timers (Jargon
et al. 2013). It is difficult to build a case arguing that this trend had little to do with
the upcoming mandate. Most prominent chains underscore their concerns for
worker well-being, but the economic impact of this regulation required them to
make difficult choices.
NMS in the US Automobile Industry: From Toyota to Tesla
Automobile production in the USA embodies a complex web of political and

social concerns. Consumers typically demand powerful vehicles that reflect the
nation’s historical love affair with automobiles but are insisting on greater fuel
economy. Activists and government agencies focus on the often-contradictory con-
cerns of ever-increasing fuel standards and vehicle safety; heavier cars tend to be
safer but are not as fuel-efficient as those made with lighter materials. Corporate
average fuel economy (CAFE) standards require vehicle manufacturers to achieve
a prescribed fuel economy target each year or pay a penalty. Carmakers above the
standard have an incentive to produce high-mileage cars to lower the average even
if customers prefer lower-mileage alternatives. Reducing the weight can improve
fuel economy on any model and can be accomplished by incorporating more light-
weight material that might not be as safe in a crash or by providing a compact spare
instead of a full-size spare tire. While CAFE standards have arguably prompted
greater fuel efficiency, the evidence suggests they have raised production costs and
reduced safety (Kazman 2011). Some critics argue that the CAFE mandate should
be modified to focus on alternative fuels or eliminate altogether (McFarlane 2011).
There are other complexities in the industry as well. With the heightened promi-
nence of foreign-owned carmakers—many of which own plants in the USA—and
increased production in Mexico, direct calls for quotas and other forms of trade
regulation are common. These and other factors contribute to an environment where
firm performance depends on much more than simply building a better or cheaper
vehicle. The cases of Toyota and Tesla are addressed briefly in this section.
Regulator power is not checked by market forces, so the extent to which agen-
cies such as the United States Department of Transportation (DOT) can favor one
firm over another or harass an entire industry is a concern. In 2007, Toyota began
recalling vehicles to address instances of “accelerator pedal entrapment” follow-
ing reports linking several car crashes to sticky pedals. US regulators responded to
the recalls aggressively, creating immediate market and financial troubles for the
company. At one point, United States Secretary of Transportation Ray LaHood
recommended that Toyota owners not drive their vehicles and noted that “We’re
not finished with Toyota…” (Berman 2010; Leibovich and Wald 2010). The car-
maker was hit with dozens of class action lawsuits, negative press was seemingly
constant, and revenues fell precipitously. But following a 10-month study con-
ducted by the National Highway Traffic Safety Administration (NHTSA) and the
National Aeronautics and Space Administration (NASA), regulators absolved
Toyota electronics of responsibility associated with incidents of unintended accel-
eration, citing driver error as the culprit in most instances. Sticky accelerator ped-
als and floor mats that trapped the throttle in the engaged position were contributing
factors in select cases, but most were caused by “pedal misapplication,” when a
driver hits the gas instead of the brakes by mistake (Ramsey et al. 2011).
Nonetheless, Toyota agreed to settle the case with regulators in 2014 by paying a
$1.2 billion fine.
A careful examination of the Toyota brake crisis revealed some key mistakes by
the company, but the rush to judgment and damage done by regulators and the
onslaught of negative press appears to have been excessive. Recalls by carmakers
are common and included those by US-based Ford and General Motors (GM) that
occurred during the same time period. Critics suggested that Toyota’s weak political
connectedness in the USA coupled with efforts to promote domestic companies
contributed to the fallout. It is noteworthy that in 2008, $17 billion in bailouts for
General Motors and Chrysler were financed through the troubled asset relief fund
(TARP) created by Congress and administered by the Obama administration, so the
US government had a direct financial interest in the industry. Proponents argued that
the bailouts would save jobs, as these carmakers—especially GM—could not sur-
vive without them (Skeel 2011), and that they were not connected to the regulatory
response to Toyota. Moreover, they claim that General Motors, Chrysler, or Ford
would have been treated in the same manner. Nonetheless, all sides agree that regu-
lators had a tremendous impact on Toyota.
In contrast, the benefits from political connectedness interwoven with a popular
social agenda can be immense. For years, Tesla has benefitted from corporate sub-
sidies promoted by politicians who have close relationships with CEO Elon Musk.
From its New York taxpayer-financed purchase of a $750 million SolarCity plant to
the federal and state tax credits that its customers receive when they purchase a
Tesla vehicle, the company’s business model essentially relies upon “nonsolar cus-
tomers to subsidize their solar-using and often wealthier neighbors” (Mills 2016). In
2017, some legislators sought to eliminate the $7500 electric vehicle (EV) tax credit
as part of broader tax reform. Tesla’s stock plunged when the effort was announced,
and the EV industry’s trade representative, GM, and other firms issued public state-
ments expressing their disappointment in those seeking to thwart their efforts to
create an “all-electric future”—so long as the taxpayers are willing to help them pay
the tab (Mike Spector 2017).
Tesla has also battled traditional car dealers in the USA in its effort to expand
distribution. In 2013, Tesla began selling vehicles directly to consumers. Dealers
of competitive brands resisted, citing old state-level franchise laws prohibiting
direct sales because manufacturers, without the showroom overhead, would be
able to undercut the dealers. Of course, these laws were designed to protect deal-
ers against their own manufacturers whom might wish to sell directly to consum-
ers, not against manufacturers of competing brands. Tesla argued that the laws
were relevant because it did not have any franchise dealers anyway (Ramsey and
Bauerlein 2013).
Of course, there are many additional examples in the USA beyond Toyota and
Tesla. Leaders of automobile producers have met with President Trump and mem-
bers of his administration since his election to discuss tweaking and easing current
regulations with regard to vehicle emissions and other factors. The ongoing talks
reflect both the success of automakers’ previous lobbying efforts to persuade his
administration to reopen the midterm standards evaluations and concerns that other
regulations could be costly to the industry (Spector 2017).
Table 4.2 Assessment of US model—strategic capabilities and strategy

Assessment Results Comments
Factor loadings >0.70 Yes Range 0.759–0.896
Reliabilities: coefficient alpha >0.70 Yes Range 0.882–0.940
Reliability: composite reliability >0.70 Yes Range 0.912–0.950
Convergent validity: AVE >0.50 Yes Range 0.669–0.729
Discriminant validity: inter-factor loadings > intra-factor Yes
loadings
Discriminant validity: Fornell-Larcker matrix Yes
Discriminant validity: HTMT p < 0.05 Yes
Collinearity: VIF <5 Yes
R2—cost leadership 0.388 R2 (adjusted) = 0.393
R2—differentiation 0.399 R2 (adjusted) = 0.382
R2—NMS-political 0.173 R2 (adjusted) = 0.165
R2—NMS-social 0.326 R2 (adjusted) = 0.320
R2 refined model—cost leadership 0.390 R2 (adjusted) = 0.387
R2 refined model—differentiation 0.387 R2 (adjusted) = 0.383
R2 refined model—NMS-political 0.163 R2 (adjusted) = 0.161
R2 refined model—NMS-social 0.321 R2 (adjusted) = 0.319
US Data
The previous discussion of NMS is informed by results from a survey of managers

representing 442 firms in the USA. Preliminary tests supported reliabilities, conver-
gent validity, and discriminant validity for capability, strategy, and performance
constructs in all three models tested. The results are summarized in Tables 4.2, 4.3,
4.4, 4.5, 4.6, and 4.7. The composite model is presented in Fig. 4.1 and is the focus
of this section.
Several factors stand out in the composite model. First, marketing capabilities
were the predominant determinants of both market strategies. Effect sizes (f2 values)
were moderate for cost leadership (0.195) and large for differentiation (0.613). The
role of marketing in effectively differentiating products and services is well known
and is underscored by the large effect size. Technology capabilities also represented
a significant driver of cost leadership but a less critical one. This finding highlights
the importance of marketing when a firm specifically seeks to minimize costs, even
those in the marketing arena.
This finding does not involve NMS per se, but the lack of significant links
between marketing capabilities and both NMS dimensions is worth noting.
Marketing is a critical part of a market orientation, especially in competitive,
advanced economies. Developing marketing capabilities does not appear to support
NMS in the USA.
Second, market-linking capabilities were the primary drivers for both NMS
dimensions. Effect sizes (f2 values) were moderate for political NMS (0.196) and
large for social NMS (0.447). Market-linking capabilities include a firm’s market
US Data 51
Table 4.3 US model—strategic capabilities and strategy

USA-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap → cost lead −0.058 −0.062 0.084 0.693 0.488 0.001
Mgt cap → differentiation −0.158 −0.162 0.080 1.969 0.050 0.010
Mgt cap → NMS-political 0.094 0.097 0.103 0.914 0.361 0.003
Mgt cap → NMS-social −0.003 −0.007 0.099 0.027 0.979 0.000
Mkt-link cap → cost lead 0.173 0.179 0.068 2.526 0.012 0.019
Mkt-link cap → 0.094 0.097 0.078 1.211 0.227 0.006
differentiation
Mkt-link cap → 0.299 0.299 0.080 3.753 0.000 0.041
NMS-political
Mkt-link cap → NMS-social 0.470 0.466 0.086 5.477 0.000 0.125
Mkt cap → cost lead 0.365 0.359 0.067 5.422 0.000 0.074
Mkt cap → differentiation 0.499 0.497 0.076 6.565 0.000 0.141
Mkt cap → NMS-political 0.039 0.034 0.085 0.461 0.645 0.001
Mkt cap → NMS-social 0.066 0.067 0.088 0.754 0.451 0.002
Tech cap → cost lead 0.205 0.210 0.078 2.619 0.009 0.017
Tech cap → differentiation 0.228 0.233 0.085 2.692 0.007 0.021
Tech cap → NMS-political 0.024 0.028 0.107 0.223 0.823 0.000
Tech cap → NMS-social 0.074 0.082 0.098 0.754 0.451 0.002
Refined cap-strategy model
Mkt-link cap → 0.404 0.408 0.038 10.716 0.000 0.195
NMS-political
Mkt cap → cost lead 0.359 0.355 0.064 5.607 0.000 0.073
sensing and its linkage to the outside world, including the creation and management
of long-term relationships with customers, suppliers, and other channel members.
Market-linking capabilities were linked to both market strategies in the initial model
but succumbed to the influence of marketing capabilities in the more parsimonious
composite model. Hence, the value of market-linking capabilities regarding market
strategies is clear, but the same relationship-building skills required to develop
strong, durable market links can also foster relationships with nonmarket entities,
including government officials, NGOs, and even social activists.
The importance of relationships inherent in market-linking capabilities pursued
by firms that emphasize NMS is also intuitive and supported by anecdotal evidence.
Political NMS is fueled by political networks, whereas social NMS entails a keen
understanding of social trends and is often facilitated by connections with activists
and other social actors. Tesla’s strong social and political orientation appears to be
buttressed by such capabilities, although as of 2018, they have yet to translate into
financial performance.
Table 4.4 Assessment of US model—strategy and performance

loadings
R2—financial performance 0.260 R2 (adjusted) = 0.253
R2—non-financial performance 0.215 R2 (adjusted) = 0.208
R2 refined model—financial performance 0.260 R2 (adjusted) = 0.255
R2 refined model—non-financial performance 0.210 R2 (adjusted) = 0.207
Table 4.5 US model—strategy and performance

USA-strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Cost lead → fin perf 0.167 0.168 0.074 2.244 0.025 0.013
Cost lead → non-fin perf 0.165 0.168 0.075 2.200 0.028 0.012
Differentiation → fin perf 0.247 0.246 0.083 2.985 0.003 0.028
Differentiation → non-fin perf 0.257 0.254 0.080 3.201 0.001 0.029
NMS-political → fin perf 0.168 0.171 0.082 2.035 0.042 0.012
NMS-political → non-fin perf 0.004 0.008 0.086 0.051 0.959 0.000
NMS-social → fin perf 0.008 0.010 0.097 0.080 0.936 0.000
NMS-social → non-fin perf 0.085 0.086 0.098 0.868 0.386 0.002
Refined strategy-perf model
Third, differentiation was a substantial driver of both financial and non-financial

performance, with small (0.131) and moderate (0.242) effect sizes, respectively, but
cost leadership was not linked to either performance measure. Differentiation caters
to more sophisticated, discriminating buyers willing and able to pay more for brands
and features deemed important. Many firms in developed economies pursue a form
of differentiation, an approach that appears to reward many of them in the USA.
Fourth, social NMS was a substantial driver of neither financial nor non-financial
performance. No link between social NMS and performance was found in the ini-
tial, saturated model either. This was unexpected, given recent research lending
empirical support to a broad CSR-performance linkage (Charles et al. 2016; Lins
et al. 2017; Lu et al. 2013; Price and Sun 2017). Nonetheless, it suggests that social
US Data 53
Table 4.6 Assessment of US model—composite

loadings
Table 4.7 US model—composite

USA-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Differentiation → non-fin 0.442 0.442 0.055 8.057 0.000 0.242
perf
Mkt-link cap → 0.405 0.407 0.040 10.142 0.000 0.196
NMS-political
Mkt cap → cost lead 0.466 0.461 0.057 8.221 0.000 0.195
intervention might have less to do with firm performance—even when expanded to

include non-financial measures—than typically suggested. Although not represen-
tative of all firms, the case of Solyndra reinforces the difficulty of leveraging social
NMS without a strong market orientation.
Finally, political NMS was a substantial driver of financial performance—with a
small effect size (0.042)—but not of non-financial performance. The modest but
significant financial payoff associated with political NMS appears to reinforce the
notion that a political strategy is essential to corporate success (Bach and Allen
2010; Hadani et al. 2015). Firms like Amazon have leveraged political NMS effec-
tively, although its success appears to emanate primarily from its market orienta-
tion. This finding also suggests a potential link between innovative and
quality-focused businesses and political activity, as differentiation and political
NMS were the only significant drivers of financial performance.
Fig. 4.1 The USA model—composite
The findings presented in this and subsequent chapters neither guarantee high
performance for businesses with certain market and nonmarket strategy orientations
nor preclude exceptional cases. Firms like Tesla could be considered as outliers, so
the results should be evaluated accordingly. Nonetheless, NMS is a sophisticated
enterprise in the USA, where relationship-building skills inherent in market-linking
capabilities are very important. But while both political and social NMS have gained
traction in the USA, evidence that either dimension drives performance across the
board remains limited.
Chapter 5
Nonmarket Strategy in the UK
The United Kingdom (UK) is a sovereign state that includes England, Scotland,
Wales, and Northern Ireland. Its approach to governance has strong historical rele-
vance; it permeates the 53 members in the Commonwealth of Nations (formerly the
British Commonwealth) and was influential in the founding of the USA. Two of the
ten nations assessed in this book—Ghana and India—are members of the
Commonwealth, and two more—Egypt and the USA—were also governed by
Britain at one time. The UK has strong cultural and economic ties to both the USA
and the European Union (EU).
With a GDP approaching $3 trillion, the UK is the world’s fifth-largest economy,
despite having a population significantly smaller than many of the world leaders
(World Bank 2016a). The UK recovered quickly from the global financial crisis of
2008, and its vote in 2016 to leave the European Union (i.e., Brexit) provides an
opportunity for the nation to address structural problems, redefine international
trade, and reassess business investments (Miller et al. 2018).
One of the key contributors to the UK’s success is economic freedom (see
Table 5.1). Overall, the UK is the world’s eighth freest economy. It ranks 4 out of
the 44 European countries assessed in the Index and is the highest ranked among the
10 nations analyzed in this book. Although the government size score is detrimental,
its dedication to the rule of law, efficient regulatory environment, and mostly free
markets support are positive factors (Miller et al. 2018).
Rule of Law
The rule of law is well established in the UK, underscored by strong contract
protection enforced by a largely impartial, efficient, and independent judiciary.
The nation is one of the freest in terms of enforcing private property rights and

https://doi.org/10.1007/978-3-319-93242-2_5
56 5 Nonmarket Strategy in the UK
Table 5.1 Assessment of national context—UK

World rank 8 −4.00
Region rank (Europe) 4 No change
Government integrity 79.0 +0.71
Tax burden 65.2 +0.08
Business freedom 91.1 +1.20
Monetary freedom 85.2 +0.20
Investment freedom 90 No change
Financial freedom 80 No change
Heritage data
Tariff rate 1.6%
GDP (billions, PPP) $2786
Unemployment 4.8%
Inflation 0.6%
World rank 9
a
maintaining an effective judiciary, with scores of 92.2 and 93.8, respectively

(Miller et al. 2018). Although the government integrity score of 79 is less attrac-
tive, the country has made improvements in recent years, specifically aided by
former Prime Minister David Cameron’s resignation following the Brexit vote. To
date, the government has respected the vote to leave the EU, and if it continues to
do so, its government integrity score will likely improve further.
Government Size
The UK’s score for government size keeps the nation out of the Index’s top category.
While its European allies spend proportionally more on social programs, the UK
has a relatively smaller tax burden and significantly worse-off in terms of fiscal
health. Due to its relatively large tax burden and fiscal irresponsibility, the UK
receives a lower score in every section of the Index’s government size category than
the four freest economies in the world—Hong Kong, Singapore, New Zealand, and
Switzerland (Miller et al. 2018).
Regulatory Environment
The UK has mostly refrained from imposing regulations that undermine business
activity, although it does directly regulate most utility rates and prescription drug
prices (Miller et al. 2018). The nation’s greatest challenge in this area is with labor.
The UK’s relatively low labor freedom score is likely due to the government’s strict
regulation of the labor market with respect to anti-discrimination law, paid leave
requirements, and conditions that generally make it difficult to fire redundant work-
ers—all of which are typical characteristics of economies in its region (Caldwell
2013). Despite its slight shortcomings in labor freedom, UK scores in the regulatory
environment have been improving (Miller et al. 2018).
Free Markets
With the combined value of its imports and exports equaling 58% of GDP, the UK’s
economy relies heavily on trade. The desire to reduce its trade barriers, which were
already relatively small, is part of what drove the electorate to leave the EU in the
2016 Brexit vote. The UK’s applied tariff rate is only 1.6%. Although nontariff bar-
riers impede trade in certain categories, government policies generally do not inter-
fere significantly with foreign investment. The nation’s thriving banking industry
and financial sector create a very attractive opportunity for both domestic and for-
eign investors. Furthermore, the UK’s strong commitment to the rule of law makes
the country an attractive place for foreigners because they can generally rely on the
same legal treatment as domestic investors (Miller et al. 2018).
In sum, the UK is home of one of the largest and freest economies in the world.
Although burdened by social spending that undermines its fiscal health, the nation
has made marginal improvements to its fiscal situation in recent years and is trend-
ing in the right direction (Miller et al. 2018). Moreover, its unwavering dedication
to protecting the rule of law attracts investors. Its regulatory imperfections notwith-
standing, foreign business in the UK can be confident they are competing on one of
the world’s fairest playing fields.
Nonmarket Strategy: The UK
Although departure is in the works, the UK’s current membership in the 28-nation
EU has added a level of political complexity to NMS. Member contributions to
the EU are a function of economic prosperity, but funds received in return are
need-based and can be tied to country politics. Countries like Sweden, Germany,
and the UK contribute more than they receive in funding, while emerging nations
like Poland, Greece, and Hungary are among the financial beneficiaries. In 2015,
the nation contributed €18.2 billion but received only €7.4 billion in EU funds.
Exactly how funds are spent can be difficult to decipher because of vague budget
categories and different views on economic and social issues across borders. The
EU spent €157.9 billion in 2017, 37% in “sustainable growth,” 34% in “eco-
nomic, social, and territorial cohesion,” and 14% for “competitiveness for growth
and jobs” (Parliament of the United Kingdom 2018; European Union 2018).
Within the UK, the political union that includes England, Scotland, Wales,
and Northern Ireland can produce interesting NMS issues akin to those that occur
among states in the USA. For example, following an intense battle between alco-
hol manufacturers and UK legislators, the UK Supreme Court ruled the govern-
ments can legally prescribe minimum prices for alcohol. The Scottish National
Party and health campaigners considered this to be a huge victory of alcohol
producers, and Irish politicians began drafting legislation shortly thereafter. The
Scotch Whiskey Association and other trade lobby groups fought hard but lost,
as the Supreme Court acknowledged that while minimum pricing would involve
some market distortion, it was a proportionate means of achieving a legitimate
aim (Dickie 2017).
NMS and accusations of cronyism exist within regions of the UK as well. Oil
and petrochemical companies like Ineos are battling the Scottish government
following its permanent fracking ban. Members of the Scottish Conservative
party have accused the Scottish National party of passing the legislation because
of its close relationships to “green energy” providers. This case will likely reach
Scotland’s highest court, the Court of Session (Nathalie Thomas 2017b).
Although not considered widespread, corruption is a concern in the UK as it
is across the globe. For example, in 2017, Rolls-Royce agreed to pay £671
million to officials in the UK, the USA, and Brazil to avoid criminal prosecution
for corruption, false accounting, and failure to prevent bribery. While Rolls-
Royce denies the company was directly responsible for the alleged behavior, it
promises to stop using the intermediaries revealed in the allegations. An investi-
gation also alleged company corruption in Indonesia, Thailand, India, Russia,
Nigeria, China, and Malaysia (Skapinker 2017).
Executives in the UK communicate frequently and directly with regulators
just as they do in other developed nations. Andrew Bailey has met numerous
times with asset management organizations since he became chief executive of
UK’s Financial Conduct Authority (FCA), the financial sector’s chief regulator.
Nonmarket Strategy: The UK 59
These meetings appear to be a defensive move by the industry to position itself

against accusations of delivering poor value for consumers (Marriage and
Thompson 2017).
Friction between firms and government authorities is common, particularly in
regulated industries. For example, Centrica, a British supplier of electricity,
blamed the British government for a 12.5% price increase conveyed to 3.1 mil-
lion households in 2017, citing government policy that support subsidies to solar
and wind energy providers combined with increasing network costs. Centrica’s
CEO has been outspoken on related issues, arguing that the government’s sup-
port for “green energy” has driven up prices for millions of consumers in the UK
(Nathalie Thomas 2017a).
The Centrica case is particularly interesting because the firm is adopting a
market perspective, arguing on behalf of consumers whose rates have risen
because of government mandates. This pro-consumer orientation is reflected on
the firm’s website (https://www.centrica.com/energymarket) as well and is in
contrast to energy companies elsewhere that attempt to make sustainability and
“green energy” core components of their social NMS.
The case of Uber in the UK is compelling because it involves a foreign
company challenge to an industry with strong political tentacles. Uber’s license
was revoked by Transport for London (TfL), a local government agency, in 2017.
The official reasons were related to corporate responsibility and included con-
cerns about driver background checks and Uber’s use of software that can block
regulators from gaining full access to its app for law enforcement purposes. It is
not surprising that the decision was backed by London’s mayor, employment
rights campaigners, and the industry trade association that represents black-cab
drivers. The response from Uber’s chief executive, Dara Khosrowshahi, provided
insight but requires interpretation and analysis (The Guardian 2017):
It’s critical that we act with integrity in everything we do, and learn how to be a better
partner to every city we operate in. That doesn’t mean abandoning our principles—we
will vigorously appeal TfL’s decision—but rather building trust through our actions and
our behavior. In doing so, we will show that Uber is not just a really great product, but a
really great company that is meaningfully contributing to society, beyond its business
and its bottom line.
Just as TfL’s statement did not refer to protectionism or competition, Uber

was careful to avoid such a tone in its response, preferring instead to promote
better partnerships, building trust, and contributing to society beyond the bottom
line. However, Uber also began immediate work on an appeal, hiring Laurel
Powers-Freeling, a former senior adviser to the Bank of England who has served
on several corporate boards, to assist the company in its appeal to overturn the
revocation. Should Uber prevail in 2018, the company will likely be required to
comply with the existing regulatory scheme. Powers-Freeling would likely assist
in this effort as well (Schechner 2017).
UK Data
Managers representing 226 firms in the UK were surveyed. Preliminary tests sup-
ported reliabilities, convergent validity, and discriminant validity for constructs in
all three models tested. Item five in the cost leadership scale produced a loading of
0.692, slightly below the 0.700 threshold, but was retained for consistency. The
results are summarized in Tables 5.2, 5.3, 5.4, 5.5, 5.6, 5.7. The composite model is
presented in Fig. 5.1.
Several factors stand out in the composite model. First, technology capabilities
were the predominant determinants of both market strategies. Effect sizes (f2 values)
were moderate for both cost leadership (0.148) and differentiation (0.083). This
finding is similar to that in the USA except that the link between technology capa-
bilities and differentiation was not retained in the composite model. The strength of
the technology-cost leadership nexus is noteworthy and supports the importance of
technology in efficient production, even in developed nations.
Second, marketing capabilities were substantial drivers of all four market and
nonmarket strategies. Effect sizes were small for cost leadership (0.094) and social
NMS (0.055) and moderate for differentiation (0.166) and political NMS (0.152).
Indeed, marketing is a key part of campaigns that promote a firm’s CSR activities,
and marketing expertise can help a firm procure political support (Krasnikov and
Jayachandran 2008; Morgan et al. 2009; Ngo and O’Cass 2012; Oliver and Holzinger
2008; Wilden and Gudergan 2015). Hence, marketing appears instrumental to both
market and nonmarket activity (Grinstein 2008; Kirca et al. 2005; Parnell 2015).
Table 5.2 Assessment of UK model—strategic capabilities and strategy

Factor loadings >0.70 Yes, with one Range 0.692–0.855 (cost5
exception retained for consistency)
Discriminant validity: inter-factor Yes
loadings > intra-factor loadings
UK Data 61
Table 5.3 UK model—strategic capabilities and performance

UK-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap → cost lead 0.054 0.072 0.118 0.456 0.649 0.002
Mgt cap → differentiation 0.113 0.124 0.110 1.025 0.306 0.007
Mgt cap → NMS-social 0.298 0.321 0.122 2.450 0.015 0.041
Mkt-link cap → 0.085 0.087 0.093 0.916 0.360 0.005
differentiation
Mkt-link cap → 0.134 0.126 0.119 1.129 0.260 0.009
NMS-political
Mkt cap → cost lead 0.287 0.273 0.112 2.569 0.010 0.050
Tech cap → NMS-social −0.236 −0.240 0.132 1.790 0.074 0.026
Mkt cap → cost lead 0.307 0.299 0.105 2.933 0.004 0.093
Table 5.4 Assessment of UK model—strategy and performance

Table 5.5 UK model—strategy and performance

UK-strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
NMS-political → fin perf −0.066 −0.068 0.090 0.734 0.464 0.003
NMS-political → non-fin perf −0.073 −0.075 0.091 0.807 0.420 0.003
Table 5.6 Assessment of UK model—composite

Discriminant validity: inter-factor loadings > Yes
intra-factor loadings
This finding is particularly noteworthy when compared to the USA, where

marketing was a significant driver of both market-oriented strategies but of nei-
ther NMS. Moreover, the strength of the marketing-political NMS link in the UK
is intriguing, especially considering that political NMS did not substantially
affect either financial or non-financial performance. Unlike the USA and several
other nations where political NMS was a significant—although not substantial—
driver of financial performance, the direct payoff of political NMS in the UK is
at best, unclear.
UK Data 63
Table 5.7 UK model—composite

UK-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mkt cap → cost lead 0.309 0.303 0.104 2.968 0.003 0.094
Fig. 5.1 The UK model—composite

Third, market-linking capabilities were a significant driver of social NMS, but

the effect size was small (0.028). A similar link was found in the USA, but with a
large effect size. One would expect market-linking capabilities to influence market
strategies, but the same relationship-building skills required to develop links with
channel members can also promote relationships with social activists and the public
at large. Market-linking capabilities were linked to both market strategies in the
initial model but were eliminated due to a low effect size.
Fourth, cost leadership was a significant driver of non-financial performance, but
the effect size was small (0.034). Cost leadership was not a significant driver of
financial performance, although it was linked to both performance measures in the
initial model, but its significance was too weak to survive in the final model. In a
similar vein, differentiation was a significant driver of both financial and non-
financial performance, with moderate (0.176) and small (0.066) effect sizes, respec-
tively. These findings underscore the performance impact of uniqueness and
innovation in developed economics.
Finally, social NMS was a significant driver of both financial and non-financial
performance, although effect sizes were low, 0.084 and 0.040, respectively. Unlike
the USA, social NMS appears to be worthwhile in the UK from a performance per-
spective, but political NMS does not.
In sum, the UK is arguably the freest nation among those addressed in this book.
Political and social NMS are important strategic considerations as they are in the
USA but in different ways. Investing in the political dimension does not appear to
pay dividends across the board; emphasis on social NMS was linked to
performance.
Chapter 6
Nonmarket Strategy in India
With over 1.3 billion people, India is the world’s second most populous country.
Nonetheless, its economy struggles to compete with those of smaller Western
European nations like France, Germany, and the UK, all of which benefit from
more stable political situations and greater freedom. Although India’s economy
ranks 130 in the Index, the country has made significant progress in an initiative
toward liberalization and deregulation (see Table 6.1). Consider that in 1995,
India’s economic freedom score was only 45.1, which fell into the Index’s
“repressed” category. Nonetheless, the nation continues to be undermined by cor-
ruption, overregulation, irresponsible spending, and a lack of commitment to the
rule of law (Miller et al. 2018).
Rule of Law
As is the case with many of the world’s developing economies, property rights in
India are not always protected, and the rule of law is not enforced equally, creat-
ing problems in many areas of the economy. India’s Index score for the protec-
tion of property rights is 55.4—well below the world average of 61.1—and
although fairly well protected in metropolitan areas, land titles remain unclear in
rural regions and even some urban areas (Miller et al. 2018).
India’s judiciary is generally independent, but courts are understaffed and
lack the technology necessary to clear an enormous backlog of cases. Because of
the unreliable nature of the Indian courts and a bureaucracy that still lingers from
India’s formerly repressed economy, government officials are often caught
accepting bribes. While it is impossible to know how many cases of corruption

https://doi.org/10.1007/978-3-319-93242-2_6
66 6 Nonmarket Strategy in India
are never reported, it is likely that many go unnoticed and unpunished. India
performs slightly above average, however, with scores of 47.2 in government
integrity and 54.3 in judicial effectiveness (Miller et al. 2018).
Table 6.1 Assessment of national context—India

Region rank (Asia-Pacific) 30 −3.00
Property rights 55.4 +0.02
Heritage data
Tariff rate 6.3%
Tax burden/GDP 7.2%
GDP per capita (PPP) $6616
Unemployment 3.5%
Inflation 4.9%
World rank 102
a
Government Size
With a government spending score of 77.7, India is considered mostly free. Like
many of its west Asian neighbors, India has avoided an excessive tax burden
with top individual and corporate rates of about 31% and 32%, respectively.
Overall, India’s tax burden equates to 7.2% of domestic income, and with a tax
burden score of 79.4, India is considered mostly free. Nonetheless, its govern-
ment size score is undermined significantly by severe fiscal mismanagement.
Government spending has accounted for 27.3% of GDP over the past 3 years,
budget deficits have averaged 6.9%, and the total public debt totals 69.5%. With
a score of 13.2, India is one of the world’s most fiscally unhealthy countries,
ranking well below the world average score of 68.6 and its regional average of
75.3 (Miller et al. 2018).
India is well known for the license-permit-quota “raj” (Hindi for “rule”) that existed
for decades after the nation gained its independence in 1947. Under this system,
government officials approved all production decisions, including types of prod-
ucts, quantities, and prices. Firms could not function without the appropriate
licenses, which were restricted, became a scarce commodity, and were ultimately
sold to manufacturers. Competitive advantage was achieved by purchasing a license
ahead of one’s rivals; even if a firm did not intend to expand production, obtaining
a license ensured that one’s competitors could not do so. The quasi-market system
that evolved was so intricate and dysfunctional that the Indian government began
dismantling it in 1991. Indeed, the early 1990s marked a significant first step in
economic reform and liberalization, although remnants of the old raj mentality still
exist in various parts of the economy (Worstall 2016).
At 20:00 Indian Standard Time on November 8, 2017, India’s Prime Minister,
Narendra Modi, unexpectedly announced that the country’s highest-value 500- and
1000-rupee notes (worth $7.60 and $15.20) would become worthless at midnight.
The move was designed to curtail counterfeiting and black market activity and took
86% of the nation’s currency out of circulation. Panic ensured, as citizens waited in
long lines at banks to dispose of soon-to-be worthless notes. India’s chief economic
advisor, Arvind Subramanian, later acknowledged that the chaos created by the
move to demonetize had several unintended consequences, including a severe short-
term cash shortage and long-term uncertainties about the Indian financial system
(Subramanian 2018). One might give Modi credit for effort, but the move did little
to address the problem, as only about 1% of the notes (14,000 crore or 140 billion
rupees) were actually demonetized.
Despite improvements in business, labor, and monetary freedom, India continues

to score below world averages in all three areas. Its economy is still characterized
by regulatory complexity, bureaucracy, and other factors that complicate business
activity. A key contributing factor to this problem is the change in its subsidy sys-
tem, which now links payments directly with individual bank accounts to “prevent
leakages and enable the authorities to cut out intermediaries,” ostensibly minimiz-
ing the opportunity for mismanagement. However, India’s sizable informal econ-
omy creates regulatory challenges as well. While government intervention in the
informal labor market (by definition) does not occur, its existence still undermines
India’s labor freedom because the accompanying lack of reliable information makes
measuring the conditions of the market virtually impossible (Miller et al. 2018).
Market Freedom
The combined value of India’s exports and imports is roughly equal to 40% of the
country’s GDP. Despite trade being an important part of India’s economy, the nation
falls short of the world average in all trade-related categories—trade freedom,
investment freedom, and financial freedom. With an average applied tariff of 6.3%
and additional nontariff barriers that significantly obstruct trade, India’s Index score
for trade freedom is 72.2, which is considered mostly free (Miller et al. 2018).
With SOEs dominating both the financial and banking sectors, India’s invest-
ment and financial freedom earn Index scores of only 40, and foreign investment in
the Indian economy is severely inhibited. India’s public-sector banks are also lit-
tered with malinvestments, with troubled assets accounting for about 10% of the
total (Miller et al. 2018). Overall, the nation’s lack of investment and financial free-
dom make it difficult for both potential foreign investors and Indian entrepreneurs
seeking capital required for business development. Progress has been made but is
difficult. As Arvind Subramanian put it, India has transitioned from crony socialism
to stigmatized capitalism (Subramanian 2018).
Nonmarket Strategy: India
Vestiges of colonialism, the license raj, a state-controlled banking system, and past
cronyism have created a complex environment for firms in the private sector. Those
seeking profit through market activity are faced with economic and political uncer-
tainty and rivals with political connections. The problems they face are not just
about the acceptance of free enterprise, but about ethical standards and a govern-
ment infrastructure conducive to open, free exchange. Toward this end, a number of
private firms have taken steps to improve the business environment in India. Large
corporations in India and South Asia have “teamed up” with the Ethisphere Institute
to develop a strategy to eliminate corruption and promote more ethical business
Nonmarket Strategy: India 69
practices. This step is an apparent response to the failure of the Indian government’s
efforts to reduce corruption by banning high-note bills (DiPietro 2017).
Taxes and other forms of regulation continue to represent challenges. For exam-
ple, the Indian government has set ambitious targets for expanding solar capacity
throughout the country. However, solar manufacturers in India have publicly
expressed their frustration with the Indian government’s new national goods and
services tax, which will drive up the price of some of their factors of production.
Indeed, manufacturers in the solar industry are taxed at a higher rate than their coun-
terparts in the coal industry (Stacey 2017).
Fraud is a constant concern as well. Consider the case of Vijay Mallya, a well-
known Indian liquor tycoon. Mallya was accused of financial misconduct in 2017
for allegedly obtaining large loans from government-owned banks with no intention
of repaying them. While Mallya denied any wrongdoing, he is embroiled in a broad
government crackdown on bad debts accumulated by state-owned Indian banks.
According to an Indian government representative, Mallya’s business could not sus-
tain huge losses, so he used his political power to obtain large loans to subsidize his
flamboyant lifestyle (Croft 2017).
Other banking scandals are common as well. In early 2018, Nirav Modi, who
is in no way related to Prime Minister Modi, was accused of defrauding state-
owned Punjab National Bank of $1.8 billion through fraudulent bank guarantees
for his business. With jewelry stores located in New Delhi, New York, London,
Hong Kong, and elsewhere, Modi’s net worth is also estimated to be $1.8 billion
(Dhume 2018).
The ongoing Mallya and Modi dramas point to a serious problem in India—a
politically charged, largely state-owned banking system. Prime Minister Indira
Gandhi nationalized 14 banks in 1969 and India began allowing some private banks
in 1993, but 70% of the industry remains controlled by the state. Whereas private
banks evaluate risks and returns before engaging in loan or other activity, state-
owned banks are directed by politicians whose interests are at a minimum, much
broader than financial. Moreover, most state-owned Indian banks are in dire shape.
Despite receiving $23 billion in government bailouts between 2015 and 2017, the
combined market capitalization of the country’s 21 state-owned banks is currently
less than the largest private lender, HDFC. A state-controlled banking system
requires companies in need of financing to pursue political favors rather than
enhance the viability of their proposed projects (Dhume 2018).
Joint ventures are common in India, especially when foreign firms seek market
entry. In 2015, General Electric secured a $2.5 billion contract with the Indian gov-
ernment to build a railway system through the Indian countryside. The Indian gov-
ernment later decided to pursue electric trains instead but decided to retain the
contract to avoid a payout and permit its partner to provide diesel trains instead. The
first 40 locomotives were imported from the USA, but GE agreed to produce the
remaining 960 in India (Thomas Gryta and Roy 2017).
Economic advances notwithstanding, industrial development is taking a toll
on India. The 855-mile Yamuna River is a replete with pollution. In Delhi, the
river is “black and nearly motionless, covered in many areas with a foam of
industrial chemicals, floating plastic and human waste” (Pokharel and Rana
2017). The fecal coliform bacteria content is 22 million per 100 ml; 500 is the
standard for safe b athing. Reports of brain worms and diarrhea are common.
Indian courts have ordered the closings of dozens of Delhi factories because of
pollution to the Yamuna River, but many business owners claim the effort makes
it impossible to compete with firms in China and elsewhere. Money is always a
factor, but critics charge that a government bureaucracy comprised of more than
a dozen federal, state, and local entities is to blame for the slow cleanup (Pokharel
and Rana 2017).
In sum, the Indian nonmarket context is multifaceted and complex. Business
firms cannot simply pursue profits through market activity. They must navigate a
labyrinth of government regulations, economic uncertainty, social problems, and a
view shared by many Indians that capitalism is a breeding ground for cronyism.
India Data
Managers representing 249 firms in India were surveyed. Preliminary tests

supported reliabilities, convergent validity, and discriminant validity for constructs
in all three models tested. The results are summarized in Tables 6.2, 6.3, 6.4, 6.5,
6.6, and 6.7. The composite model is presented in Fig. 6.1.
Several factors stand out in the composite model. First, technology capabili-
ties represented a significant driver of cost leadership, but not of differentiation.
Effect size (f2 values) was small (0.044). As an emerging economy, India contains
numerous firms that compete primarily on the basis of costs. The technology-cost
Table 6.2 Assessment of India model—strategic capabilities and strategy

loadings
India Data 71
Table 6.3 India model—strategic capabilities and strategy

India-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap → cost lead −0.001 0.008 0.102 0.005 0.996 0.000
Mgt cap → differentiation −0.216 −0.218 0.117 1.856 0.064 0.017
Mkt-link cap → 0.235 0.235 0.087 2.702 0.007 0.033
differentiation
Mkt-link cap → 0.336 0.325 0.109 3.075 0.002 0.058
NMS-political
Mkt cap → cost lead 0.304 0.290 0.093 3.265 0.001 0.066
Tech cap → NMS-political −0.128 −0.140 0.125 1.019 0.309 0.005
Tech cap → NMS-social −0.014 −0.024 0.123 0.113 0.910 0.000
Mkt-link cap → 0.277 0.289 0.078 3.538 0.000 0.056
differentiation
Mkt-link cap → 0.426 0.422 0.074 5.767 0.000 0.141
NMS-political
Mkt cap → cost lead 0.306 0.287 0.091 3.358 0.001 0.068
Table 6.4 Assessment of India model—strategy and performance

loadings
Table 6.5 India model—strategy and performance

India-strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Differentiation → fin perf −0.016 −0.011 0.110 0.150 0.881 0.000
NMS-political → non-fin perf 0.010 0.006 0.087 0.115 0.909 0.000
Table 6.6 Assessment of India model—composite

loadings
leadership link underscores the importance of technology and cost containment

among business throughout the developing world.
Second, marketing capabilities were significant drivers of both cost leadership
and differentiation, although effect sizes were small, 0.068 and 0.111, respectively.
However, marketing capabilities did not drive either political or social NMS. These
findings mirror those in the USA, although the links in India are not as strong. As
with other nations, this highlights the importance of marketing to competitive strate-
gies across the board. In the case of India, however, marketing’s prominence in the
NMS arena does not appear to have taken hold.
India Data 73
Table 6.7 India model—composite

India-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mkt-link cap → 0.277 0.285 0.076 3.665 0.000 0.056
differentiation
Mkt-link cap → 0.530 0.540 0.051 10.371 0.000 0.392
NMS-political
Mkt cap → cost lead 0.307 0.298 0.083 3.693 0.000 0.068
In a similar vein, cost leadership was a significant driver of both financial and
non-financial performance, but effect sizes were small, 0.070 and 0.079, respec-
tively. Differentiation did not drive either performance indicator. This was not sur-
prising, giving India’s status as an emerging economy and its reputation for low-cost
technology applications.
Third, market-linking capabilities were significant drivers of all four market and
nonmarket strategies. Effect sizes were small for cost leadership (0.025) and dif-
ferentiation (0.056) but were large for political NMS (0.392) and social NMS
(0.763). Of course, market-linking capabilities have a clear impact on market strat-
egies, but the core, relationship-oriented skills inherent in market-linking capabili-
ties can also foster relationships with nonmarket actors, including government
actors, NGOs, and social activists.
It is tempting to attribute the strong market-linking-NMS link to a culture tied
to vestiges of the license-permit-quota raj that required firms to develop and main-
tain strong connections to governmental entities. While this finding was somewhat
unique to India, it was also common to another country in the study, the USA,
with an opposite tradition. Hence, India and the USA likely arrived at the same
position in different ways. For India, the caste system and high-power distance—
accepted attitudes toward society’s power inequalities—could have laid the foun-
dation for the raj system and an ongoing dependence on political networks.
Finally, social NMS was a significant driver of both financial and non-financial
performance, with moderate (0.175) and small (0.109) effects, respectively.
Political NMS did not drive either performance indicator. This finding highlights
the increased role of social interaction among Indian firms but suggests that politi-
cal involvement does not appear to pay dividends. Moreover, the market-linking
capabilities critical to both NMS dimensions create value through social, not polit-
ical intervention. While government continues to be a major influence in the affairs
of private firms, social NMS is becoming more important.
Fig. 6.1 The India model—composite
In sum, NMS in India is a complex, multifaceted phenomenon. Remnants of the

old license raj cronyism survive alongside a form of capitalism that rewards atten-
tion to markets. The importance of relationship-building skills inherent in market-
linking capabilities in both political and social NMS found in India was also found
in only one other nation in the survey, the USA. Social expectations are increasingly
important; unlike the USA, investments in social NMS appear to drive performance.
These links were found in several other nations in the survey but were the strongest
in India.
Chapter 7
Nonmarket Strategy in Mexico
With a population of over 122 million, Mexico is the world’s tenth largest nation.
The Mexican economy is also one of the largest in the world, due in part to its status
as the USA’s third largest trading partner, with more than $550 billion worth of
goods flowing back and forth across its northern border in 2017 (US Census Bureau
2017). Mexico is at least moderately free; its 2018 score of 64.8 ranks 63 in the
Heritage Index (see Table 7.1). Since the North American Free Trade Agreement
(NAFTA) was signed into law in 1994, the Mexican economy has quadrupled in
size, and the government has passed new reforms to help its firms compete in the
global business environment. Nonetheless, corruption, a bloated public sector, and
strict business regulations ultimately weigh on the country’s business attractiveness
(Miller et al. 2018). Frustration with government ineffetiveness contributed to the
election of leftist Andés Manuel López Obrador to the office of president in 2018.
Rule of Law
Mexico’s most recent Index score for property rights was 58.6. Despite falling into
the mostly unfree category, the country ranks several points above the world aver-
age. Enforcement is a major concern because Mexico has a weak judicial system,
which is reflected in the nation’s judicial effectiveness score of only 39, almost 6
points below the world average. In terms of both property rights and judicial effec-
tiveness, Mexico is considered to be a repressed nation (Miller et al. 2018).
Mexico’s ineffective judiciary is accompanied by a low government integrity
score of only 26.9, well below the Index’s world average of 42.6. This is not surpris-
ing, as bribery and corruption become almost impossible to prevent without an inde-
pendent judiciary committed to government accountability. In fact, one of the

https://doi.org/10.1007/978-3-319-93242-2_7
76 7 Nonmarket Strategy in Mexico
Table 7.1 Assessment of national context—Mexico

Region rank (Americas) 12 −2.00
Trade freedom 88.0 +8.00
Heritage data
Tariff rate 1.0%
Unemployment 4.0%
Inflation 2.8%
Cato human freedom index (2017)
World rank 73
a
A positive change in world or region rank denotes a lower number versus the previous year’s
rank, whereas a positive change in a score denotes a higher number versus the previous year
schools that collapsed during the September 2017 earthquake in Mexico City was
ordered closed on two previous occasions due to safety issues. Sanctions were
imposed following a 2010 inspection, but they were never enforced, and the owners
were allowed to pay a small fine and keep the school open after a subsequent inspec-
tion in 2014 (Montes 2017a).
Market Freedom 77
Government Size
With a tax burden that equates to 17.4% of GDP, including top individual and corpo-
rate tax rates of 35% and 30%, respectively, Mexico achieved an Index score of 75.7,
considered mostly free and slightly below the world average of 77.1. Government
spending and fiscal health scores also rank near the median. Mexico has managed to
avoid some of the catastrophic fiscal situations plaguing Brazil, Venezuela, Ecuador,
and other countries in the region. Overall, its government spending, tax burden, and
fiscal health only moderately restrict economic freedom and do not impose severe
burdens on business activity within its borders (Miller et al. 2018).
Mexico has made significant improvements to its regulatory environment but has
regressed in others. For example, the nation’s deregulation of gasoline and diesel
prices combined with prospects for a government reduction in electricity subsidies
contributed to a monetary freedom score in the Index of 79.2, considered mostly
free and slightly higher than both the region and world averages. On the other hand,
the Mexican government recently increased several fees related to the acquisition of
construction permits, and its business freedom score was downgraded to 67.5.
While still slightly above both regional and world averages, the score in this cate-
gory has declined sharply in recent years after reaching an all-time high of 87.3 in
2011 (Miller et al. 2018).
Despite an increase from 2017 to 2018, Mexico’s labor freedom score barely
exceeds the regional and world Index averages and is considered mostly unfree. The
primary factors contributing to the low score are informal employment and rigid
labor laws, which distort the labor market, prevent wage growth, and generally
undermine productivity (Miller et al. 2018).
Market Freedom
Mexico’s dependence on trade is even greater than NAFTA partners Canada and the
USA, with combined imports and exports accounting for 78% of the nation’s
GDP. Its trade freedom score of 88 earns an Index designation of free, with an envi-
ronment akin to many of the world’s freest economies such as Hong Kong,
Singapore, Switzerland, and the USA. Although Mexico does not rank as high in
investment freedom as it does in trade freedom, its Index score of 75 is still consid-
ered mostly free and significantly higher than the regional and world averages.
Despite low financial freedom, Mexico’s financial sector has become more competi-
tive and open, and its relatively stable banking sector is attracting foreign invest-
ment in a globally competitive industry (Miller et al. 2018).
Following warnings issued in 2017 by the US SEC, Mexican regulators have also
warned citizens about the risks associated with investing or owning cryptocurren-
cies, especially Bitcoin, and are crafting legislation to restrict the activity. Alternative
holdings like cryptocurrencies can be attractive when the domestic currency is not
stable. The value of the peso has declined from about six per US dollar following
the last official devaluation in 1994 to over 20 following President Trump’s election
in late 2016 (Webber 2017a).
Overall, Mexico’s economy is relatively free, but the lack of judicial effectiveness
and government integrity undermines the protection of property rights and creates
opportunities for corruption. In most other areas, Mexico’s economy is at least mod-
erately free and appears to be trending in the right direction (Miller et al. 2018).
Nonmarket Strategy: Mexico
The Mexican business context is heavily influenced by both a broader Latin

American culture and its northern neighbor and key trading partner, the
USA. Dynamic blends of economic uncertainty, capitalism, socialism, cronyism,
and corruption are common across Latin America’s developing and emerging
nations. Both the historical bedrock of capitalism and the more recent trend toward
social responsibility inherent in the USA have infiltrated Mexico as well, especially
through firms anchored in cross-border trade. Mexico’s approaches to market and
nonmarket activity are also heavily influenced by the Catholic Church, which at
times has promoted both the individual freedom integral to free enterprise and a
view of social justice more consistent with socialism. In general, these trends sup-
port a greater role for NMS in both political and social dimensions.
On the political side, corruption costs the Mexico an estimated $47 billion annu-
ally, about 5% of its GDP (Montes and de Córdoba 2017). The longstanding preva-
lence of corruption and cronyism in Mexico has created opportunities for individuals
and firms to develop and leverage political connections. A recent tragedy illustrates
this phenomenon well. Earthquakes devastated Mexico City on September 19,
2017, with hundreds killed by collapsing buildings. Many of these structures were
in violation of building codes at the time, but local officials failed to identify or
report any problems before the earthquakes (Dudley Althaus 2017). A school that
collapsed during the calamity had been ordered closed because of construction
problems on the fourth floor where the principal lived. In 2010 and in 2014, the poor
construction was deemed too dangerous to allow the school to continue to run, but
it remained in operation (Montes 2017a). Hence, the school collapse was not due to
a lack of regulations, but instead to a lack of enforcement linked to corruption.
While there is always a risk of backlash, this type of environment often rewards
NMS is the most negative sense of the term.
A similar pattern can be seen with the dealings of Brazilian construction
company, Odebrecht. Mexican authorities recently launched an investigation into
Nonmarket Strategy: Mexico 79
the firm in 2017. Former company officials have since testified that Odebrecht paid
$10 million in bribes to one of the Mexican President Enrique Peña Nieto’s top
campaign officials, Emilio Lozoya, including $4 million in 2012 when Peña Nieto
was elected president. Lozoya received the rest when he became head of state-
owned Petróleos Mexicanos (Pemex), a position he held until 2016. Odebrecht
won at least $1.5 billion in contracts with Pemex while Lozoya was in power,
although the firm secured only one $317 million contract with Pemex during the
previous decade. Prosecutor Santiago Nieto, who is in no way related to President
Peña Nieto, claims that another government official offered him money to step
aside and remain quiet about the investigation, but he refused (Montes 2017b).
According to Nieto, “I was an annoying prosecutor for the government and they
wanted me out” (Montes 2018).
Nonprofit organizations have emerged in Mexico to fight this type of government-
business corruption. One such entity, Mexicans Against Corruption and Impunity,
has exposed more than 20 instances of alleged high-profile corruption, including
work on the Odebrecht case. Its president, Claudio X. González, claims to have
received a threatening telephone call from an official linked to President Peña Nieto
shortly after he delivered a speech critical of the president. A month later, govern-
ment tax and labor auditors launched an official investigation into González and
four nonprofits he previously ran. An investigation into Mexicans Against Corruption
had already started 2 months earlier. A spokesperson for President Peña Nieto said
the president was not aware of the call.
These stories of corruption suggest that political NMS in Mexico if often infor-
mal and involves illegal activity. Political influence is a competitive enterprise, so a
firm seeking to gain influence through formal means such as offering political sup-
port or negotiating with regulators can easily be outflanked by a rival willing to offer
a bribe in return for concrete action.
On the social side, concerns about issues such as poverty among Mexico’s work-
ing poor has spawned interest in ways business firms can help solve some of the
nation’s social ills. Consider that Mexico raised its minimum wage in 2017 from
80.04 to 88.36 pesos (about 4.25– 4.70 USD) per day; about 25 million Mexicans
are employed in one or more minimum wage jobs. Coparmex, a group representing
businesses that account for about one third of Mexico’s GDP, argued that the
roughly 10% increase was insufficient, noting that the minimum wage still pro-
duces a standard of living well below the poverty line. Although populist social
positions among business firms are not uncommon in Mexico, it is counterintuitive
that some employers were arguing for a greater increase to a mandated wage floor
(Webber 2017b).
Although increasing in prominence, the emphasis on social NMS appears to be
taking a back seat to political concerns. Arguably, corruption and cronyism represent
a much more serious and costly foe. Increasing government accountability and trust
will reduce incentives for firms to engage in unscrupulous political behavior, which
could also entice firms to shift their nonmarket attention to the social arena.
Mexico Data
Managers representing 249 firms in Mexico were surveyed. Preliminary tests

in all three models tested but with several exceptions. Six items—three in the mar-
keting capabilities scale and three in the market-linking scale—loaded below the
0.700 threshold and were eliminated from the analysis. Although only three items
remained in both scales, coefficient alpha scores exceeded 0.700. The results are
summarized in Tables 7.2, 7.3, 7.4, 7.5, 7.6 and 7.7. The composite model is pre-
sented in Fig. 7.1.
Numerous factors in the composite model are noteworthy. First, technology
capabilities were significant drivers of both cost leadership and differentiation,
although effect sizes (0.116 and 0.057, respectively) were small. Moreover, both
marketing and market-linking capabilities were substantial drivers of both cost lead-
ership and differentiation strategies, but effect sizes were small as well, ranging
from 0.047 to 0.101. These links are not surprising, although one might expect a
stronger link between marketing capabilities and differentiation. They also suggest
a degree of maturation within Mexican markets.
Second, market-linking capabilities were substantial drivers of political NMS,
with an effect size (0.130) approaching the moderate category. No other capabilities
were drivers of political NMS. This link reflects the ongoing importance of political
connections previously discussed. It also mirrors findings in India and the USA,
Table 7.2 Assessment of Mexico model—strategic capabilities and strategy

Discriminant validity: inter-factor No Mktcap4, Mktcap5, Mktcap6, Linkcap1,
loadings > intra-factor loadings Linkcap2, and Linkcap4 were eliminated
because of substantial cross-loadings
Discriminant validity: Yes
Fornell-Larcker matrix
Mexico Data 81
Table 7.3 Mexico model—strategic capabilities and strategy

Mexico- cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap -> cost lead −0.061 −0.047 0.100 0.606 0.545 0.003
Mgt cap -> differentiation 0.149 0.157 0.093 1.603 0.110 0.016
Mgt cap -> NMS-political 0.114 0.131 0.107 1.064 0.288 0.006
Mgt cap -> NMS-social 0.183 0.197 0.096 1.906 0.057 0.018
Mkt-link cap -> cost lead 0.247 0.235 0.087 2.834 0.005 0.053
Mkt-link cap -> differentiation 0.166 0.161 0.082 2.010 0.045 0.024
Mkt-link cap -> NMS-political 0.186 0.173 0.111 1.683 0.093 0.020
Mkt-link cap -> NMS-social 0.165 0.157 0.095 1.744 0.082 0.017
Mkt cap -> cost lead 0.174 0.166 0.077 2.257 0.024 0.030
Mkt cap -> differentiation 0.296 0.292 0.070 4.242 0.000 0.087
Mkt cap -> NMS-political 0.100 0.108 0.087 1.157 0.248 0.006
Mkt cap -> NMS-social 0.203 0.206 0.082 2.494 0.013 0.030
Tech cap -> cost lead 0.396 0.402 0.086 4.597 0.000 0.107
Tech cap -> differentiation 0.172 0.173 0.094 1.831 0.068 0.020
Tech cap -> NMS-political 0.050 0.042 0.107 0.464 0.643 0.001
Tech cap -> NMS-social 0.027 0.026 0.093 0.286 0.775 0.000
Mkt cap -> cost lead 0.165 0.161 0.073 2.253 0.025 0.028
reinforcing the importance of relationship-building skills to both market and non-

market entities.
Third, marketing and management capabilities were substantial drivers of social
NMS, but effect sizes were small, 0.058 and 0.064, respectively. As demonstrated in
the UK, marketing is a key part of campaigns that support social NMS (Krasnikov
and Jayachandran 2008; Morgan et al. 2009; Ngo and O’Cass 2012; Oliver and
Holzinger 2008; Wilden and Gudergan 2015). The importance of management
capabilities is intriguing and was also found in China and Ghana, nations also with
less than fully developed economies.
Fourth, both cost leadership and differentiation were substantial drivers of
both financial and non-financial performance, but effect sizes were small, ranging
from 0.030 to 0.073. Positive strategy-performance links replicate decades of
research on the topic (Dess and Davis 1984; Gopalakrishna and Subramanian
2001; Murray 1988).
Table 7.4 Assessment of Mexico model—strategy and performance

Discriminant validity: Fornell-Larcker Yes
matrix
R2 refined model—financial 0.322 R2 (adjusted) = 0.314
performance
R2 refined model—non-financial 0.288 R2 (adjusted) = 0.279
performance
Table 7.5 Mexico model—strategy and performance

Mexico- strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Cost lead -> fin perf 0.202 0.200 0.078 2.593 0.010 0.029
Cost lead -> non-fin perf 0.303 0.313 0.088 3.430 0.001 0.062
Differentiation -> fin perf 0.211 0.214 0.078 2.727 0.007 0.029
Differentiation -> non-fin perf 0.190 0.190 0.085 2.235 0.026 0.023
NMS-political -> fin perf 0.259 0.264 0.092 2.825 0.005 0.035
NMS-political -> non-fin perf −0.080 −0.081 0.108 0.746 0.456 0.003
NMS-social -> fin perf 0.039 0.038 0.099 0.392 0.696 0.001
NMS-social -> non-fin perf 0.197 0.195 0.120 1.643 0.101 0.017
Fifth, political NMS was a substantial driver of financial performance (f2 = 0.099),

a finding that underscores recent scholarship (Mellahi et al. 2016b). However, polit-
ical NMS was not a significant driver of non-financial performance. Indeed, politi-
cal involvement has long since been accepted in Mexico and other emerging
economies fraught with corruption. This finding suggests that such activity can pro-
vide a direct financial payout. A similar link was also identified in three other
Mexico Data 83
Table 7.6 Assessment of Mexico model—composite

matrix
Table 7.7 Mexico model—composite

Mexico- composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mkt cap -> cost lead 0.173 0.171 0.073 2.355 0.019 0.031
nations, but the effect size among Mexican firms was the strongest. As Mexico
continues to develop and its government emphasizes partnerships with private firms,
the nexus between political NMS and market strategy is likely to strengthen (Doh
et al. 2012; Henisz and Zelner 2012; Kingsley et al. 2012; Sawant 2012; Meyer and
Peng 2016; Brito-Bigott et al. 2008), insomuch that CPA is required to enhance
competitiveness (Iriyama et al. 2016). Of course, the survey items on political NMS
Fig. 7.1 The Mexico model—composite
were not designed to address illegal activity; honest responses to such items would
not have been likely anyway. The data does not suggest the extent to which an
informal, illegal form of political NMS is employed and rewarded financially, but
anecdotal evidence suggests that such a link may be even stronger than the (formal)
political NMS-financial performance nexus.
Finally, as with the USA, social NMS was a substantial driver of neither financial
nor non-financial performance. This did not reinforce recent research supporting a
link (Charles et al. 2016; Lins et al. 2017; Lu et al. 2013; Price and Sun 2017), but
is not surprising given the Mexican economy’s emerging status. Indeed, firm perfor-
mance in Mexico appears to be a combination of a traditional market orientation
and political connectedness. Social NMS is becoming more important but is not yet
a significant performance driver.
Mexico Data 85
In sum, cronyism persists in Mexico, as demonstrated by the direct link

between political NMS and performance. But the nation’s burgeoning trade with
the USA and other nations has promoted an emphasis on market strategy. The
data underscore the performance implications of both cost leadership and differ-
entiation. Social NMS is likely to become more important, but business practice
in Mexico also hinges on the country’s trade relationship with its neighbor to the
north, the USA. The election of Andés Manuel López Obrador as president in
2018 suggests greater government regulation of business activity.
Chapter 8
Nonmarket Strategy in Venezuela
Once a resource-rich nation with a strong cultural identity, Venezuela seemed poised
to compete with the world’s most prolific economic powers in the global economy.
But the election of Hugo Chávez in 1998 initiated an erosion of the nation’s demo-
cratic institutions. Many of the nation’s industries have since been nationalized, and
Venezuela is now mired in the worst economic contraction ever recorded. Official
statistics suggest a 4.2% annual economic decline compounded over the last 5 years
and inflation of at least 254%. Internal economic data is unreliable at best and fraudu-
lent at worst; anecdotal evidence suggests that the situation is much worse, with docu-
mented severe shortages in the supply of food and other basic goods (Miller et al.
2018). Mid-2018 estimates suggested an annual inflation rate in excess of 10,000%.
Venezuela’s economic disaster is closely tied to its decline in economic freedom (see
Table 8.1). The Heritage Index ranks Venezuela’s economy the second-least free with a
score of 25.2, topping only North Korea. Although Venezuela has the world’s largest
proven oil reserves, its state-owned oil company is hemorrhaging with corruption, and
the government has effectively squandered the nation’s most precious economic
resource. Chávez’s rule came to an end in 2013, but the current regime headed by
Nicolás Maduro seems unwilling to enact much-needed reforms and has little regard for
the rule of law, fiscal responsibility, responsible regulation, or any sense of market free-
dom (Miller et al. 2018). Maduro was reelected president in 2018, although the opposi-
tion largely boycotted the election amid widespread evidence of fraud and corruption.
Rule of Law
Due to years of price controls, overregulation, nationalizations, and outright expro-

priation, property rights in Venezuela are virtually nonexistent. The nation’s prop-
erty rights score of 5.2 is tied for last in the Index and has declined more than 40

https://doi.org/10.1007/978-3-319-93242-2_8
88 8 Nonmarket Strategy in Venezuela
Table 8.1 Assessment of national context—Venezuela

World rank 179 No change
Region rank (Americas) 32 No change
Overall score 25.2 −1.76
Labor freedom 24.2 −4.30
Monetary freedom 0.0 n/a
Heritage data
Tariff rate 10.7%
GDP growth rate −5.7%
5-year GDP growth rate −4.2%
Unemployment 6.9%
Inflation 254.9%
FDI inflow (millions) $1772
World rank 158
a
Government Size 89
points since the turn of the century. Indeed, the Chávez and Maduro regimes have
nationalized more than 1400 businesses and private assets following their ascension
to power in 1999, including such household names as Clorox, Kimberly-Clark,
ExxonMobil, and ConocoPhillips (Kurmanaev and Vyas 2017). Venezuelan author-
ities expropriated General Motors’ plant in Carabobo in 2017, claiming the seizure
was a private matter between GM and a former dealer that sued the company for
$370 million over a contract dispute. The 2700 laid-off employees were being paid
by GM even though the plant had not actually produced any cars for 2 years due to
the government’s hard currency restrictions.
The state-owned enterprises (SOEs) created from the expropriations have largely
failed due to corruption or a lack of market orientation. Nonprofit watchdog
Transparency International identified 511 companies wholly or majority-owned by
the Venezuela government, over 70% of which were losing money in 2017 (Wyss
2017). Although most businesses in Venezuela have been nationalized, the small
number of private firms remaining are under constant government pressure and can
be seized at any moment if they are deemed to be less than fully committed to the
regime’s revolutionary goals. Essentially, the Maduro regime has uninhibited
authority to write law, enforce it, and stand in judgment when private claims are
initiated. The judiciary is highly politicized with decisions in all courts ultimately
made by politicians (Miller et al. 2018).
The government’s unchecked power to seize property and act as its own judiciary
constitutes a lack of accountability as underscored by Venezuela’s government
integrity score of only 7.5—by far the lowest in the Index (Miller et al. 2018). Issues
with PDVSA, the nation’s state-owned oil company, exemplifies the corruption that
has become commonplace and has destroyed government credibility. Shortly after
government officials launched what they called a crackdown on corruption in 2017,
two high-ranking PDVSA ministers were arrested on charges that they intended to
steal and resell oil from one of the nation’s oil fields (Kurmanaev 2017). President
Maduro immediately appointed a trusted general with no industry experience to run
the company, bolstering his critics’ claims that the government has ulterior motives
(Kurmanaev 2017). While it is difficult to identify precisely where the corruption
lies and who should be prosecuted, allegations such as these are common in
Venezuela and have become the norm with PDVSA.
Government Size
Venezuela’s government spending score of 57.3 is below the world average of 64.9
and places the country in the mostly unfree category. The country’s tax burden score
of 72.5 falls just a few points below the Index’s world average of 77.1. Venezuela
actually scores well in the government spending and tax burden subcategories and
would rank closely to the Western European social democracies in the government
size category, except for its fiscal health score of 18.4, considered deeply repressed
(Miller et al. 2018). Venezuela’s political instability and severe economic collapse
has created investor anxiety for years. In late 2017, President Maduro acknowl-
edged a state of bankruptcy and began restructuring the nation’s debts (Wigglesworth
2017). While this move could be seen as a step in the direction of fiscal responsibil-
ity, it is likely best understood and the only option available. A recovery through
bankruptcy is hardly feasible when a nation lacks the fundamentals of freedom and
a sound economy.
Venezuela’s regulatory environment is characterized by a lack of transparency and

an arbitrary, heavily regulated business regime. The country’s business freedom
score of 35.4 has declined nearly 50 points since 1995 from a leading position to the
repressed category and currently hovers about 30 points below the Index’s world
average (Miller et al. 2018). Combined with its nearly unprecedented economic col-
lapse, Venezuela’s lack of business freedom makes the country unattractive for
investors and aspiring entrepreneurs. Few are willing to accept the obvious risk.
Venezuela’s labor freedom ranking of 24.2 also falls well below the world aver-
age. The country’s labor market is characterized by extensive government controls
that make job growth virtually impossible. Moreover, Venezuela’s monetary free-
dom ranking of zero can be explained by extreme and abundant price controls com-
bined with hyperinflation, which has destroyed the value of the nation’s currency,
the Bolívar (Miller et al. 2018).
Market Freedom
Despite a heavy reliance on trade, which accounts for roughly 54% of the nation’s
economy, Venezuela’s applied tariff rate of 10.7% coupled with nontariff barriers
creates substantial impediments and gives the country an Index score of 58.7 in
trade freedom, well below the world average of 76.4. The country’s investment free-
dom score of zero effectively isolates the country from foreign investment, a key
contributor to Venezuela’s ongoing economic crisis. Venezuela’s financial sector is
heavily state-controlled and politicized lending practices contribute to an Index
score of only 10 in financial freedom. The nation’s financial freedom has declined
sharply since 1995, when its score of 70 in that category was considered moderately
or mostly free (Miller et al. 2018).
Nonmarket Strategy: Venezuela
Corruption in Venezuela has been widespread since Hugo Chávez came to power in
1998. From the state oil company’s $2.3 billion dollars in spending on food
imports—only a quarter of which ever made it to the country—to the $300 billion
Nonmarket Strategy: Venezuela 91
that was stolen or misappropriated during the oil price boom a decade ago, stories
of corruption, bribery, and scandal in the country continue to surface. While
Venezuelans lost an average of about 20 pounds of body weight in 2016, many
members of the political class and its cronies have accumulated enormous fortunes
(Rathbone 2017).
Data issued by the Venezuelan government is incomplete and unreliable at best,
deceptive at worst. For example, a 68% inflation rate was officially reported at the
end of 2014, but personal experience tells a different story. Venezuela-born and
Miami-based financial analyst Miguel Octavio frequently travels to Caracas and
always dines on a popular local favorite, arepas, at the same restaurant. Between
November 2014 and May 2015, Octavio tracked the price of an arepa with cheese
and estimated an inflation rate in the 1000% range. Even conservative estimates at
the time were closer to 200%, compared to rates around 9% in neighboring Uruguay
and Brazil (Vyas 2015).
The Venezuelan labyrinth of exchange rates launched (and subsequently modi-
fied) in the 2010s created uncertainty and stifle productivity. Price controls on sta-
ples, fixed exchange rates based on industry that favored essentials such as food and
medicine, and frequent currency devaluations sparked a healthy and lucrative black
market. Production and asset valuation decisions are largely guesswork (Murphy
2014). The government has accumulated debt and inflated the nation’s currency
throughout the 2010s, resulting in constant interventions to fix exchange rates and
crack down on black market alternatives like Bitcoin. Depending on the type of
business and its favorability in the eyes of the regime, a firm could be subject to a
different exchange rate; government rates were officially unified in 2018, but most
trades for hard currency occur on the black market anyway. As the government con-
tinues to manipulate exchange markets, companies face write-downs and investors
have lost enormous sums (Willhite 2014).
Instances of government harassment of business during the Chávez regime are
legion. Consider the case of Vicente Lecuna. In the early 2000s, he produced about
10,000 tons of sugarcane each year, but squatters seized about half of his 3000-acre
ranch in 2005 and set up a cooperative named Refounding the Fatherland. Instead
of evicting them, the Chávez government provided them with loans and tractors.
The squatters uprooted the sugarcane and attempted to grow plantains instead.
Lacuna’s remaining land was insufficient capital for a bank loan, so he had to put up
an office building in Caracas as collateral, but state-owned banks would not lend
him money anyway because he owned more than 100 acres. The tragic irony is that
Lacuna’s lost acreage was not officially expropriated, so he was not compensated,
even minimally, and he could not put the land to agricultural use either (de Córdoba
2007). The land remains his, but he could not control its use.
Venezuelan corruption impacts other nations as well, including the America’s
economic power, the USA. The former deputy Venezuelan energy minister was
arrested in 2017 under a US warrant for his involvement in a scheme that involved
conspiring to pay bribes in exchange for contracts to build power generators for
Venezuela’s state-run oil company, PDVSA, a violation of the Foreign Corrupt
Practices Act (Venezuelan ex-official detained in spain on U.S. Warrant 2017).
Interestingly, US bank Goldman Sachs was subject to intense domestic and foreign
criticism after purchasing over $850 million worth of bonds from PDVSA in 2017.
Goldman saw a profit opportunity, but the opposition party in Venezuela argued that
the payment helped finance the dictatorial regime because ultimately, the Venezuelan
central bank was the recipient of the company’s payment. Activists protested out-
side the company’s New York headquarters, and US Senator Marco Rubio publicly
expressed his support for the protests (Robin Wigglesworth 2017).
In early 2017, in a desperate attempt to regain financial footing amidst the col-
lapse of the Bolívar, the government issued its own version of cryptocurrency, the
petro, backed by the nation’s oil reserves. The government and PDVSA supported
the scheme enthusiastically, but there have been many critics since the launch. As
Venezuelan legislator Jorge Millán put it, “This isn’t a cryptocurrency, this is a for-
ward sale of Venezuelan oil. It is tailor-made for corruption” (Samson 2018).
The socialist catastrophe in Venezuela extends beyond economics and corruption to
torture and murder. According to Luisa Ortega, a former Venezuelan attorney general
and avowed socialist who escaped the regime to Columbia, 8292 people have been
killed by the police, the army, the National Guard, and Venezuela’s version of the
FBI. The government killings are part of self-declared counter-offensive against crime,
which arguably exists because of ongoing destitution. According to Ortega, the gov-
ernment lacks a legitimate judicial system to try suspected criminals, so it simply kills
them instead. Families of Victims Committee (Cofavic), a human rights group based
in Caracas, tallied 6385 extrajudicial executions between 2012 and early 2018 as part
of what it calls “legally unwarranted social cleansing” (Forero and Castro 2018).
The ongoing violence and insecurity in Venezuela is directly connected to the
nation’s economic despair. In the oil-rich northwest region of the country, rigs are in
disrepair, workers who are still employed earn a fraction of their previous wages,
and pirates roam at night, stealing whatever they can to sell as scrap (Kurmanaev
and Urdaneta 2018). Much of the crime that government officials claim to be bru-
tally fighting was created by severe economic conditions and the malnutrition and
related hardships that ensued. This cycle of corruption and crime is in a downward
spiral; some activists are seeking peaceful reform, but others warn that change will
only occur through bloody regime change.
As seen with Mexico, some forms of corruption emanate directly from nonmarket
intervention by firms, while other forms created a breeding ground for NMS. This is
true to an extent in Venezuela, but the complete lack of governmental trust and account-
ability makes it difficult for any privately held firm to maintain favor with government
officials over time. Privately held domestic firms struggle to survive. Most foreign com-
panies smothered by government controls are not profitable anyway; those that remain
in Venezuela do so in hope of a regime change. Foreign firms with profitable operations
in Venezuela are exceptions to the rule, but their financial performance makes them
constant targets for expropriation. State-owned enterprises are not merely owned by
government but are used as pawns to implement the state’s social and political agenda.
In this respect, NMS—especially in the political domain—looks very different in
Venezuela when compared to other countries in the region and across the world.
Venezuela Data 93
Venezuela Data
Managers representing 256 firms in Venezuela were surveyed. Preliminary tests

in all three models tested. Item five in the political NMS scale produced a loading
of 0.685, slightly below the 0.700 threshold, but was retained for consistency. The
results are summarized in Tables 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7. The composite model
is presented in Fig. 8.1.
Multiple factors in the composite model warrant further discussion. First, links
between capabilities and market strategies were not surprising. Market-linking
capabilities were a substantial driver of cost leadership, although the effect size was
small (0.050). Technology capabilities were substantial drivers of both cost leader-
ship and differentiation but also with small effect sizes, 0.084 and 0.095, respec-
tively. Marketing capabilities were substantial drivers of differentiation (f2 = 0.097),
but not of cost leadership. This broad link between capabilities and strategy rein-
forces a wide range of earlier research (Cacciolatti and Lee 2016; Teece et al. 2016).
Table 8.2 Assessment of Venezuela model—strategic capabilities and strategy

Discriminant validity: inter-factor loadings > intra- Yes
factor loadings
R2 refined model—NMS-political n/a No significant links
Second, marketing capabilities were substantial drivers of social NMS—with a

moderate effect size of 0.156—but not of political NMS. Marketing is integral to
effective campaigns that promote CSR (Krasnikov and Jayachandran 2008;
Table 8.3 Venezuela model—strategic capabilities and strategy

Venezuela- cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap -> cost lead 0.081 0.083 0.097 0.838 0.402 0.003
Mgt cap -> differentiation −0.014 −0.014 0.094 0.151 0.880 0.000
Mgt cap -> NMS-political −0.006 −0.005 0.128 0.047 0.962 0.000
Mgt cap -> NMS-social −0.003 −0.003 0.123 0.021 0.983 0.000
Mkt-link cap -> NMS-political −0.113 −0.105 0.143 0.791 0.429 0.005
Mkt-link cap -> NMS-social −0.043 −0.045 0.117 0.364 0.716 0.001
Mkt cap -> cost lead 0.093 0.094 0.079 1.182 0.238 0.005
Table 8.4 Assessment of Venezuela model—strategy and performance

Factor loadings >0.70 Yes, with one Range 0.685–0.852 (NMSP5
matrix
performance
performance
Venezuela Data 95
Table 8.5 Venezuela model—strategy and performance

Venezuela- strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
NMS-political -> fin perf −0.015 −0.002 0.093 0.162 0.871 0.000
NMS-political -> non-fin perf −0.003 0.009 0.078 0.043 0.966 0.000
Table 8.6 Assessment of Venezuela model—composite

loadings
R2—NMS-political n/a
Morgan et al. 2009; Ngo and O’Cass 2012; Oliver and Holzinger 2008; Wilden and
Gudergan 2015). However, social NMS was linked to non-financial performance
with a very small effect size (0.021), but not to financial performance. Hence, the
path from marketing to performance does not seem to go through NMS.
Third, like Mexico, both cost leadership and differentiation were substantial
drivers of both financial and non-financial performance, but effect sizes were small,
ranging from 0.030 to 0.104. Positive strategy-performance links replicate substan-
tial cross-national scholarship on the topic (Dess and Davis 1984; Gopalakrishna
and Subramanian 2001; Murray 1988).
Table 8.7 Venezuela model—composite

Venezuela- composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Fig. 8.1 The Venezuela model—composite

Venezuela Data 97
Finally, political NMS was a substantial driver of neither financial nor non-
financial performance. When interpreted in concert with the previous discussion on
social NMS, it appears that NMS had no bearing on financial performance in
Venezuela, and only a minor influence on non-financial performance. This finding
should be understood within the Venezuelan context. Both privately held firms and
SOEs appear unable to craft nonmarket strategies that drive performance. The heavy
hand of government leaves little room for business firms to negotiate, so political
involvement is reduced from strategy to compliance.
In sum, Venezuela is an anomaly among nations addressed in this book.
Government control and corruption are dominant forces. Interestingly, capabilities
and strategies appeared to be better predictors of non-financial performance, with R2
values of 0.390 and 0.393, respectively, than of financial performance, with values
of 0.238 and 0.242, respectively. This finding should also be understood within the
context of recent economic and political turmoil in Venezuela. Economic returns
have been difficult to achieve, as government controls appear to reduce the ability
of firms to generate profits. This is a critical problem for the Venezuelan economy,
as financial returns are necessary for investment and ultimately, economic
recovery.
Chapter 9
Nonmarket Strategy in Egypt
With over 90 million inhabitants, Egypt is the world’s fourteenth most populous
country (World Bank 2016b). President Hosni Mubarak ruled the nation from 1981
until December 2010, when a broad political uprising known as the Arab Spring
commenced, followed by an Egyptian revolution in January 2011. Mubarak stepped
down the following month and was replaced by Mohamed Morsi until he was ousted
in July 2013. Abdel Fattah el-Sisi replaced Morsi as de facto president and was
formally elected in 2014. Hence, the political stability associated with the Mubarak
regime during the 1980s, 1990s, and 2000s has been replaced with a blend of tur-
moil, uncertainty, and cautious optimism during the 2010s.
Egypt’s massive population notwithstanding, its overall GDP is comparable to
much smaller nations like Norway, Denmark, the United Arab Emirates (UAE), and
Israel (World Bank 2016a), and the Heritage assessment has identified numerous
concerns. Overall, the Index ranks Egypt 139 in the world with a score of 53.4—11
among 14 nations in the Middle East North Africa (MENA) region—and the nation
is considered mostly unfree (see Table 9.1). Egypt’s economic freedom score is
undermined by political instability, a weak rule of law, massive public debt, and a
relative lack of labor and financial freedom (Miller et al. 2018).
Rule of Law
Egypt has a longstanding negative reputation regarding the arbitrary use of political
power. The World Justice Project ranked Egypt 110 out of 113 nations in its 2017
report on perceptions about rule of law (Albawaba 2018). With a property rights
score of 32.7, the nation ranks well below the world average and is significantly
worse off than most of its MENA neighbors. Egypt’s property rights score is

https://doi.org/10.1007/978-3-319-93242-2_9
100 9 Nonmarket Strategy in Egypt
Table 9.1 Assessment of national context—Egypt

Region rank (MENAb) 11 −1.00
Judicial effectiveness 52.5 −3.84
Fiscal health 1.2 −3.43
Financial freedom 50 +10.00
Heritage data
Tariff rate 7.0%
Unemployment 12.0%
Inflation 10.2%
World rank 155
a
b
Middle East North Africa
Regulatory Environment 101
considered repressed, with titles to property difficult to establish and trace, severely
weakening the foundation for economic freedom and leading to structural problems
in the economy. Egypt’s courts are highly politicized as well; despite gaining some
autonomy in recent years, they are not capable of dealing effectively with corrup-
tion. Even with a judicial effectiveness score of 52.5—better than both the regional
and world averages—Egypt’s courts are considered mostly unfree. This creates an
opportunity for corruption, which is pervasive at all levels of government due to
weak mechanisms for investigating and punishing it. Egypt’s government integrity
score of 32.2 is significantly below both the world and regional averages, placing
the nation in the repressed category (Miller et al. 2018).
Government Size
With government spending amounting to 34.1% of GDP over the past 3 years,
Egypt’s government spending score is 65.1, considered moderately free. Although
the nation’s tax burden score of 84.2 is below the regional average, it ranks above
the world average and is considered free. Egypt’s top corporate and individual tax
rates are 25% and the country’s overall tax burden is equal to 18.2% of GDP. These
positives notwithstanding the nation lack fiscal health and are characterized by con-
stant mismanagement. The nation’s fiscal health score of 1.2 is one of the worst in
the Index with the country’s public debt equaling 97.1% of GDP. MENA’s fiscal
health is considered repressed overall, but the region’s average of 42.9 is still much
higher than Egypt’s score (Miller et al. 2018).
Egypt scores relatively well in business freedom and its score of 71.5 is higher than
both the regional and world averages in the Index. Egypt’s score is considered
mostly free and has increased significantly since its government reduced require-
ments for starting a business and obtaining power. The Egyptian government also
imposed recent reforms to reduce the fiscal burden of energy subsidies, but they
include raising prices by government decree. This undermines Egypt’s monetary
freedom score of 69.6, slightly below both the world and regional averages, and is
considered only moderately free (Miller et al. 2018).
Although Egypt has made recent improvements that ease restrictions on its busi-
ness environment, the country’s labor markets lag behind other improving areas
(Miller et al. 2018). About one-third of Egypt’s workforce of 25 million is employed
in the public sector, creating enormous economic problems. Many employees have
difficulty finding jobs if they do not know high-ranking government officials.
Egypt’s public sector employees also find it hard to live off their state salaries
alone, increasing bribery and corruption. The longstanding system that evolved
there seems to penalize those who seek honest and productive work (McGrath
2010a). Having a large informal economy and an unemployment rate of 12% reflects
the extreme difficulty in hiring and firing workers in Egypt, which is why its labor
freedom score of 51.5 is considered mostly unfree and trending toward repressed
(Miller et al. 2018).
Market Freedom
With an average applied tariff rate of 7% and additional nontariff barriers that
impede trade, Egypt falls just shy of the Index’s regional and world averages in trade
freedom but has made significant strides in recent years. Its trade freedom score has
increased to 70.9, considered mostly free (Miller et al. 2018). But this progress has
not corresponded with equal improvements in investment freedom, where Egypt’s
most recent score of 60 exceeds regional and world averages and has been highly
volatile, ranging from moderately free to repressed. Egypt’s financial freedom score
of 50 is slightly above the world average and slightly below the average in the
MENA region. In 2017, Egypt joined the short list Morgan Stanley publishes of
emerging economies that should be avoided because of their vulnerability to a
strengthening US dollar (Barley 2017).
Working with the International Monetary Fund (IMF), Egypt has adopted a
series of reforms to make the country more attractive for international business. In
2016, the government agreed to cut subsidies and permit a market-based devalua-
tion of the Egyptian pound to attract investment in exchange for a $12 billion loan
package through the International Monetary Fund (IMF), but it backtracked on the
support for bread when inflation hit 30%, public protests began to rise, and memo-
ries of the 1977 bread riots began to resurface (England and Saleh 2018; Iosebashvili
2017). Another change reformed licensing laws to expedite and facilitate investment
(Al-Garhy 2017). Nonetheless, Egypt remains on a slow path toward moderniza-
tion, and the country still falls on the border between repressed and mostly unfree
Nonmarket Strategy: Egypt
Egyptian firms compete in a complex political-legal environment prescribed by

government and reinforced to an extent by culture. Hence, the Western concept of
NMS is understood within a different context, one informed by a rich and complex
history, religious influences, ongoing political uncertainty, and geographical
challenges.
Nonmarket Strategy: Egypt 103
Corruption in Egypt is a way of life. Baksheesh (literally, bribery) is common at

all levels of the economy. According to one survey, 20% of Egyptians paid a bribe
to police officials between 2011 and 2013 (GAN 2016). Transparency International’s
Corruption Perceptions Index (CPI) ranked Egypt 117 out of 180 nations in 2017,
down from 108 in 2016; the nation’s score declined from 34 out of 100 points pos-
sible to 32 (Al-Youm 2018). Faced with an inadequate infrastructure, firms often
depend on middlemen to accomplish tasks that require the assistance of a govern-
ment official. The payments that may be required to facilitate business activity are
not widely discussed in part because government intimidation stifles press activity
and dissent. Mada Masr, an online newspaper, is one of only a few that challenges
the regime since a military coup brought President el-Sisi to power in 2013 (Times
2018). The outlet’s website has been blocked at times by government authorities;
however, it continues to provide an alternative to state-influenced media.
Business leaders are well acquainted with the challenges a corrupt environment
creates for management integrity. The notion of social NMS, managerial ethics, and
CSR is becoming more pervasive, but their prominence lags behind expectations in
the West. Likewise, Egyptians do not understand political NMS in the same manner
as those in developed economies. Political connections exist more as a matter of
necessity and survival, not strategy, and are likely to remain as such unless and until
the notions of baksheesh and corruption are redefined by Egyptian culture.
Of course, eradicating corruption in Egypt has been a difficult process.
Immediately following the collapse of the Mubarak regime, government authorities
opened dozens of criminal investigations into public land contracts that were
awarded illegally to developers who had close ties with the former president (Mekay
2011). The probe found that Mubarak accumulated billions of dollars in personal
wealth during his rule through corrupt kickback schemes. The probe found his two
sons, Alaa and Gamal, benefitted from mafia-style business arrangements, and
Gamal allegedly leveraged his growing political power to design and implement
new economic and financial policies that enable him and his associates to plunder
Egypt’s public assets. As one Cairo-based financial expert put it, “If you cooperated,
you were given a virtual monopoly over your domain; if you refused you were run
out of business, or worse” (McGrath 2011). Arguably, this is not political NMS, but
explicit cronyism.
While evidence points to widespread corruption in the Mubarak regime, those
prosecuting it should be scrutinized as well. Similar to the case in Venezuela, Egyptian
authorities frequently use anti-corruption as a pretext to silence their political oppo-
nents. Indeed, officials often defer action until those accused of wrongdoing have
departed the government and top political leaders approve of an investigation.
Consider the case of former Housing Minister Ibrahim Soliman. In 2012, Soliman
was convicted of selling public land to cronies below market value, was fined 2.18
Egyptian pounds (about $361 million at the time), and was sentenced to 8 years in
prison. Soliman served as minister from 1993 to 2005, but his case was not referred
to the public prosecutor until 2011, 3 months after former President Mubarak was
arrested. Magdi Rasekh, father-in-law of Mubarak’s eldest son Alaa, was also fined
2.34 billion Egyptian pounds ($386 million) and sentenced in absentia to 5 years in
prison for his role in one of the transactions. Of course, those who purchased the land
were not required to return it—much of it had already been developed or resold—and
countless businesses affected directly or indirectly by the graft were not compensated
either. While state officials insist that such prosecutions are not selective and claim to
be pursuing meaningful reform, large swaths of the citizenry are not convinced
(McGrath 2010b; Reuters 2012; England and Saleh 2018).
Regardless of the government’s reputation for misdeeds, mismanagement, and
fiscal infidelity, some degree of effectiveness is required to support business activity.
Geographical realities create specific challenges for the nation, some of which must
be negotiated by government. Indeed, roughly 95% of the Egyptian population lives
along a rich, green valley created by the Nile River that widens into a delta at
Alexandria. The remainder of the country is largely uninhabitable desert. Egypt’s
dependence on a single river is as intense as anywhere in the world. The Nile flows
north through Egypt from Sudan and is fed by the Blue Nile River in Ethiopia and
by the White Nile River in Uganda. The Egyptian government has traditionally
negotiated water usage rates with its neighbors, as any dams or pollution that ema-
nates upstream can create serious problems for the nation’s agricultural and manu-
facturing interests.
The complexity of this arrangement can be seen with Ethiopia’s ongoing con-
struction of a $4.8 billion hydropower project, the Grand Ethiopian Renaissance
Dam, which has direct implications for Sudan and Egypt. The project threatens
Egypt’s access to water, especially while a reservoir will be filled, perhaps taking
several years. Egypt already recycles water several times, uses both treated and
untreated drainage water, and operates desalination facilities to meet consumer and
industrial demand (Saleh and Aglionby 2017). If Egyptian, Ethiopian, and Sudanese
officials are not able to avoid an impasse during the dam’s final construction phase
and subsequent operationalization, social and economic impacts could be signifi-
cant, particularly in Upper Egypt (Luxor) and Cairo.
Egypt also faces another broad concern. While most Egyptians hope that recent
upheavals transition into greater freedom and prosperity, there is no guarantee that
this will occur. Indeed, the conditions that aligned to produce the Arab Spring and
ultimately brought President el-Sisi to power in 2013 could be reemerging.
Economic opportunities for youth are limited and have spurred protests throughout
the nation and region. Although Egypt’s official unemployment rate of 12% is far
below an estimated 30% figure in the Arab world, a high percentage of public
employees earn wages that keep them in poverty. Government subsidies for fuel and
food are relatively high, foreign direct investment (FDI) is low, and Egypt’s popula-
tion is disproportionately young and becoming better educated.
Egypt is often considered a bellwether nation in the MENA region (Kaminski
2011). Markets can be unstable due to unexpected central bank activity and political
turmoil, but Egyptian officials claim the situation is improving. The Ministry of
Investment and International Cooperation reported an increase in FDI of 14.5% in
2017, accompanied by increases of 29% and 26% in private investment and newly
Egypt Data 105
established companies, respectively. Government officials attribute the increases to

economic and legal reforms (Xinhuanet 2018). If Egypt can sustain a path to reform,
opportunities for social and political NMS—in the positive sense—may follow.
Egypt Data
Managers representing 182 firms in Egypt were surveyed.1 Preliminary reliability

tests produced multiple loadings below 0.700; 3 items with loadings between 0.650
and 0.700 were retained, but 15 items were eliminated, a statistical shortcoming not
uncommon when Western scales are translated into Arabic and applied in nations
with markedly different cultural norms. Coefficient alpha scores for the technology
capabilities and market capabilities scales were slightly below 0.700, but composite
reliability scores ranged from 0.855 to 0.901. Discriminant validity was supported,
except that seven political or social NMS items were eliminated because of substan-
tial cross-loadings with the other NMS measure, an outcome likely due to different
conceptualizations of political and social NMS when compared to managers in
other nations. Details of these modifications are outlined in Tables 9.2, 9.3, 9.4, 9.5,
9.6 and 9.7. The composite model is presented in Fig. 9.1.
were a substantial driver of both cost leadership and differentiation, but the effect
sizes were small, 0.065 and 0.045, respectively.
Second, marketing capabilities were substantial drivers of all market and nonmar-
ket strategies, although effect sizes were small in all instances. Hence, marketing
appears instrumental to both market and nonmarket activity (Grinstein 2008; Kirca
et al. 2005; Parnell 2015). Its link to market orientation is well understood, but mar-
keting acumen can promote social and political goals as well. While marketing does
not always play a substantial role in developing economies, its importance appears
to be growing in Egypt (Krasnikov and Jayachandran 2008; Morgan et al. 2009; Ngo
and O’Cass 2012; Oliver and Holzinger 2008; Wilden and Gudergan 2015).
Third, market-linking capabilities were a substantial driver of both cost leader-
ship and differentiation, but the effect sizes were small, 0.060 and 0.020, respec-
tively. Moreover, they drove social NMS (f2 = 0.080), but not political NMS. As
seen in other nations, relationship-building skills integral to market strategies can
also support social NMS.
Fourth, cost leadership drove financial performance with a moderate effect size
(0.205) but was not linked to non-financial performance. In contrast, differentiation
drove non-financial performance with a moderate effect size (0.244) but was not
linked to financial performance. This finding is not surprising and underscores the
economic importance of cost-oriented approaches in developing economies.
1
Thanks to Professor Ziad Saeed, Assiut University in Egypt, for his invaluable assistance with the
data collection.
Table 9.2 Assessment of Egypt model—strategic capabilities and strategy

Factor loadings >0.70 No Range 0.661–0.861 (Cost3, Differ5, Capmkt4,
and Captech4 were retained with loadings of
0.654, 0.698, 0.661, and 0.683, respectively;
Captech1, Capttech2, Captech3, Caplink1,
Capmgt1, Capmkt1, Capmkt5, and Capmkt6
were eliminated for low loadings)
Reliabilities: coefficient alpha >0.70 No Range 0.667–0.868 (technology capabilities
0.667, marketing capabilities 0.684).
Reliability: composite reliability Yes Range 0.855–0.901
>0.70
Discriminant validity: inter-factor No NMSP1, NMSP, NMSP7, NMSS2, NMSS3,
loadings > intra-factor loadings NMSS5, and NMSS6 were eliminated because
of cross-loadings between NMS constructs
Discriminant validity: HTMT Yes
p < 0.05
R refined model—NMS-political
2
0.259 R2 (adjusted) = 0.243
R refined model—NMS-social
2
0.217 R2 (adjusted) = 0.204
Finally, social NMS drove both financial and non-financial performance with
small effect sizes (0.068 and 0.042, respectively), but political NMS was not linked
to either performance measure. Hence, while the value of social involvement in
Egypt appears to be increasing, building productive relationships with political enti-
ties in Egypt’s turbulent political environment is complex. Although there are
substantial cultural differences between Egypt and Venezuela, they are similar in a
key respect: political nonmarket activity in the legal, strategic sense is insufficient.
Hence, political NMS short of bribery and direct collusion does not appear to
increase performance.
In sum, Egypt remains a nation embedded in corruption and political uncertainty.
Bribes are common, but political NMS (in the western sense) does not appear to
have a widespread impact on firm performance. Social NMS has become more
important, however.
Egypt Data 107
Table 9.3 Egypt model—strategic capabilities and strategy

Egypt-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap -> cost lead 0.081 0.082 0.069 1.166 0.244 0.008
Mgt cap -> differentiation 0.072 0.079 0.075 0.958 0.339 0.006
Mkt cap -> cost lead 0.163 0.163 0.080 2.024 0.044 0.033
Mkt cap -> cost lead 0.162 0.157 0.078 2.062 0.040 0.032
Table 9.4 Assessment of Egypt model—strategy and performance

Factor loadings >0.70 No Range 0.661–0.861 (Cost3 and Differ5 were retained
with loadings of 0.654 and 0.698, respectively)
Reliabilities: coefficient alpha Yes Range 0.791–0.845
>0.70
Reliability: composite Yes Range 0.857–0.893
reliability >0.70
Convergent validity: AVE Yes Range 0.546–0.735
>0.50
Discriminant validity: No NMSP1, NMSP, NMSP7, NMSS2, NMSS3, NMSS5,
inter-factor loadings > and NMSS6 were eliminated because of cross-loadings
intra-factor loadings between NMS constructs
p < 0.05
R —non-financial
2
0.692 R2 (adjusted) = 0.685
performance
performance
R2 refined model—non- 0.688 R2 (adjusted) = 0.683
financial performance
Table 9.5 Egypt model—strategy and performance

Sample
Egypt-strategy-perf model Orig. sample mean Std. dev. t-stat. p-value f2 value
NMS-political -> non-fin perf 0.320 0.318 0.068 4.743 0.000 0.178
Egypt Data 109
Table 9.6 Assessment of Egypt model—composite

Factor loadings >0.70 No Range 0.661–0.861 (Cost3, Differ5, Capmkt4, and Captech4
were retained with loadings of 0.654, 0.698, 0.661, and
0.683, respectively). Captech1, Capttech2, Captech3,
Caplink1, Capmkt1, Capmkt5, and Capmkt6 were eliminated
for low loadings.
Reliabilities: coefficient No Range 0.667–0.868 (technology capabilities 0.667, marketing
alpha >0.70 capabilities 0.684)
reliability >0.70
Convergent validity: Yes Range 0.544–s.735
AVE >0.50
Discriminant validity: No NMS-pol1, NMS-pol4, NMS-pol7, NMS-soc2, NMS-soc3,
inter-factor loadings > NMS-soc5, and NMS-soc6 were eliminated because of
intra-factor loadings cross-loadings between NMS constructs
HTMT p < 0.05
R2—financial 0.365 R2 (adjusted) = 0.365
performance
R2—non-financial 0.372 R2 (adjusted) = 0.372
performance
Table 9.7 Egypt model—composite

Orig. Sample Std.
Egypt-composite model sample mean dev. t-stat. p-value f2 value
Mkt cap -> cost lead 0.284 0.284 0.028 10.155 0.000 0.067
Egypt Data 111
Fig. 9.1 The Egypt model—composite

Chapter 10
Nonmarket Strategy in China
Mao Zedong, founding father of the People’s Republic of China (PRC), led the
nation from 1949 until his death in 1976, a time when China was largely undevel-
oped and economically isolated from the USA and other Western nations. Deng
Xiaoping took the reins in 1978 and launched a series of economic reforms that has
forever changed the nation’s trajectory. For the first time since the revolution, agri-
culture was decollectivized, foreign investment was permitted, and Chinese entre-
preneurs were permitted to start businesses. Regulations and price controls were
relaxed shortly thereafter, although many firms are still state-owned and the govern-
ment’s monopolies in the banking and petroleum sectors have been retained.
Today, China is an economic anomaly; its current system has been described as
a blend of free enterprise and socialism, an attempt at economic freedom without
political freedom, or simply, state-run capitalism. China boasts the world’s second-
largest economy and ranks 110 in the Heritage Index (see Table 10.1); its overall
score of 57.8 is on the border between mostly unfree and moderately free, although
there is significant variance in scores across categories. China is also ranked 24 out
of 43 countries in the Asia-Pacific region (Miller et al. 2018), but according to the
Organization for Economic Cooperation and Development (OECD), its economy is
the most closed to foreign investment among the world’s most developed econo-
mies. On a scale of 0 (open) to 1 (closed), China’s score is 0.39; behind such nations
are India (0.24) and the USA (0.09); the OECD average is 0.07 (Yap 2017).

https://doi.org/10.1007/978-3-319-93242-2_10
114 10 Nonmarket Strategy in China
Table 10.1 Assessment of national context—China

Region rank (Asia-Pacific) 24 No change
Government spending 71.6 −1.37
Heritage data
Tariff rate 3.4%
GDP (billions, PPP) $21,292
Unemployment 4.6%
Inflation 2.0%
Public debt GDP 46.2%
World rank 130
a
Government Size 115
Rule of Law
China’s lack of property rights is a weakness that severely undermines the nation’s
rule of law. All land is owned by national or local governments, while individuals
only have the right to own buildings on the land. China’s Index score for property
rights is 46.7, which falls into the repressed category and is below the averages in
both the Asia-Pacific region and the world (Miller et al. 2018). Its system compli-
cates property right protection, especially from the perspective of Western nations.
Chinese imitators offer their own versions of IKEA, Subway, Dairy Queen, and
Apple, going so far as to identify their companies with the foreign name, reproduce
logos, paint their stores with identical colors, and even accept coupons from the
authentic stores (Burkitt and Chao 2011). Estimates of intellectual property theft by
Chinese firms from US companies have been as high as $600 billion annually (Blair
and Alexander 2017).
China’s judicial effectiveness score of 65.4 ranks above both the regional and
world averages in the Index, but the Communist Party dominates the judicial system
by controlling court operations, appointing judges, and ultimately influencing court
decisions. This approach undermines the rule of law and creates opportunities for
corruption, which has become widespread. With a judiciary that is highly politi-
cized, government integrity has become a major problem and is considered
repressed, although its score in the Index score is slightly above the region and
world averages (Miller et al. 2018).
Government Size
With a top individual tax rate of 45%, a top corporate tax rate of 25%, and overall
tax revenues equal to 17.5% of GDP, China’s tax burden score of 70.4 is considered
mostly free despite falling slightly behind the Index’s regional and world averages.
China also receives a mostly free government spending score of 71.6, which is on
par with the regional average and ranks significantly above the world average of
64.9. Although China’s fiscal health was downgraded in the most recent Index, its
85.9 score is considered free and ranks well above the regional and world averages.
Over the past 3 years, China’s budget deficits have averaged just 2.5% of GDP,
which is much lower than is common in the West. Overall, government size in
terms of taxation and spending is China’s main strength in the Index scoring model
China’s regulatory apparatus is complex, arbitrary, and unequal. For example, the
nation’s mechanism for regulating initial public offerings (IPOs) is structurally
flawed and creates enormous opportunities for corruption. Hundreds of Chinese
companies await permission to offer shares to the public at any time—a process
that usually takes more than a year—and the fate of multibillion dollar companies
is left in the hands of low-paid public officials, many of whom are willing to pursue
bribes or other corrupt arrangements with companies seeking their approval
(Wildau 2015).
China’s business freedom score improved slightly over the previous year to 54.9
but is still below the regional and world averages. China’s mostly unfree business
regulations accompany its moderately free labor freedom score of 61.4. China’s
monetary freedom score of 71.4 is below the regional and world averages. Despite
subsidizing a wide array of goods manufactured for export and propping up numer-
ous state-owned enterprises (SOEs), China’s monetary freedom score is in the
mostly free category (Miller et al. 2018).
Market Freedom
Trade is relatively important to the Chinese economy, with imports and exports
accounting for 37% of GDP, but China has an average applied tariff rate of 3.4% and
various nontariff barriers that impede trade. China’s trade freedom score is 73.2,
slightly below the regional and world averages (Miller et al. 2018).
China’s trade, investment, and financial freedom create a difficult business envi-
ronment for outsiders. Although China subsidizes the production of numerous con-
sumer goods for export, foreign investment in the Chinese economy is extremely
difficult because foreign firms cannot enter the market without partnering with a
domestic company and giving it a controlling share. Foreign companies have
attempted to negotiate with the Chinese government and enter the market without
surrendering equity, but these efforts have largely failed (Moss and Dou 2017). In
late 2017, Elon Musk suggested that Tesla would be permitted to produce vehicles
in China without securing a local partner, but later conceded that negotiations had
stalled over the requirement. Without domestic production, Tesla vehicles face a
25% import tax, pricing them well out of the market for all but the most affluent
customers (Einhorn et al. 2018).
China’s strict restrictions on foreign firms coupled with the high percentage of
SOEs result in an investment freedom score of 25, considered repressed and well
below regional and world averages in the Index. China’s financial freedom score of
20 also receives a repressed designation, and lending is highly politicized because
the government owns all large financial institutions (Miller et al. 2018).
Nonmarket Strategy: China 117
Overall, evaluating China’s economy is a complex endeavor because government

influence is uneven. China’s fiscal situation is among the best in the Index, but the
Communist Party’s dominance over the courts undermines the rule of law. Moreover,
complex and arbitrarily enforced regulations make doing business difficult, and a
lack of investment and financial freedom inhibit foreign investment and potential
financing opportunities for domestic firms (Miller et al. 2018).
Nonmarket Strategy: China
Many Westerners misunderstand certain elements of Chinese culture, particularly as

it influences business activity. For example, some view authoritarianism as a natural
extension of Chinese culture, but historians and other scholars do not agree. Citing
Chinese thinkers hundreds and even thousands of years ago, Junning (2011) makes
the case for a deep, (classical) liberal tradition. In the sixth century BCE, sage Laozi
articulated a political philosophy known as wuwei, noting “The more prohibitions
there are, the poorer the people become.” Many Chinese leaders claim that neolib-
eral reforms would subject the culture to Western ideals rather than a reclamation of
their own roots (Junning 2011).
Misunderstandings such as this add intrigue to NMS in China, particularly from
a Western perspective. Because of the one-party system, private Chinese firms
typically do not favor specific candidates and hesitate to take controversial stands
on matters of economic or social policy. Consider also that many private firms
must compete with SOEs with—by definition—direct connections to government
coffers and the degree of latitude regarding political and social NMS tend to be
more limited than in the West. Guanxi, a complex system of networks and relation-
ships in China, is pervasive in ways not always understood by Westerners, but it is
less formal and includes connections among business leaders, not just links to
government officials.
Aside from cultural concerns, there are legitimate structural problems as well. A
nation’s initial public offering (IPO) system is critical to economic growth, but
China’s regime is highly politicized. Companies often wait for permission to debut
in China’s stock exchanges for more than a year, while the fate of billions of dollars’
worth of stock sales is highly dependent on the actions (or inaction) of low-paid
public officials. The system incentivizes corruption from the perspective of both
regulators and corporations. As expert Fraser Howie put it, “There are so many good
reasons why companies and shareholders would bribe to make sure a listing went
through. That seems to have been accepted practice with minimal clampdown…and
will continue as long as you have this approval process. This is a clear example
where the process is ultimately leading to the malfeasance” (Wildau 2015).
China’s track record addressing corruption in business and government has been
mixed and inconsistent. Consider the fate of Chang Xiaobing, former chairman of
one of China Unicom, the largest state-owned telecom company. Anti-corruption
police confronted Chang and discovered a stash of gold and silver jewelry, dozens
of expensive mobile phones, and large quantities of expensive cigarettes, alcohol,
and calligraphy, gifts apparently received from the company’s corporate partners.
But Chang was neither fired nor suspended after being found guilty of corruption.
Instead, he was appointed chairman of a different state-owned telecom firm, where
he worked for a year before his formal arrest (Mitchell 2017). Chang was eventually
fined and sentenced to 6 years in prison, but the unusual handling of the case raises
questions about the process.
The practical limits for NMS activity common among privately held Chinese
firms are typically more stringent for foreign companies. They are expected to
accommodate government edicts and regulations in ways not typically required in
Western nations. In 2011, China’s National Development and Reform Commission
fined Unilever about $308,000 for violating a Chinese law that forbids the discus-
sion of price increases and disrupting market order (Sonne and Burkitt 2011). In
contrast, Alibaba’s campus now features a police outpost where employees report
suspected crimes to the police and exchange data with police to assist them in inves-
tigations. The Chinese government now uses surveillance cameras, collects data,
and uses facial recognition to monitor regular citizens. In some instances, compa-
nies like Alibaba are required to assist the Chinese government in hunting down
criminals and political dissidents. Chinese executives have also publicly expressed
their support for the program (Liza Lin 2017).
Given market potential in China and the political realities, some Western firms
compromise the values they extol at home for access to Chinese markets. For exam-
ple, Facebook CEO Mark Zuckerberg met with Chinese President Xi Jinping and
other government officials in 2017 to discuss entering the Chinese market, where
the social media platform has been banned since 2009 because it would not censor
its content and form a joint venture with Chinese partners (Abkowitz 2017).
Likewise, Apple has argued fervently that the US government has no business
demanding access to company data or controlling Internet access. But in 2018, fac-
ing tough competition from Chinese smartphone makers, Apple agreed to remove
nearly 700 apps that allow Chinese consumers to bypass government restrictions. It
also shifted customer iCloud data to servers located on the Chinese mainland, mak-
ing it vulnerable to government access or even seizure. Apple CEO Tim Cook
defended the moves, noting that the company should engage with governments
even when they disagree. Apple’s willingness to compromise its values to obtain
access to Chinese markets has drawn criticism from a number of US analysts
(Kubota 2018).
Although the business and political environments in China differ markedly from
those in Europe and the USA, nonmarket activity there can resemble NMS in the
West. A vibrant illustration can be seen in its automobile industry. The Chinese
government is subsidizing domestic producers and consumers of electric cars while
also imposing license plate restrictions in its large cities, effectively preventing resi-
dents from driving foreign, gasoline-powered cars. Many electric vehicle (EV)
manufacturers in China are state-owned and benefit from special protections, all the
while claiming they are focused on cleaning up the environment (Moss 2017a).
Nonmarket Strategy: China 119
With air pollution being a constant and serious concern in China, lobbying efforts
by Chinese EV producers to obtain government subsidies and impose further
restrictions on competitors that produce traditional, gasoline-powered vehicles have
been somewhat successful. However, EV manufacturers have struggled to meet
government demands for supply as well as price their products competitively. The
industry is heavily dependent on current subsidies scheduled to end in 2020. Some
EV manufacturers have lobbied the government to expand the license plate restric-
tions on gasoline-powered cars, making it virtually impossible to own such a vehi-
cle in some of China’s larger cities (Moss 2017b).
Meanwhile, Wang Chuanfu, founder, chairman, and CEO of BYD, China’s larg-
est battery-powered car manufacturer, has used his influence in the Chinese media
to lobby for beneficial regulations. Wang contends that a rapid transition to EVs in
China is already underway but requires government support. With Warren Buffett as
a key investor, BYD seeks subsidies from governments outside of China as well. As
Bill Russo, head of Automobility, a Shanghai-based consultancy put it, “If you’re
the leading seller of Chinese electric vehicles then you’re going to want this to hap-
pen as soon as possible. So of course it’s logical for Wang Chuanfu to say it’s going
to happen quickly.” (Sherry Fei Ju 2017).
The challenges faced by foreign vehicle producers in China can be more onerous
and complex than those faced by domestic firms. In 2017, the Chinese government
increased quotas for pure-electric cars, plug-in hybrids, and fuel-cell cars as part of
a broader effort to combat air pollution. GM and other foreign manufacturers
responded with bold initiatives to ramp up production of electric and hybrid models
in China by 2020. Ford, Volkswagen, and Renault-Nissan have set up joint ventures
with Chinese car makers that specialize in manufacturing pure-electric cars, a
requirement for foreign firms (Yuko Kubota 2017). But while Tesla has expressed
an ongoing interest in entering the Chinese market, it never identified a viable part-
ner. Its attempt to negotiate an arrangement with Chinese authorities that would
allow the company to open its own factory in Shanghai has not been successful.
Although government officials have suggested that rules requiring joint ventures for
foreign firms might be relaxed, no change has been made (Trefor Moss 2017).
The environmental regulations that protect domestic EV manufacturers have
produced foreign causalities as well, including several British carmakers. An
exemption that originally covered Lamborghini and other small-volume manufac-
turers was lifted in 2017, and car manufacturers were unable to deliver pending
orders to consumers. British diplomats, along with the UK’s Society of Motor
Manufacturers and Traders, protested the change in policy, but to little avail (Tom
Mitchell 2017).
Advantages afforded domestic firms and especially SOEs can be seen in other
industries as well. Although Chinese manufacturers produce 38 billion ballpoint pens
annually, 80% of the global market, the nib—the 2.3-millimeter-wide metal socket
that feeds into the ball on the tip of the pen—was imported from Japan or Germany
until recently. In 2011, China’s Ministry of Science and Technology asked compa-
nies to “achieve the localization on pen-product technology,” ultimately awarding
$8.7 million to the Beifa Group to conduct research in concert with SOE Taiyuan
Iron and Steel Group, China’s largest stainless-steel mill. Shortly thereafter, Taiyuan
began producing its first fully domestic ballpoint pen. Chinese officials claim that the
research reduced production costs for the nib by one-third, but critics cite this as
another example of subsidies that favor local firms, noting that at less than one cent
per pen, the nibs were never an expensive part of production anyway (Yap 2017).
As the previous example illustrates, SOEs need not be as concerned with NMS
in the same way that their privately held counterparts must. This reality informs the
internal debate concerning SOE reform in China. Some call for measured change to
the current system to promote economic development and level the playing field.
For example, Zhang Weiying argues that reform should move toward privatization
gradually because the appointment of SOE executives solidifies a bond between
management and government ownership. Others such as Lin Yifu argue that current
SOE problems are linked to a limited market economy and that reforms should
focus on the construction of a free market environment. The issue of property and
ownership structure of SOEs is the root of this debate (Zhang 2012).
The government influence problem extends beyond state ownership, however.
Consider HNA Group, a privately held enterprise with assets in markets from air-
lines to hotels totaling about $237 billion (1.5 trillion yuan). HNA encountered
financial trouble in 2017 after amassing about $100 billion in debt from overseas
acquisitions. But in early 2018, HNA leaders met with government officials and
representatives of state-owned banks. According to individuals at the meeting, HNA
was urged to sell assets that fall outside of Beijing’s policy agenda while directing
banks to continue lending to HNA and avoid any actions that could trigger a default.
A few days later, state-owned China CITIC Bank provided HNA with a new $3.2
billion line of credit, and HNA began selling a number of foreign real estate hold-
ings. The company insists that the sales were “not based on government directives,”
but acknowledged that Chinese regulators have “discouraged all Chinese compa-
nies” from overseas real estate investments (Trivedi and Steinberg 2018).
China Data
Managers representing 210 firms in China were surveyed.1 Preliminary tests sup-
all three models tested, but with several concerns. Item six in the management capa-
bilities scale and item five in the marketing capabilities scale loaded at 0.328 and
0.577, respectively, and were eliminated from the analysis. In addition, seven items
produced loadings ranging from 0.593 to 0.669; these items were retained for con-
sistency. The results are summarized in Tables 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7.
The composite model is presented in Fig. 10.1.
drove cost leadership, but not differentiation. This finding underscores the importance
of technology and cost containment, a traditional strategic emphasis of many Chinese
1
Thanks to Professor Zhang Long, China University of Geosciences, Beijing, for his invaluable
assistance with the data collection.
China Data 121
Table 10.2 Assessment of China model—strategic capabilities and strategy

Factor loadings >0.70 No; there Range 0.619–0.862 (7 loadings ranged
were 9 from 0.600 to 0.699 and were retained
exceptions for consistency. Mgtcap6 and Mktcap5
produced loadings of 0.328 and 0.577,
respectively, and were eliminated)
Discriminant validity: inter-factor Yes Range 0.619–0.862
Discriminant validity: Yes Range 0.760–0.891
businesses (Parnell et al. 2011; Tang et al. 2007). However, technology capabilities
also drove political NMS, but not social NMS. This link is difficult to explain but could
suggest two underlying approaches to performance: differentiation without political
NMS and cost leadership with political NMS. This explanation has been previously
suggested (Parnell and Long 2017) and appears to have modest support here as well.
Second, marketing capabilities drove both market strategies but were a powerful
driver of differentiation. This reinforces findings in other countries as well, but the
strength of the marketing-differentiation link rivals that found in the USA. Unlike
the USA, however, marketing capabilities were also linked to social NMS, but not
political NMS. The broad strength of marketing in China highlights is growing
importance as the economy emerges and becomes more sophisticated. Its link to
social NMS suggests that marketing efforts can help position Chinese firms in the
social arena.
Third, differentiation drove both financial and non-financial performance, but cost
leadership was not linked to either performance dimension. Hence, technology’s link
to cost leadership did not subsequently drive performance as it has been found to do
in past studies (Parnell et al. 2015). This finding underscores the increasing impor-
tance of innovation—not just production efficiency—among Chinese firms.
Table 10.3 China model—strategic capabilities and strategy

Orig. Sample Std.
China-cap-strategy model sample mean dev. t-stat. p-value f2 value
Mgt cap -> cost lead 0.044 0.050 0.103 0.432 0.666 0.001
Mkt-link cap -> differentiation −0.046 −0.039 0.093 0.496 0.620 0.001
Mkt cap -> cost lead 0.207 0.203 0.109 1.904 0.057 0.023
Mkt cap -> cost lead 0.239 0.240 0.079 3.034 0.002 0.048
Finally, social NMS also drove both financial and non-financial performance, but
political NMS was not linked to either performance dimension. As discussed previ-
ously, the prevalence of SOEs and the strong regulatory direction initiated by national
and local governments can limit a firm’s ability to leverage political NMS. Hence,
political NMS in the Western sense (e.g., lobbying, work through trade associations,
etc.) does not tend to be fruitful, but opportunities for social NMS have emerged.
In sum, China’s model of state-directed capitalism creates an intriguing context.
The marketing-differentiation-performance links are relatively strong, underscoring
economic development and sophistication. Political NMS did not demonstrate a
significant impact on performance, but the importance of social NMS appears to be
increasing. These relationships could change, however, if China privatizes more of
its SOEs.
China Data 123
Table 10.4 Assessment of China model—strategy and performance

Factor loadings >0.70 No Range 0.593–0.859 (7 items produced loadings
ranging from 0.593 to 0.699 and were retained for
consistency)
Reliabilities: coefficient alpha Yes Range 0.760–0.891
>0.70
>0.70
Discriminant validity: inter- Yes
factor loadings > intra-factor
loadings
p < 0.05
performance
performance
Table 10.5 China model—strategy and performance

China-strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
NMS-political -> non-fin perf −0.045 −0.029 0.083 0.541 0.589 0.002
Table 10.6 Evaluation of China model—composite

Factor loadings >0.70 No Range 0.619–0.862 (6 loadings ranged from 0.600 to 0.699
and were retained for consistency. Mgtcap6 & Mktcap5
produced loadings of 0.328 and 0.577, respectively, and
were eliminated)
Reliabilities: coefficient Yes Range 0.760–0.891
alpha >0.70
reliability >0.70
Convergent validity: AVE Yes Range 0.512–0.643
>0.50
inter-factor loadings >
HTMT p < 0.05
R2—non-financial 0.246 R2 (adjusted) = 0.238
performance
Table 10.7 China model—composite

Sample
China-composite model Orig. sample mean Std. dev. t-stat. p-value f2 value
Mkt cap -> cost lead 0.240 0.239 0.081 2.964 0.003 0.048
China Data 125
Fig. 10.1 The China model—composite

Chapter 11
Nonmarket Strategy in Turkey
With about 80 million inhabitants, Turkey is the world’s eighteenth most populous
nation, comparable in size to fellow NATO ally, Germany (World Bank 2016b). In
terms of economic size, Turkey ranks 17, with a GDP of over $863 billion and
nearly $25,000 per capita (see Table 11.1). With a score of 65.4 in the Heritage
Index, Turkey ranks 58 in economic freedom but only 28 out of 44 European coun-
tries. Indeed, economic freedom in Turkey is a complex phenomenon, as the nation
scores very well in certain areas, but very poorly in others. Although Turkey is
widely considered among the world’s largest and most prosperous countries, con-
solidation of power in the hands of President Tayyip Erdoğan—elected in 2014 and
re-elected in 2018—and political uncertainty associated with a failed coup d’état in
2016 threaten to undercut the nation’s economic progress. While political instability
has not yet triggered fiscal instability, government corruption and the politicization
of the nation’s court system have substantially undermined the rule of law and have
caused considerable angst among potential investors (Miller et al. 2018).
Rule of Law
Although Turkey’s property rights score of 54.7 ranks is slightly higher than the
world average, it is well below the European average of 69.1 and is considered
mostly unfree. Politicization of the courts, particularly after the failed coup attempt,
has led to enforcement inconsistency. Over one-fourth of the nation’s judges were
dismissed at the discretion of President Erdoğan during his first 2 years in office
because they were allegedly linked to the country’s opposition party. Due to corrup-
tion in the courts, Turkey’s judicial effectiveness score of 54.5 is considered mostly
unfree. Although this score slightly exceeds the world average, it is well below the
regional average (Miller et al. 2018).

https://doi.org/10.1007/978-3-319-93242-2_11
128 11 Nonmarket Strategy in Turkey
Table 11.1 Assessment of national context—Turkey

Region rank (Europe) 28 −1.00
Heritage data
Tariff rate 3.2%
Unemployment 10.3%
Inflation 7.8%
World rank 84
a
Market Freedom 129
Without a reliable judiciary, Turkey struggles to limit government power and pre-
vent crimes like corruption, money laundering, and bribery, which undermine gov-
ernment integrity (Miller et al. 2018). The nation’s government integrity score is only
42, considered repressed and well below the regional average (Miller et al. 2018).
Government Size
With a top personal income tax rate of 35%, a top corporate rate of 20%, and an
overall tax burden that equals 30% of its GDP, Turkey earned a tax burden score of
74.7. Turkey’s government spending score of 68.1 is somewhat favorable as well
and is considered moderately free. Like most of its European neighbors, Turkey
receives a relatively high fiscal health score of 93.6, more than a dozen points higher
than its regional average and significantly higher than the world average of 68.6
The regulatory regime in Turkey is complex. Although recent changes have made
registering a company less cumbersome and time-consuming, Turkey still ranks
below the regional and world averages in business freedom with a score of 63.3 due
to political uncertainty and security concerns. The Turkish economy is also plagued
by a deficiency in labor freedom. Turkey’s labor freedom score in the Index is only
47.6, considered repressed and significantly below both the regional and world aver-
ages. The government has not yet been able to address concerns about child labor,
particularly in agriculture-related industries. Although Turkey has few price con-
trols, its inflation rate of 7.8% undermines the country’s monetary freedom score of
72.3. Despite being considered mostly free, it falls just shy of the Index’s regional
and world averages (Miller et al. 2018).
Market Freedom
Turkey’s trade freedom score of 78.6 slightly exceeds the world average but falls short
of the higher European average of 85.7. The nation is only considered mostly free and
is hampered by nontariff barriers. Still, Turkey’s economy relies heavily on trade, with
exports and imports equaling 47 percent of GDP (Miller et al. 2018). Global trade is
an ongoing focus, as President Erdoğan has sent delegations to countries throughout
the world in an effort to expand Turkey’s trade prospects (BBC 2016a).
While potential investors are generally free from government restrictions, a

labyrinth bureaucracy coupled with ongoing regulatory changes creates complica-
tions for many businesses. Overall, Turkey is relatively open to foreign investment
with an investment freedom score of 75. Its reforms in the financial sector have
improved transparency and competitiveness. Turkey scores 60 in the Index’s finan-
cial freedom measure, considered moderately free (Miller et al. 2018).
Nonmarket Strategy: Turkey
Turkey bridges Southeastern Europe and Southwestern Asia, is an historical center

of business and finance, and has a rich tradition of private, entrepreneurial economic
activity (Acikdilli et al. 2017). Its firms have vast experience in international trade
with established banking, insurance, and shipping industries. The Turkish govern-
ment largely promotes economic liberalization by facilitating labor mobility and
lowering trade and non-trade barriers, although the existence of SOEs and a sub-
stantial bureaucracy work in the opposite direction. Nonetheless, hampered by
ongoing geopolitical struggles, many Turkish firms are not market-oriented
(Köseoglu et al. 2015). For many firms, the Turkish government is both a major
customer and a source of protection against foreign competition (Sheth 2011). It
provides an extensive range of incentives for export companies including exemp-
tions from customs duty, value-added tax (VAT) exceptions, VAT refunds, as well as
corporate tax deductions and exemptions.
Although high strategic uncertainty is common in Turkey (Polotaglu 2007;
Culpan and Gursoy 2009; Parnell et al. 2011), Turkish firms have managed to pro-
mote economic development during the past few decades. They face challenges,
nonetheless. For example, in emerging economies like Turkey, a shortage of sophis-
ticated advertising and marketing research makes it difficult to assess consumer
interests and consumption patterns accurately (Marquis and Raynard 2015). In
some markets, customers rely heavily on intermediaries to provide pertinent infor-
mation, purchase options, and financing. As a result, it is difficult to generate market
intelligence and forecast future demand; business success can be a function of shap-
ing markets rather than interpreting them. This contributes to broad strategic uncer-
tainty and could make NMS more attractive, ceteris paribus.
In addition to economic development concerns, Turkey’s business environ-
ment—especially regarding NMS—has suffered from both issues of freedom sur-
rounding President Erdoğan and the government’s response to the failed coup in
July 2016. According to US-based Human Rights Watch (HRW), the attempted
overthrow of the Erdoğan regime resulted in 248 deaths, more than 50,000 deten-
tions, and more than 150,000 lost jobs due to alleged ties to coup organizers. The
government seized the assets of many domestic businesses and even threatened a
number of German firms for alleged ties to Turkish priest Fethullah Gülen, although
it walked the comments back shortly thereafter. HRW condemned the Turkish
Nonmarket Strategy: Turkey 131
response to the coup and called for business associations to convey their concerns
about human rights violations to Turkish leaders (US Official News 2017).
During the initial uncertainty, Turkey’s state-run Anadolu Agency was quick to
report that business leaders opposed the coup and demanded swift retaliation. Rifat
Hisarcıklıoğlu, head of the nation’s largest business federation, the Union of
Chambers and Commodity Exchanges of Turkey, referred to the coup as a direct
attack on democracy. In a statement signed by 365 chambers and 61 exchanges,
Hisarcıklıoğlu encouraged the government to identify and prosecute those respon-
sible for the unrest, stating, “We don’t favor any management of which the power
does not come from democratic elections and the authority from the nation. Also,
we don’t see a choice for our country other than democracy” (Anadolu Agency
2016; AsiaNet 2016).
Official claims to the contrary notwithstanding fallout from the attempted coup
have affected business activity in Turkey. For example, Yavuz Eroğlu, head of a
leading Turkish NGO and representative of Turkey’s plastics industry, expressed
worry that global manufacturers will consider Turkish suppliers to be risky. Eroğlu
noted that a large European supermarket chain responded to the political unrest by
shifting some business from a Turkish firm to a Spanish supplier. Moreover, Sadettin
Korkut, CEO of Petkim Petrokimya, Turkey’s leading plastics producer, resigned
following reports linking him to the coup. Nonetheless, Eroğlu insisted that busi-
ness was proceeding without interruptions, except for isolated concerns by foreign
partners nervous about the future (Toloken 2016). Government officials downplayed
the incident as well, describing the days following the attempted coup as “business
as usual” (New Straits Times 2016).
Amid an increasing foreign corporate debt and a weakening currency, Turkey
continues to perpetuate a “business as usual” theme and forge ahead as a nation
intent on further development. The Yavuz Sultan Selim, a $2.5 billion, mile-long
traffic bridge that includes eight lanes and a double railway to link the European and
Asian sides of Istanbul, was opened in 2016. Ongoing construction projects include
a $4.7 billion highway and a $35 billion airport the size of Manhattan. The nation
has spent well over $600 billion on construction projects between 2006 and 2018,
with most projects built as public-private partnerships (Srivastava 2016).
Corruption in Turkey is widely acknowledged, but the primary source is a matter of
debate. While the government claims to be eradicating corruption, Erdoğan’s regime
appears to be a central part of the problem. In 2017, Mehmet Zafer Çağlayan, a former
economic minister in Turkey, was indicted in the USA as part of a global operation to
bypass US sanctions and trade billions of US dollars in gold with Iran. Reza Zarrab, a
prominent Turkish business leader, testified that he paid Çağlayan over $50 million as
part of the scheme. Zarrab ultimately pleaded guilty to seven charges due to his role in
helping Iran obtain funds illegally from Halkbank, a large, state-owned bank in Turkey
(Hong 2017). Former Halkbank CEO Suleyman Aslan was also charged. Not surpris-
ingly, President Erdoğan denied the allegations and suggested a conspiracy involving
the USA and some of his internal opponents (Pitel 2017b).
In a similar vein, freedom of speech is less protected in Turkey than anywhere

else in Europe. Turkey’s anti-corruption effort employs a number of paid infor-
mants, but there are many stories of unpaid, ordinary citizens who have joined the
effort. According to President Erdoğan, “You may have friends from the commu-
nity. I say, denounce them. You must inform our prosecutors. This is the duty of a
patriot” (Pitel 2017a). While HRW and other groups view speech restrictions as
evidence of corruption, Erdoğan claims them to be part of the solution.
The EU has spent billions of euros in Turkey to help the nation combat corrup-
tion, strengthen its judiciary, and promote greater political freedom. A 2017 EU
report critical of Turkey suggests that the funds have done little to change the eco-
nomic fundamentals, including freedom of the press, the prevention of conflicts of
interest among government officials, and the promotion of a civil society. Although
some changes have been made in customs, employment, and taxation, EU auditors
fear that the limited progress could be short-lived. President Erdoğan contends that
Turkey is willing to work with the EU on reforms, but many EU member nations are
growing impatient (Peel and Pitel 2018). Turkey has sought membership in the EU,
but accession talks broke down after the purges.
While Turkey continues to pursue EU membership and IMF support, President
Erdoğan is a harsh critic of such organizations. For example, in his attempt to
advance trade in Africa, Erdoğan suggested that Turkey and Africa share a common
interest in thwarting the West’s colonization and globalization agenda, noting, “In
the name of globalization, one growth model has been dictated to different coun-
tries. If you want to grow your economy, you…must obey the definition of democ-
racy. In order to be part of the global system, you have to obey the current system
unconditionally. The culture of our African brothers is not taken into consideration.”
Erdoğan referenced the IMF specifically and proceeded to describe contemporary
globalization as a new form of colonialism and modern slavery (BBC 2016b).
Just as Turkey reflects a unique combination of Asian, European, and Islamic
culture, NMS in the nation can be viewed from both authoritarian and market per-
spectives. On the one hand, firms are expected to support the current regime, just as
the Union of Chambers and Commodity Exchanges of Turkey did following the
attempted coup. On the other hand, Turkish firms compete in a global environment,
their markets are increasingly sophisticated, and many are inexorably tied to gov-
ernment through Turkey’s emphasis on nation branding. In 2004, the Turkish gov-
ernment enlisted the Ministry of Economy, Turkish Exporters Assembly (TIM), and
the Istanbul Textile and Apparel Exporters’ Association (ITKIB) in a marketing
initiative called Turquality (i.e., Turkey + quality). As the world’s first state-
sponsored branding program, Turquality (www.turquality.com) helps domestic
firms develop capabilities, brands, competences, skills, and resources necessary to
compete globally. It includes support for brand-related costs such as registration,
advertisement, and foreign expenditures, as well as management education for
selected, typically small companies. Currently, over 100 brands and about 100 com-
panies receive support through the program. These firms may seek to influence gov-
ernment, but they have structural incentives not to challenge the current regime.
Nonmarket Strategy: Turkey 133
Table 11.2 Evaluation of Turkey model—strategic capabilities and strategy

Factor loadings >0.70 Yes Range 0.543–0.884 (Cost5 was retained for
consistency)
Convergent validity: AVE >0.50 No Range 0.471–0.686 (the cost leadership scale
was short of the 0.500 threshold)
R —NMS-political
2
0.100 R2 (adjusted) = 0.079
R —NMS-social
2
0.143 R2 (adjusted) = 0.122
R refined model—cost leadership
2
0.403 R2 (adjusted) = 0.396
R refined model—differentiation
2
0.349 R2 (adjusted) = 0.341
R refined model—NMS-political
2
0.071 R2 (adjusted) = 0.065
R refined model—NMS-social
2
0.135 R2 (adjusted) = 0.129
This dynamic tension between government support and the pursuit of influence
is illustrated by a recent ban on window tinting instituted in 2016 and lifted the fol-
lowing year. Turkey’s federation of car repair shops had lobbied the government to
lift the ban. When the government responded, the federation’s chairman publicly
expressed his gratitude toward the president for responding to the wishes of the
lobby. This example depicts legitimate political NMS is Turkey but in a much softer,
accommodating form than in the West (Gauthier-Villars 2017).
Social NMS is a topic of increasing attention in Turkey but is not as prominent
as in other parts of Europe. (Demir et al. 2016; Ozdora-Aksak 2015) The Corporate
Responsibility Association of Turkey (http://csrturkey.org/) was established in 2005
by academics, businesses, and civil society organizations. The organization pro-
duces policy manuals and promotes social responsibility from both ethical and per-
formance perspectives. As such, firms are encouraged to engage in social NMS to
enhance competitiveness.
Academic research investigating the link between social involvement and
financial performance is limited; however, initial work suggests a possible nexus
(Arsoy et al. 2012).
Table 11.3 Turkey model—strategic capabilities and strategy

Turkey-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap -> cost lead 0.031 0.029 0.128 0.244 0.808 0.000
Mgt cap -> NMS-social −0.115 −0.116 0.145 0.793 0.428 0.004
Mkt-link cap -> differentiation −0.027 −0.037 0.116 0.228 0.820 0.000
Mkt cap -> cost lead 0.352 0.363 0.119 2.959 0.003 0.063
Tech cap -> NMS-political −0.033 −0.042 0.148 0.222 0.825 0.000
Tech cap -> NMS-social −0.042 −0.050 0.112 0.376 0.707 0.001
Mkt cap -> cost lead 0.413 0.423 0.103 3.995 0.000 0.143
Turkey Data
Managers representing 170 firms in Turkey were surveyed.1 Preliminary tests

in all three models tested. Item five in the cost leadership scale produced a loading
slightly below the 0.700 threshold but was retained for consistency. The results are
summarized in Tables 11.2, 11.3, 11.4, 11.5, 11.6 and 11.7. The composite model is
presented in Fig. 11.1.
were significant drivers of both market strategies but of neither political nor social
NMS. The link to market strategies supports widespread research and is consistent
with most nations considered in this study. Likewise, the absence of a link to NMS
was expected as well.
Second, marketing capabilities were significant drivers of both market strategies
and of political NMS, but not social NMS. The importance of marketing in the
market arena reinforces previous studies on Turkish firms (Acikdilli et al. 2017;
1
Thanks to Professor Gaye Acikdilli, Başkent University, for her invaluable assistance with the
data collection.
Turkey Data 135
Table 11.4 Evaluation of Turkey model—strategy and performance

Factor loadings >0.70 Yes Range 0.576–0.884 (Cost5 was retained
for consistency)
Convergent validity: AVE >0.50 Yes Range 0.468–0.713 (the cost leadership
scale was short of the 0.500 threshold)
Discriminant validity: inter-factor loadings Yes
> intra-factor loadings
performance
Table 11.5 Turkey model—strategy and performance

Turkey strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
NMS-social -> fin perf −0.074 −0.061 0.091 0.815 0.416 0.004
NMS-social -> non-fin perf −0.006 0.003 0.094 0.060 0.952 0.000
Kirca 2011; Marquis and Raynard 2015). The link between marketing capabilities
and political NMS is intriguing and could highlight the importance of positioning as
firms seek to balance government support with government influence.
Table 11.6 Evaluation of Turkey model—composite

Factor loadings >0.70 Yes Range 0.562–0.919 (Cost5 was retained for
consistency)
Convergent validity: AVE >0.50 No Range 0.468–0.713 (the cost leadership scale
was short of the 0.500 threshold)
R —NMS-political
2
0.068 R2 (adjusted) = 0.063
R —financial performance
2
0.428 R2 (adjusted) = 0.418
R —non-financial performance
2
0.409 R2 (adjusted) = 0.402
Table 11.7 Turkey model—composite

Turkey-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mkt cap -> cost lead 0.419 0.428 0.096 4.372 0.000 0.147
Finally, both market strategies were significant drivers of both financial and non-
financial performance, a finding common to many other nations in the survey (Kirca
2011; Parnell et al. 2011). However, the only significant association between NMS
and performance was the link between political NMS and financial performance.
This finding underscores the importance of political NMS in the survival of Turkish
firms and suggests that the path from social NMS to financial performance that
appears to exist in other nations may not in Turkey.
In sum, Turkey has a rich trade history but is engulfed in a sea of political and
economic uncertainty. The impact of market strategy emphasis on performance
remains substantial. Within this context, however, the link between political NMS
and financial performance among firms was found to be stronger in Turkey than in
any of the other nations addressed in this book. The role of NMS in the future
depends in great measure on the political direction of the nation.
Turkey Data 137
Fig. 11.1 The Turkey model—composite.

Chapter 12
Nonmarket Strategy in Poland
With almost 38 million citizens, Poland is one of the most populous nations in
Eastern and Central Europe. Poland’s GDP of roughly $1.1 trillion makes it one of
the largest economies in the region as well, and a per capita GDP approaching
$28,000 makes it one of the wealthiest. Although Poland’s economy is relatively
stable and prosperous, recent political developments, including clashes with the EU,
challenge the nation’s upward trajectory (see Table 12.1) (Miller et al. 2018).
Poland is undergoing a broad shift toward nationalism, with some politicians
even dismissing the country’s renowned twentieth-century reformer, Lech Walesa.
Nationalism is nothing new to the region and is typically seen as a response to eco-
nomic slowdowns linked to globalization, but the situation is different in Poland,
which has not experienced a recession in a quarter-century. Its brand of nationalism
has not sparked an interest to leave the EU, but rather a move to redefine it (Hinshaw
and Walker 2018).
With a score of 68.5, Poland’s moderately free economy is ranked 45 in the
world, but only 21 out of the 44 European nations included in the Heritage Index.
Following the demise of the Soviet Union in 1989, Poland committed to liberalizing
markets and reforming its regulatory environment to make its economy more con-
ducive to business. Poland was the only European nation to record economic growth
during the 2009 financial crisis, but the nation’s recent commitment to social spend-
ing has led to a decline in growth projections and ongoing economic challenges.
Poland remains a growing and mostly free economy, but there is still room for
improvement in its judicial system, labor code, and tax system (Miller et al. 2018).

https://doi.org/10.1007/978-3-319-93242-2_12
140 12 Nonmarket Strategy in Poland
Table 12.1 Assessment of national context—Poland

World rank 45 No change
Region rank (Europe) 21 No change
Judicial effectiveness 56.6 −1.41
Heritage data
Tariff rate 1.6%
Unemployment 6.2%
Inflation −0.6%
World rank 32
a
Regulatory Environment 141
Rule of Law
Property rights are generally well-defined in Poland, but other factors complicate
their enforcement and weaken the rule of law; property rights are not always enforced
appropriately due to a slow and politically pressured judiciary. Poland’s property
rights score of 61.8 ranks below the regional average, but the nation outperforms the
Index’s world average and is considered moderately free (Miller et al. 2018).
Poland’s judicial effectiveness score of 56.6 exceeds the world average but is
considered mostly unfree and falls short of the regional average. Poland’s ineffec-
tive judiciary leads to problems with both the protection of property rights and cor-
ruption. Poland’s government integrity score of 50.9 falls below the regional average
and is borderline repressed. Its anti-corruption measures are not always effective,
and several 2016 corruption probes revealed enduring problems in state institutions
Government Size
With a top individual income tax rate of 32%, a corporate tax rate of 19%, and tax
revenues representing 32.1% of GDP, Poland’s tax burden score is 75.9, considered
by the Index to be mostly free. Despite a reasonable tax code, Poland has spent 41.7%
of its national output over the past 3 years. A score of 47.8 is categorized as repressed,
although Poland slightly exceeds the Index’s regional average. The nation’s fiscal
health score of 81.5 is considered free, on par in the region and well above the world
average. Poland’s score is aided by budget deficits that only averaged 2.8% of GDP
over the past 3 years, among the best in the Index (Miller et al. 2018).
Despite exceeding the world average, Poland’s business freedom score of 67.2 is
considered moderately free and is below the regional average of 74.9. Regulatory
reform has stagnated, and Poland has now fallen behind most of Europe in terms of
business freedom. With price deflation and few price controls, the Polish economy
benefits from one of the world’s highest degrees of monetary freedom despite reli-
ance on subsidies from the EU. Poland’s monetary freedom score of 85 is consid-
ered free and is one of the highest in the world and the region (Miller et al. 2018).
While the Polish monetary system remains relatively free from government
manipulation and mismanagement, labor markets are heavily regulated and subject
to immense union pressure. Non-salary costs of employment are very high, and
Polish unions have substantial influence on contract termination and other labor
issues. Still, Poland’s Index score of 63.9 in labor freedom is considered moderately
free and is higher than both the regional and world averages (Miller et al. 2018).
Market Freedom
Poland’s economy is largely characterized by trade freedom and its reliance upon
trade to facilitate domestic economic activity. Poland’s imports and exports com-
bine to equal 101% of the nation’s GDP. Although nontariff barriers create modest
trade impediments, the average applied tariff rate of 1.6% ranks among the lowest
rates in the Index. These elements combine to earn Poland a trade freedom score of
86.9, which is slightly above the regional average and significantly higher than the
world average (Miller et al. 2018).
Poland’s investment freedom score of 75 is on par with the region and exceeds
global norms. The country’s mostly free investment environment is relatively open
to foreigners (Miller et al. 2018). Nonetheless, the Polish banking sector has drifted
toward renationalization in recent years, with the government buying controlling
stakes in Polish banks that were formerly foreign-owned (Rohac 2017). Such activ-
ity is too recent to have significantly impacted Poland’s financial freedom score in
the Index but will likely do so in future years; its overall score of 70 is higher than
regional and world averages and falls on the border between moderately free and
mostly free (Miller et al. 2018).
Nonmarket Strategy: Poland
Political and social NMS are common to midsize and large firms in Poland, but the
environment differs markedly from that in the other two European nations evalu-
ated, the UK and Turkey. Legislation in Poland is reinforcing a nationalistic and
protectionist bent, while membership in the EU adds political tension and complex-
ity. For example, the nation recently imposed a retail sales tax that exempted select
small retailers and increased rates for larger ones. But Poland’s membership in the
EU subjects any modifications in tax policy to review. Large foreign firms operating
in Poland lobbied heavily against the change and not surprisingly, the EU struck it
down (Shotter 2017a).
EU members do not appreciate confrontations with EU oversight, especially
from subsidized nations. Because of its relative state of economic development,
Poland has received more from the EU than it has contributed, contributing €3.6
billion and receiving €10.6 billion in EU funds in 2016 alone. Some EU members
publicly disapprove of Poland’s recent political shift away from the union’s found-
ing principles of democracy, equality, rule of law, and respect for human rights.
They argue that the EU should not subsidize any nation that cannot provide
independent safeguards against cronyism and corruption. There are other points of
contention as well. When a million refugees and migrants from Syria, Afghanistan,
Iraq, and other nations entered Europe in 2015, the EU mandated that each member
nation accept a substantial number. Germany ultimately accepted a disproportionate
number of them, but Poland did not follow the EU scheme (European Union 2018;
Financial Times 2018; Parliament of the United Kingdom 2018).
Nonmarket Strategy: Poland 143
Poland’s shift toward centralized economic control is most obvious in the finan-
cial sector. Although Poland began privatizing much of its banking system in 1990,
it is currently moving toward nationalization. In 2015, state-owned insurance com-
pany PZU acquired a significant stake in Alior Bank, a prominent entrepreneurial
lender. In 2017, PZU and the Polish Development Fund acquired a controlling in
Bank Pekao from Italian banker UniCredit. The Polish government has been “rena-
tionalizing” the sector to secure greater control over private sector funding and
board oversight. Politically connected members of the ruling Prawo i Sprawiedliwość
political party (literally, law and justice), which is dedicated to promoting a com-
mand (i.e., centrally controlled) economy, replaced some of the most well-respected
bankers in Poland as well. Not surprisingly, some of the newly appointed board
members have questionable backgrounds and little banking expertise (Rohac 2017).
Private banks still operate in Poland if they do not threaten government oversight
of the industry. JPMorgan is currently expanding its operations in Warsaw, adding
new staff in risk management and other critical functions (Shotter 2017b).
Nonetheless, the current regime seeks to leverage banks to advance its political
agenda. Today, four banks accounting for over 50% of Polish assets are under gov-
ernment control.
Current banking and other changes in Poland are inconsistent with a nation pur-
suing greater economic liberalization. For example, in 2017, the Polish parliament
approved legislation that will severely restrict trading on Sundays. The bill—backed
by workers’ unions and the Catholic Church—prevents stores, except restaurants
and Internet companies, from opening on more than seven Sundays each year, effec-
tive 2020. Supporters argued that the measure allows retail workers to spend more
time with their families, but the rule clearly restricts business activity in the nation
(Shotter 2017c).
Many critics see corruption in the government’s ongoing interventionism into
banking, business, and social affairs. In 2017, Poland’s ruling party established the
National Freedom Institute’s Center for the Development of Civil Society. According
to deputy party chairman Adam Lipinski, the center—under the direction of the
prime minister—distributes about $25 million annually to NGOs to “raise the status
of cooperation between the government and NGOs and make sure there are more
funds available to the NGO sector.” Of course, this funding mechanism gives the
government direct control over another category of nongovernment activity. As Ewa
Kulik-Bielinska, director of the Soros-backed Batory Foundation, put it, NGOs that
do not reflect the values of the ruling party have been put “on a starvation diet.” Not
surprisingly, NGOs whose values are more closely aligned with the current regime
are less critical of the center (Ciobanu and Kość 2017).
Faced with a modest domestic market and to the government’s shift toward
nationalism, many Polish firms are seeking global expansion. In a similar vein, for-
eign firms interpret the Polish business environment as riskier and more confining.
As a result, foreign direct investment (FDI) into Poland declined from $14.3 billion
in 2014 to $11.4 billion in 2016. Poland’s ruling party has responded with an
economic growth plan that encourages Polish firms to expand abroad (Charlish and
Goraj 2017). Although foreign firms are finding it increasingly difficult to conduct
business in Poland, they remain prominent players in certain sectors of the

economy. Military contractors Raytheon (USA) and Airbus (France) have fervently
lobbied Poland’s government for years. Following a 2015 political crisis in Ukraine,
they secured contracts estimated to be worth a combined $9 billion (Foy and
Hollinger 2015). However, large awards like these to foreign firms have become less
common since 2016.
Poland’s government intervention extends to multiple industries. The global
push for electric vehicles (EVs) receives strong support from the Polish govern-
ment. Although only 556 of the 1.45 million cars Poland imported in 2016 were
electric, the government plans to put one million EVs on Polish roads by 2025. A
catalyst behind the move is government-backed ElectroMobility Poland, which is
pushing for tax incentives and other subsidies resembling those in the USA, China,
Germany, and elsewhere. It is no surprise that ElectroMobility Poland is also heav-
ily invested in a project to design an entirely electric Polish car, a move consistent
with expectations from many social activists in the country (Wasik 2017).
Social NMS is also becoming more common, especially in “green” initiatives.
Recent campaigns include the Out of Love for the Environment initiative by
Carrefour Poland to promote the use of eco-friendly grocery bags and US-based
Citibank’s More Trees Thanks to You campaign, which included planting trees and
switching to online statements (Rogowski 2013). The concept of social entrepre-
neurship is also gaining ground. For example, a former special needs teacher, Teresa
Truch, founded Siedlisko to employ people with learning disabilities while provid-
ing healthcare services to residents in the small town of Kolonowskie in rural south-
ern Poland. Of the company’s 31 employees, 15 are disabled (Wasik 2016).
Initiatives like this are receiving additional public support.
Broadly speaking, social NMS in Poland largely resembles that in the USA and
the UK, but with a Polish bent. For example, when asked about CSR, Polish execu-
tives typically respond in the affirmative. When asked what it really means to put
CSR into practice, however, they tend to focus less on its strategic influence and
more on corporate philanthropy. Business firms are often associated with capital-
ism, profit, private property, and wealth, concepts that often have negative connota-
tions among many Poles. As a result, many see CSR as a public relations effort
disconnected to firm strategy and behavior (Prokurat 2016).
It can be difficult to distinguish between social and political NMS in Poland;
their overlap in the energy sector is clear. Critics claim that nationalism in Poland
and other nations will actually harm the industry, as firms relax their commitments
to social responsibility and the environment (Butler 2017). Meanwhile, Poland’s
thriving wind industry, which accounts for roughly 13% of the nation’s energy pro-
duction, is at odds with the current regime. Its lobby has been outspoken about its
disapproval of new government regulations that would kill some projects and under-
mine the profitability of others. Not surprisingly, most of the industry is financed
and controlled by foreign investors (Henry Foy 2016).
Poland Data 145
Table 12.2 Evaluation of Poland model—strategic capabilities and strategy

Factor loadings >0.70 No Range 0.665–0.906 (Cost2 retained with a loading of
0.665; Capmkt1, Capmkt2, Caplink1, Caplink2, & Caplin4
loaded above 0.700 but were eliminated because of
problematic cross-loadings)
alpha >0.70
reliability >0.70
Convergent validity: Yes Range 0.574–0.741
AVE >0.50
HTMT p < 0.05
R2 refined model—cost 0.579 R2 (adjusted) = 0.572
leadership
R2 refined model— 0.421 R2 (adjusted) = 0.416
differentiation
NMS-political
NMS-social
Poland Data
Managers representing 246 firms in Poland were surveyed.1 Preliminary tests sup-
all three models tested. The results are summarized in Tables 12.2, 12.3, 12.4, 12.5,
12.6, and 12.7. The composite model is presented in Fig. 12.1.
Several factors in the composite model warrant discussion. First, marketing
capabilities were significant drivers of both market strategies and of social NMS,
but not political NMS. These links—including a strong connection between market-
ing and differentiation—are similar to those identified in China and presented previ-
1
Thanks to Professor Chris Ziemnowicz, University of North Carolina-Pembroke, for his invalu-
able assistance with back translation of the survey.
Table 12.3 Poland model—strategic capabilities and strategy

Poland-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap → cost lead 0.275 0.274 0.078 3.516 0.000 0.084
Mkt-link cap → 0.007 0.007 0.077 0.092 0.927 0.000
differentiation
Mkt-link cap → −0.100 −0.105 0.100 1.007 0.314 0.005
NMS-political
Mkt cap → cost lead 0.179 0.179 0.069 2.587 0.010 0.031
Mgt cap → cost lead 0.273 0.278 0.077 3.565 0.000 0.085
Mkt cap → cost lead 0.177 0.177 0.065 2.704 0.007 0.030
ously. Broadly speaking, this underscores the importance of marketing in the social
NMS, a nexus also found in the UK, Mexico, Venezuela, Egypt, and China.
Second, technology capabilities were significant drivers of both market and both
nonmarket strategies. The effect sizes were moderate for both political and social
NMS. Indeed, the extensive influence of technology was stronger in Poland than in
any other nation in the study and may reflect a broader emphasis on technology in
Central and Eastern Europe. Poland has produced Brainly, Estimote, and VoicePin,
a number of additional global tech startups (Coleman 2016). The link between tech-
nology capabilities and NMS is logical but subtle; Polish startups attract venture
capital but often receive support from the EU and the Polish government as well.
Third, both market strategies were drivers of financial performance, but neither
were significantly associated with non-financial performance. This finding under-
scores the traditional links between market orientation and profitability.
Poland Data 147
Table 12.4 Evaluation of Poland model—strategy and performance

loadings
Table 12.5 Poland model—strategy and performance

Poland strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
perf
NMS-political → non-fin −0.135 −0.136 0.071 1.903 0.060 0.013
perf
perf
Fourth, social NMS was a significant driver of both financial and non-financial
performance; the effect size for the non-financial performance link was substantial,
highlighting the increased importance of social NMS in Poland. Although some
Poles are inherently suspicious of CSR activity (Prokurat 2016), emphasis on social
NMS appears to have a performance payoff.
Table 12.6 Evaluation of Poland model—composite

loadings
Table 12.7 Poland model—composite

Poland-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mkt cap → cost lead 0.257 0.256 0.070 3.678 0.000 0.065
perf
Finally, political NMS was significantly, but negatively associated with non-
financial performance. Although the effect size was small, a negative link suggests
that political intervention could actually harm Polish firms. This finding could
reveal a Polish mistrust of political NMS in general but could also reflect the most
recent regime change. Indeed, firms aligned with the previous administration’s glo-
balist perspective are not favored in the current nationalistic environment.
Poland Data 149
Fig. 12.1 The Poland model—composite
In sum, Poland offers a unique perspective on NMS. Its capitalist, global trade,

and strong labor traditions are currently infused with high social spending, national-
ism, and a business emphasis on technology. Poles appear to support CSR, but many
are skeptical of firm claims (Prokurat 2016). The current value of political NMS is
unclear. This could change if the current political regime remains in power and
firms adjust to the new expectations, but the political tides could easily shift as well.
Chapter 13
Nonmarket Strategy in Ghana
Ghana boasts a GDP of over $121 billion in purchasing power parity; its per capita
GDP of $4400 makes it one the wealthiest nations in West Africa. Ghana was the
first sub-Saharan country to earn independence and it has been a relatively stable
democracy for more than two decades. Its economy flourished for years due to a
competitive business environment but has struggled recently because of govern-
ment’s mismanagement of fiscal and monetary policy and double-digit inflation.
With a score of 56.0, Ghana ranks 122 in the Heritage Index (see Table 13.1).
Compared to its 47 sub-Saharan neighbors, Ghana’s economy ranks 19, a few points
below the world’s average score in the Index (Miller et al. 2018). Other assessments
are more favorable, however, as US-based Freedom House gave Ghana the highest
ranking in mainland Africa, recognizing the nation for halving the proportion of its
population in extreme poverty well ahead of UN goals (White and Ward 2017).
Nana Akufo-Addo was elected president in 2016 and has largely followed a path
of continued economic liberalization. President Akufo-Addo’s one policy—one
district, one factory—aims to leverage the nation’s natural resource pool by identi-
fying industries with potential for competitive advantage and crafting policies to
support them in each of the nation’s 216 districts. On the social side, he promised
to construct a dam for every village in the dry northern regions. The government is
leaning heavily on the private sector to help deliver on these promises, supported
by an ongoing bailout from the International Monetary Fund (IMF) (White and
Ward 2017).

https://doi.org/10.1007/978-3-319-93242-2_13
152 13 Nonmarket Strategy in Ghana
Table 13.1 Assessment of national context—Ghana

Heritage Index of Economic Freedom (Heritage
Foundation 2018) Rank/scorea Change
World rank 122 +4.00
Region rank (sub-Saharan Africa) 19 No change
Overall score 56.0 −0.22
Heritage data
Tariff rate 10.0%
GDP per capita (PPP) $4412
Unemployment 5.8%
Inflation 17.5%
World rank 65
a
Government Size 153
Rule of Law
Ghana’s rule of law is severely undermined by its weak protection of property rights,
placing it in the repressed category of the Index. Obtaining a clear title to land is a
complicated and time-consuming process. The nation lacks a comprehensive system
of property, so consistent enforcement is virtually impossible. The chieftaincy sys-
tem in Ghana can restrict property rights as well; the need to compensate all salient
stakeholders (especially chiefs) in some way is often vital to organizational survival.
Prudent political and social NMS is essential, but without avoiding salient stake-
holders such as chiefs and queen mothers in the chieftaincy system, lest firms face
endless litigation despite government approvals. Nonetheless, Ghana ranks signifi-
cantly higher than the regional average of 38.3 (Miller et al. 2018).
Judicial effectiveness is also considered repressed and falls slightly below the
world average, but Ghana’s score is higher than the regional average of only 36.3.
Whereas Ghana’s judiciary is generally independent, the judicial process is often
delayed due to resource scarcities and poorly paid judges, which creates opportuni-
ties for bribes and political corruption. Entrepreneurs looking to start businesses
often encounter state officials who expect to receive bribes. Such political corrup-
tion is reflected in the country’s government integrity score of 32.9, which falls
below the world average and slightly above the regional average—all of which are
deemed to be repressed (Miller et al. 2018). According to Steven Gray, deputy chair
of the UK-Ghana Chamber of Commerce, “If you want a long-term, meaningful
relationship, make space for a domestic partner” (Ward 2017).
Shortly after his election in 2016, President Akufo-Addo created a special pros-
ecutor’s office to address corruption. Finance minister Ken Ofori-Atta has promised
change, including eliminating ghost workers and ensuring that all state contracts go
to public tender. As he put it, “The president has declared a war against corruption
and we ourselves are putting structures in place to make sure we don’t go off the
rails” (Fick 2017). But expectations are not universally high. According to Franklin
Cudjoe, head of Accra-based policy think tank Imani, “It may put fear into a few
people, but the institutional arrangements for corruption to thrive continue” (White
and Ward 2017).
Government Size
Ghana’s top personal and corporate income tax rates are both 25%, and with an
overall tax burden that is equal to only 20.1% of GDP, the Index score for overall tax
burden is 83.5, in the free category. Ghana’s government spending score of 79 is
considered mostly free and is significantly higher than both the regional and world
averages. Despite high government spending and tax burden scores, Ghana’s
government has grossly mismanaged fiscal policy, with budget deficits averaging
8.2% of GDP over the past 3 years and a public debt equally 72.4% of GDP. Ghana’s
fiscal health score of 9.5 is among the worst in the Index, just a few points higher
than the world’s most repressed economies of North Korea and Yemen. Fortunately,
Ghana’s fiscal mismanagement has not created an excessive strain on the economy,
but improvements are needed (Miller et al. 2018).
As is the case with many of the world’s developing economies, Ghana’s regulatory
environment is complex and inconsistent. While Ghana’s recently elected govern-
ment has promised to make the regulatory environment easier to navigate for busi-
ness owners, the country’s business freedom score of 59.5 is considered mostly
unfree. Complying with business regulations in Ghana is usually cumbersome and
the country’s business freedom needs improvement (Miller et al. 2018).
Ghana’s labor freedom score is also considered mostly unfree, slightly below the
world average, but above the regional average. The nation’s labor regulations are
restrictive and child labor is still prevalent in some parts of the country. Although
Ghana’s monetary freedom score is just 63.7 and ranks well below the regional and
world averages, the government is under increasing pressure to reform and decrease
subsidies to its unprofitable energy companies, many of which remain state-owned
Market Freedom
Despite having an economy that relies heavily on trade with combined imports and
exports accounting for 89% of its economy, Ghana’s average applied tariff rate of
10% is among the highest in the Index, and trade is also moderately impeded by
nontariff barriers. Ghana’s trade freedom score is 65.1, which is considered moder-
ately free and ranks below both the Index’s regional and world averages (Miller
et al. 2018). Many Ghanaian business and government leaders, like others in Africa,
are often suspicious of foreign investment and seek to develop national wealth inter-
nally (Pilling 2018).
Although Ghana’s trade environment is not always welcoming, its investment
freedom score of 70 is above both regional and world Index averages, on the border
between moderately free and mostly free. In recent years, Ghana has made concrete
progress in the financial sector with privatizations, but access to financing remains
difficult because banking is generally undercapitalized. Ghana’s financial freedom
score of 60 is improving, is trending toward moderately free, and is significantly
higher than both the regional and world averages (Miller et al. 2018).
Nonmarket Strategy: Ghana 155
Nonmarket Strategy: Ghana
Ghana’s current regime seeks economic reforms with the stated goal of making it
easier to do business in the country. Former SOEs are being privatized in the finan-
cial sector, but it is unclear whether government officials are capable of identifying
industrial opportunities effectively or if politically connected business leaders in the
private sector will be the prime beneficiaries of the government’s ambitions to grow
the economy (White 2017a).
Industrial development in Ghana is a multifaceted problem and efforts to enhance
it have not always succeeded. For example, Ghana has rich farmland, but about 70%
of its food is imported. The sugarcane produced internally is used to make molasses
or spirits. Sugar mills are in disrepair, while most refined sugar is imported.
Ghanaian farmers grow a lot of rice as well, but over 60% of refined rice is imported.
Shopping centers feature rice products from Thailand, India, Italy, and the USA,
most of which are preferred by even the poorest customers (White 2017c).
Cocoa production faces a different set of complexities. Cocoa is politically sensi-
tive and tightly controlled because it drives substantial foreign exchange for the
country. The Ghana Cocoa Board both regulates the industry by controlling prices
paid to 800,000 farmers and serves as the monopoly exporter. Charges of corruption
involving the board are common. Ghana used to be the global leader in cocoa pro-
duction but is now second behind Ivory Coast (White 2017c).
Corruption is an ongoing problem in other sectors of the economy as well. The
Africa Report of April 30, 2015, notes that although Ghana has passed solid anti-
graft legislation, set-asides are common, and firms frequently turn to bribes to win
contracts. The Ghanaian government is not only the nation’s largest employer but
also the largest contractor. A simple gift to a few public officials can both cut through
the bureaucracy and guarantee lucrative contracts without competitive struggles.
The Procurement Act (663) was passed in 2003 but has not stopped officials from
exerting favoritism. As Enu-Kwasi (2014) noted, “Corruption can increase or
decrease the production costs faced by the firm or the product costs faced by the
individual. Bribes paid to expedite government regulatory activities, to obtain
import licenses or to win government contracts, will all raise costs. By contrast,
bribes paid to circumvent government regulations like health and safety, environ-
mental requirements, and taxes may reduce the net cost to the company and impose
social costs” (p. 88).
Pervasive corruption influences the development of both market and nonmarket
strategies. Management capabilities, particularly in the public sector, are underem-
phasized in Ghana due to cronyism and nepotism. Most senior executive and board
member appointments in state-owned enterprises (SOEs) are made by the President
of the Republic, so SOE goals, by implication, tend to align with those of the politi-
cal party in power. In contrast, technology capabilities have become increasingly
important. For example, MTN Ghana broke new ground by introducing mobile
money services and has continued to lead technological development in the indus-
try, introducing 4G technology to increase Internet speed in 2016. MTN Ghana
maintains its historical dominance in the Ghanaian telecom industry through
constant innovation and new products, investing about US $2.5 billion in the sector
between 2006 and 2015 and amassing a 46% market share. MTN appears to have
developed through markets and innovation, and currently commands almost twice
the market share its closest competitor, Vodafone Ghana (Telecom Space 2016).
Culture also appears to impede economic development. Ghanaian cultural norms
and values generally eschew vigorous competition that puts the survival of rival
firms at stake. The traditional orientation in Ghana favors a harmonious, less com-
petitive coexistence of firms that assure survival for all. As such, eliminating non-
competitive forms is abhorrent to many Ghanaians. Cognitive agreements among
individuals and businesses or with governments tend to be socially preferred to
intense competition. It is implicitly understood that exploiting a firm’s party affilia-
tion could be politically expedient, but any deliberate act by politically connected
firms to undermine the existence of competing firms is unacceptable.
NMS is an interesting phenomenon in Ghana, but scholarship on the topic is
limited, both in the nation (Coffie and Owusu-Frimpong 2014; Obeng et al. 2014;
Saffu et al. 2007) and across the African continent (Liedong et al. 2017; George
et al. 2016). In a recent study of 179 Ghanaian firms, however, Liedong et al. (2017)
found that CSR reduced institutional risk exposure, but managerial political ties do
not, challenging the notion that the integration of MPT and CSR is appropriate,
particularly in developing economies with weak institutional environments.
Many factors, including the corrupt political and legal environment in Ghana,
contribute to political NMS activity in Ghana. Like many sub-Saharan African
countries, political connections and entrepreneurial success in Ghana appear to be
correlated. In fact, personal and political contacts continue to be the primary impe-
tus for business startups. Decades ago, Kennedy (1977) explained that the profit of
the “bureaucratic capitalist” depends on the monopolistic privileges granted by the
bureaucracy. Recent revelations about corrupt Ghanaian judges and government
officials by undercover journalists, including anonymous Anas Ameyaw (a.k.a.
Anas), attest to the fact that pay-to-play remains pervasive in the Ghanaian econ-
omy (Adadevoh 2014; Asante 2012; Ayagre and Aidoo-Buameh 2014; Anas 2015).
Corporate political connections are so widespread and entrenched in the Ghanaian
business environment that many firms depend on the use of NMS for their very
survival. Political alliances to ensure the survival of business are quite common
throughout the African continent as well.
A collective example of social NMS can be seen in the cocoa industry. In 2017,
12 of the world’s largest chocolate manufacturers embarked on an effort to end
deforestation in Ghana, along the Ivory Coast, and in other cocoa-producing nations.
The sustainability initiative is, at least in part, a response to recent reports that cocoa
production is a contributing factor to what some believe is a deforestation epidemic
in Africa’s virgin forests (Terazono 2017).
There are several noteworthy CSR initiatives in Ghana. Blue Skies, Christie
Brown, BusyInternet, and Kuapa Kokoo have adopted common CSR initiatives
including local sourcing, job creation, and “fair” pay and working conditions. Blue
Skies emphasizes what it calls “keeping value in the country” through local
sourcing. Blue Skies has such a positive reputation in the community that “crowds
turn up to apply” when it is rumored the company is hiring (White 2017b).
Ghana Data 157
Table 13.2 Evaluation of Ghana model—strategic capabilities and strategy

Factor loadings >0.70 Yes Range 0.631–0.854 (3 items below 0.700 retained for
consistency; Mktcap1, Mktcap2, Linkcap2, and
Linkcap4 were eliminated because of cross-loadings)
alpha >0.70
reliability >0.70
Convergent validity: Yes Range 0.555–0.657
AVE >0.50
Discriminant validity: Yes No; HTMT score for marketing and market-linking
HTMT p < 0.05 scales was 0.909
R2 refined model—cost 0.484 R2 (adjusted) = 0.478
leadership
differentiation
NMS-political
NMS-social
Ghana Data
Managers representing 166 firms in Ghana were surveyed.1 Preliminary tests largely
in all three models tested, although several items close to but below the 0.700
threshold for factor loadings were retained for consistency. The results are summa-
rized in Tables 13.2, 13.3, 13.4, 13.5, 13.6, and 13.7. The composite model is pre-
sented in Fig. 13.1.
drove cost leadership and political NMS, while management capabilities drove dif-
ferentiation and social NMS. This distinction suggests two alternate paths to perfor-
1
Thanks to Professors Edwin C. Mensah, University of North Carolina-Pembroke, and Derek
Oppong, Data Link Institute in Ghana, for their invaluable assistance with the data collection.
Table 13.3 Ghana model—strategic capabilities and strategy

Ghana-cap-strategy model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
Mgt cap → cost lead 0.080 0.077 0.087 0.920 0.358 0.006
Mgt cap → NMS-political −0.022 −0.013 0.108 0.201 0.841 0.000
Mkt-link cap → −0.112 −0.115 0.117 0.962 0.337 0.008
differentiation
Mkt-link cap → 0.189 0.183 0.128 1.480 0.140 0.018
NMS-political
Mkt cap → cost lead 0.464 0.467 0.107 4.356 0.000 0.154
Mkt-link cap → 0.219 0.227 0.093 2.349 0.019 0.036
NMS-political
Mkt cap → cost lead 0.529 0.529 0.088 6.039 0.000 0.298
mance, (1) technology capabilities through cost leadership and political NMS and
(2) management capabilities through differentiation and social NMS.
The nexus between technology capabilities and cost leadership in the first path is
intuitive, although the effect size (f2 value) was small (0.055). In addition, the link
between technology capabilities and political NMS produced a moderate effect size
(0.206). Put another way, technologically astute firms appear to emphasize cost
containment—a strategy common to firms in developing nations—and to be better
connected politically. These firms also tend to achieve better financial performance,
thereby reinforcing the value of political intervention.
Concerning the second path, the importance of management capabilities for dif-
ferentiation and social NMS—but not cost leadership and political NMS—is also
intriguing, although the effect sizes were small. Differentiated businesses tend to
place a greater emphasis on social NMS and achieve better non-financial
performance. The splits between capabilities, market strategies, nonmarket strate-
gies, and performance identified in Ghana were unique among the ten nations.
Ghana Data 159
Table 13.4 Evaluation of Ghana model—strategy and performance

Factor loadings >0.70 Yes Range 0.625–0.839 (6 items with loadings
below 0.700 were retained for consistency)
>0.70
p < 0.05
R2— non-financial performance 0.340 R2 (adjusted) = 0.323
performance
performance
Note: When developing the refined model, none of the strategy constructs were linked to both
financial and non-financial performance, so two refined models—one for each dependent vari-
able—were constructed
Table 13.5 Ghana model—strategy and performance

Ghana strategy-perf model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
perf
NMS-political → non-fin 0.100 0.104 0.095 1.054 0.293 0.008
perf
perf
Second, marketing capabilities were instrumental in cost leadership, differentia-

tion, and social NMS. In this respect, marketing emphasis appears to transcend both
paths to performance. Moreover, marketing was the only capability category that
impacted both differentiation and cost leadership in addition to one of the NMS
Table 13.6 Evaluation of Ghana model—composite

Factor loadings >0.70 Yes Range 0.618–0.855 (5 items with loadings
below 0.700 were retained for consistency)
>0.70
p < 0.05
Table 13.7 Ghana model—composite

Ghana-composite model Orig. sample Sample mean Std. dev. t-stat. p-value f2 value
perf
Mkt cap → cost lead 0.526 0.525 0.082 6.421 0.000 0.296
dimensions. This finding underscores the broad and increasing importance of mar-
keting in Ghana. This is not unusual, as similar findings were identified in other
nations as well.
Third, financial performance was driven by cost leadership and political NMS,
whereas non-financial performance was driven by differentiation and social NMS. In
Ghana, cost leadership appears to be more likely than differentiation to promote
strong financial performance, which is not surprising given the nation’s
Ghana Data 161
Fig. 13.1 The Ghana model—composite
d evelopmental status. Social NMS enhances non-financial performance but does

not seem to pay financial dividends.
In sum, NMS in Ghana reflects the nation’s status as a developing African econ-
omy. Corruption persists despite official and consistent attempts to combat it;
indeed, the nation’s cultural bent against competition appears to reinforce it to some
extent. Not surprisingly, political NMS appears to produce financial benefits, but the
complex nexus between NMS and performance could change as Ghana’s economy
continues to develop.
Chapter 14
Conclusion
Nonmarket strategy is a complex phenomenon with links to strategic capabilities,

market strategies, and firm performance. The findings presented in the previous ten
chapters vary across nations and do not suggest specific prescriptions applicable to
all firms, but they underscore a number of important principles. This chapter seeks
a way forward by integrating these findings with research and practice.
Table 14.1 provides the effect sizes for all significant links in the composite mod-
els presented earlier and, as such, summarizes the key findings across the nations
examined in this study. Recall that effect sizes (f2 values) were assessed and inter-
preted following Cohen’s benchmarks of 0.02 (small), 0.15 (moderate), and 0.35
(large) (Hair et al. 2012b). Composite models were developed by removing links
individually based on p-values and reevaluating subsequent models until all remain-
ing links were significant at the 0.05 level and all f2 values were 0.02 or greater.
Hence, larger effect scores are more noteworthy, and the lack of an effect score in
the table depicts the absence of a significant link in the final model for the nation.
A cursory analysis of Table 14.1 highlights several commonalities across nations.
For example, the influences of technology capabilities on cost leadership and of
marketing capabilities on differentiation were widespread, as expected. The links
between market strategies (i.e., cost leadership and differentiation) and performance
were also pervasive. But several distinctions were also found. Market-linking capa-
bilities were substantial drivers of NMS in the USA and India but had limited or no
influence on NMS elsewhere. The impacts of political and social NMS on perfor-
mance varied, though social NMS appeared to play a greater dividend. With this
mix of similarities and differences in mind, the remainder of the chapter focuses on
key conclusions.

https://doi.org/10.1007/978-3-319-93242-2_14
164 14 Conclusion
Table 14.1 Effect sizes in composite models

Composite model
link USA UK India Mex. Ven. Egypt China Turkey Poland Ghana
Tech cap → cost 0.034 0.148 0.044 0.116 0.094 0.065 0.096 0.059 0.148 0.055
Tech cap → diff 0.083 0.157 0.085 0.045 0.048 0.131
Tech cap → pol 0.097 0.228 0.206
NMS
Tech cap → soc 0.166
NMS
Mktg cap → cost 0.195 0.094 0.068 0.031 0.067 0.048 0.147 0.065 0.296
Mktg cap → diff 0.613 0.166 0.111 0.101 0.097 0.135 0.520 0.110 0.278 0.200
Mktg cap → pol 0.152 0.115 0.073
NMS
Mktg cap → soc 0.055 0.058 0.156 0.035 0.079 0.089 0.189
NMS
Link cap → cost 0.025 0.047 0.050 0.060 0.057
Link cap → diff 0.056 0.033 0.020
Link cap → pol 0.196 0.392 0.130
NMS
Link cap → soc 0.477 0.028 0.763 0.080
NMS
Mgt cap → cost
Mgt cap → diff 0.036
Mgt cap → pol
NMS
Mgt cap → soc 0.064 0.024 0.062
NMS
Cost → fin perf 0.070 0.032 0.030 0.205 0.062 0.070 0.191
Cost → non-fin 0.032 0.079 0.073 0.104 0.137
perf
Diff → fin perf 0.131 0.176 0.030 0.088 0.096 0.148 0.031
Diff → non-fin 0.242 0.066 0.037 0.074 0.244 0.132 0.142 0.091
perf
Pol NMS → fin 0.042 0.099 0.077 0.059
perf
Pol NMS → non- 0.027
fin perf
Soc NMS → fin 0.084 0.175 0.068 0.118 0.042
perf
Soc NMS → non- 0.040 0.109 0.021 0.042 0.057 0.236 0.189
fin perf
Context Is Critical
If there is a single takeaway from decades of research on global business strategy, it

is that context is extremely important. The mantra of international business, “think
global, act local,” underscores this reality. Effective strategies begin with a deep
Context Is Critical 165
social, political, and economic understanding of the environment and are crafted in
ways that leverage local differences. In terms of NMS, this means understanding
such distinctions as a nation’s stage of economic development, the market-
orientation of the current political regime, and expectations of consumers (Hadani
et al. 2017; Mellahi et al. 2016b). While findings support NMS as a valid construct
across borders, developed nations like the USA differ from emerging nations like
India and developing ones like Ghana. Free nations like the UK differ from repressed
ones like Venezuela. Western nations like Mexico differ from their eastern counter-
parts like China. Just as a one-size-fits-all competitive strategy rarely works across
global markets, NMS cannot be fully understood outside of context.
When interpreting the findings presented herein, it is also important to reconsider
the discussion in Chap. 3 on methods and build conclusions not only on data but
also on a broader understanding of issues unique to each country. The cross-national
analysis reinforces the notion that NMS is highly contextual. In Ghana, for exam-
ple, marketing capabilities drive social (but not political) NMS, which drives non-
financial (but not financial) performance; the effect size of both links is moderate.
This type of relationship is not found in other nations in the study, with the possible
exception of Venezuela. In this respect, the analysis is equally important in terms of
what it tells us and what it does not.
The developmental stage of an economy appears to impact the appropriate NMS
to an extent. In developing nations like Egypt and Ghana, political connections are
central to survival and are not understood in the same way they are in the developed
economies. The notion of political NMS presupposes an ability to negotiate with
political entities. For example, when politicians wield more power due to weak
infrastructure, the notion of lobbying as a means for working out legislative differ-
ences with politicians does not exist.
NMS is also interpreted differently across nations because of political pressures,
economic realities, and cultural differences. In Venezuela, the Maduro regime is
more socialist in orientation than the populous, so firms at odds with the central
government face expropriation and nationalization. In India, the Modi regime
appears to be more market-oriented than much of the citizenry, but firms are still
expected to display a concern for social development. In China, private firms must
navigate political NMS in a sea of SOEs.
Of course, the contextual nature of NMS adds complexity for multinational firms
because a different NMS might be ideal in each nation. On the political side, US
firms like Apple and Google that contribute to political parties in their domestic
markets are often silent on political matters in other nations. Likewise, a UK-based
firm may lobby through trade associations in its domestic market, but its operations
in China must be more accommodating of government decrees. On the social side,
a US-based firm that takes strong social positions on issues such as privacy and
sexual harassment in its domestic market might also do so in the UK or Poland, but
is less likely to do so in Egypt, where gender roles are understood differently.
166 14 Conclusion
Strategic Capabilities and NMS
The links between capabilities and market strategies were somewhat consistent.
Technology and marketing capabilities were key drivers of market strategies in most
of the nations surveyed, while management capabilities were not prominent. The
impact of market-linking capabilities on market strategies was more varied, how-
ever. Likewise, the capability-nonmarket strategy links also varied substantially
across nations, with marketing and market-linking capabilities most prominent. As
previously discussed, market-linking capabilities were substantial drivers of both
political and social NMS in two nations, the USA and India. But consistency regard-
ing specific capabilities across nations is not required to assert that impact NMS. On
the contrary, the links between capabilities and nonmarket strategies—like those
with market strategies—are contextual. Hence, firms should build capabilities to
support nonmarket strategies just as they do to support market strategies (Agyapong
et al. 2016; Cacciolatti and Lee 2016; D. Teece et al. 2016).
Because capabilities drive both market and nonmarket strategies, some capabili-
ties might be required for both, while others might be critical to strategies in only
one domain. In all nations assessed in the survey except the USA and India, empha-
sis on one capability category drove both a market and a nonmarket strategy; in the
UK and Egypt, marketing capabilities drove emphases on both market and nonmar-
ket strategies. In general, marketing capabilities represent an anomaly and appear to
transcend the market and nonmarket strategy domains. This finding supports the
idea that both market and nonmarket strategies should be treated as a single entity
and could be crafted so that investments in common capabilities support both mar-
ket and nonmarket dimensions of that strategy.
Of course, each market or nonmarket strategy is likely to require its own set of
unique capabilities. Broadly speaking, technology capabilities appear to underpin
market strategies, but not nonmarket strategies. In other instances, specific capabili-
ties might be required for one strategy domain but not the other, depending on con-
text. For example, in India and the USA, market-linking capabilities were significant
drivers of both political and social NMS with moderate effect sizes, but these links
were not found in other countries. Hence, whether or not market and nonmarket
strategies are viewed as a single entity, each domain is likely to require at least some
unique capabilities.
NMS and Performance
As noted in Table 14.1, political NMS was a significant driver of financial perfor-

mance in several nations but did not drive non-financial performance in any of them.
Moreover, social NMS was also linked to financial performance in several nations,
but its influence on non-financial performance was even more profound. The core
drivers of financial and non-financial performance were, for the most part, market
NMS and Performance 167
strategies. This could be interpreted in three ways. First, the performance impacts of
CPA, CSR, and other variants of NMS espoused elsewhere (Rodriguez-Fernandez
2016; Unsal et al. 2016; Brown et al. 2017) might be overstated. Put another way,
NMS might be critical to certain types of firms—perhaps large companies or those
in specific industries—while market strategies predominantly drive performance in
others.
Second, NMS might drive performance, but only to a limited extent. A modest
emphasis on NMS might be considered the “price of admission” for many firms,
while additional emphasis does not justify the extra time and resources required (see
Parnell et al. 2017). If true, a limited amount of emphasis on political and social
NMS might be required to keep firms “out of the headlines” and preclude adverse
effects on performance. This view could be explained in part by the law of diminish-
ing returns, the idea that gains from a given input decline as more of that input is
placed into service. Strategic examples of this law are legion; the value of the first
cashier working during a fast-food lunch rush is greater than the last one, the first
round of quality checks on a production line are more critical than the last round,
and so forth. Similarly, one could argue that firms should allocate a small percent-
age of revenues to social and political NMS, but no more.
The “price of admission” narrative is intuitive but largely untested empirically. If
accurate, it would support the notion that market strategies and nonmarket strategies
should be distinct endeavors with the greatest emphasis on the former. Of course,
the notion of social NMS infers that executives seek some type of positive social
benefits above and beyond profits, so firms could be expected to deny such a view
in public even if it were accurate.
Finally, the data might not be telling the entire story. If market and nonmarket
strategies are inexorably intertwined (Chong 2017), then the performance impact of
a firm’s NMS cannot be easily distinguished from that of a firm’s market strategy.
Consider the case of fast-casual restaurant Chipotle discussed in Chap. 2. The chain
leverages its social commitment to fresh ingredients—no added flavors, colors, or
preservatives—when marketing its products to health-conscious customers. For
Chipotle, it is difficult to dissect the market and nonmarket contributions to
performance.
More intricate research is required to suggest which narrative is most accurate
and in which situations, but there is likely some truth in all three. Indeed, published
work on NMS in various industries (e.g., Schuler 1996; Sun et al. 2010; Vázquez-
Maguirre and Hartmann 2013) supports the first explanation. Of course, perfor-
mance drivers vary across firms for many reasons and that performance in any firm
is a function of multiple factors. Managers must rank these drivers relative to their
own firms. Additional research can help them in this regard, but it will not replace
the critical judgment required to make strategic decisions in both the market and
nonmarket realms.
168 14 Conclusion
Corruption, Cronyism, and Political NMS
Corruption can emanate directly from firm nonmarket activity, but its widespread
presence can also create an environment that encourages and rewards NMS by cre-
ating opportunities both for firms that seek to leverage political influence and those
that seek to prevent rivals from doing so. As such, NMS appears to be most relevant
in mixed, developed economies. Opportunities to procure government favor are lim-
ited (or would be) in a purely capitalist society. Likewise, firms have little to bargain
with in a completely socialist society like Venezuela because the government can
easily dictate terms. Political control over business firms is greater in such nations
but does not lend itself to a nonmarket response. Intuitively, NMS is most valuable
when there is some balance of power between business firms and government, so
there is room to negotiate. Unfortunately, demonstrating this empirically is difficult
because specific examples of corruption are best known in nations with the least
amount of actual corruption because governments there permit open reporting.
Critics of capitalism and advocates of free enterprise often view NMS differ-
ently. Few scholars publicly advocate a near-complete government control of busi-
ness as seen in Cuba and Venezuela, but many seem to infer that mixed economies
are preferable in part because they create opportunities for firms to engage in politi-
cal and social NMS (Scherer et al. 2016; Frynas et al. 2017); they criticize markets
for their ostensible deficiencies and often posit NMS—specifically CSR and public-
private partnerships—as a big part of the solution. In contrast, defenders of free
markets see the need for NMS as a big part of the problem. Their view is traced in
part to the work of scholars including noted economist Milton Friedman (1970),
who argued that firms are not only best equipped to serve customers and markets,
but society benefits as a whole when companies focus on profits rather than nonmar-
ket concerns. Promoters of mixed markets typically claim these two views are not
mutually exclusive, but in many respects, firms are either free to govern their own
affairs or they are not.
In a similar vein, economic development packages offered by state and local
government typically offer financial benefits to firms in exchange for locating or
relocating their facilities and “creating jobs” in their regions. Although widely
viewed as a normal course of recruiting business, these packages transfer costs from
new firms to existing ones and reward companies for relocating their facilities, or at
least threatening to do so. Proponents contend that the cost of these packages is usu-
ally more than offset by the economic development gains. Strictly speaking, offer-
ing special treatment to a firm that is not available to others in the region represents
cronyism by definition. Moreover, when governments offer tax breaks and other
incentives to large firms, not surprisingly, expectations rise across the board.
Consider the case of Amazon. The Internet behemoth is planning the develop-
ment of a new North American facility that could result in as many as 50,000
employees and $5 billion in investment over the next two decades. In 2017, the
company received bids from 238 cities and regions in 54 states, provinces, districts,
and territories. When 20 finalist cities were identified in early 2018, other large
employers already located in these cities began to insist on the same package offered
Ethics and Social NMS 169
to Amazon. Indeed, initial offers to Amazon from Newark, New Jersey, and the state
of Maryland totaled $7 billion and $5 billion, respectively. When Washington, DC,
was listed as a contender, a group of tech companies already located in the district
asked its mayor to provide them with the same property tax breaks, training bonuses,
and other incentives reportedly offered to Amazon. JPMorgan Chase has tens of
thousands of employees in multiple finalist cities; CEO James Dimon said he would
simply wait until the location was announced and then call the governor to negotiate
a similar package. As economist Timothy Bartik put it, “Economic incentives are
subject to the reverse potato chip rule: You can’t hand out just one” (Raice and
Stevens 2018).
Because incentive packages received by Amazon and other large firms are nego-
tiated between management and government officials, they fall within the realm of
political NMS. But the arrangement is complex because it also represents a form of
competition among localities, each attempting to be more business-friendly than the
next. Put another way, governments are competing for businesses just as businesses
compete for customers, except governments are bargaining with taxpayer funds. In
this respect, one might categorize these deals differently from ordinary lobbying,
viewing them more positively and as public-private partnerships. Either way, these
arrangements are valuable to firms able to negotiate them.
A similar situation occurs when a local government agrees to construct a new
sports stadium at taxpayer expense to attract or retain a professional sports team. In
2016, Las Vegas lured the Raiders National Football League (NFL) team from
Oakland with $750 million in public funding toward the construction of a new $1.8
billion stadium (Velotta 2018). Such arrangements are common and allow owners to
transfer some of their operating costs along to taxpayers. Critics baffle at such con-
tributions in an industry where an athlete’s annual salary exceeds $2 million
(Statistica 2018). Politicians justify such deals on the basis of economic develop-
ment, noting that without financial commitments from the government, teams would
locate elsewhere, and jobs and tax revenue would be lost.
Because incentives to large firms and sports teams are public information and are
linked to economic development, even analysts whom categorize them as crony do
not view them as corruption. This distinction notwithstanding, government favors
extended to select businesses influence strategic decisions. Whether they emanate
from private meetings between business leaders and politicians or from open offers
to lure companies to the region, they can represent substantial revenue streams and
are, hence, a part of the political NMS domain.
Ethics and Social NMS
The conceptual distinction between social NMS and ethics was outlined in Chap. 3.
Because these concepts are often inappropriately commingled, CSR is often misun-
derstood as an ethical imperative. Even so, buyer perceptions drive purchase behav-
ior. Their concerns about ethical (or unethical) practices in a firm might be
170 14 Conclusion
“misunderstood” as the existence (or lack) of social responsibility, but they have
strategic relevance nonetheless. In this respect, the pursuit of sound ethical practices
falls into the social NMS domain.
Ethical issues at one firm can also be viewed as social issues at another. For
example, in 2006, Chinese government investigators at the Fuan Textiles mill in
southern China discovered a pipe buried underneath the factory floor. The company
was using the pipe to discharge about 22,000 tons of water contaminated from its
dyeing operations daily into a nearby river. This is clearly an ethical problem, as the
company was in obvious violation of regulations (and common sense) prohibiting
such dumping, but it also affected other firms that used the company’s fabric in their
clothes, such as Wal-Mart, Target, Gap, and Nike (Spencer 2007). Although not
directly involved, one could argue that these firms have an ethical or social respon-
sibility to cancel their contracts with Hong Kong-based Fountain Set Holdings—
majority owner of the factory—and procure other suppliers unless immediate
changes are made. Moreover, other companies with different second- and third-tier
suppliers were challenged to evaluate their business practices more closely.
Regardless of how it is defined, an obvious ethical issue at a Chinese supplier
became a social NMS concern at manufacturers and retailers across the globe.
Consider also Facebook’s 2018 data crisis. The US-based company was already
mired in complaints about permitting “fake news” and violent videos when it faced
a privacy scandal involving UK-based Cambridge Analytica in which data from 50
million Facebook users was employed to target political advertisements in the 2016
US elections. Facebook users agree to terms that generally permit the company to
use and often sell data to others, but few consumers actually read the agreements or
understand how they can protect parts of their data. Some viewed this use of data as
unethical regardless of any user agreements and demanded a regulatory response
(Seetharaman 2018). To them, the action was both unethical—data should always
be protected—and socially irresponsible; Facebook has a responsibility to promote
privacy protection in a high-tech world.
The overlap between ethics and social NMS can also be seen in concerns about
executive compensation. Effective 2018, the 2010 Dodd-Frank Act requires pub-
licly traded firms to disclose their median employee pay in addition to CEO pay and
the pay gap ratio. Disparities were considerable in the first disclosures. Marathon
Petroleum posted one of the largest ratios, 935 to 1, with median pay for workers at
$21,034 and CEO compensation at $19.7 million. About 32,000 of its 44,000
employees work in the firm’s Speedway convenience stores or gas stations, and
many are part-time. If these were not considered, the median employee pay would
have been about $126,000, for a ratio of 156 to 1. Median pay at food processor
Kraft Heinz was $46,000 compared to CEO compensation of $4.2 million, for a
ratio of 91 to 1. Critics note that guidelines give companies a lot of leeway when
calculating median pay and that it should vary considerably anyway because of job
differences across industries. Moreover, if there are ethical or social concerns about
worker compensation, the focus should be on those numbers, not ratios (Francis and
Fuhrmans 2018).
Integrating Market and Nonmarket Strategies 171
The Overlap Between Political and Social NMS
While it is useful to distinguish between social and political NMS, it is equally

important to recognize how they comingle. A firm’s social position could be care-
fully crafted to leverage political involvement; it might align with or emanate from
the market strategy, or both. The quintessential example is Tesla. The firm employs
a strong social position in favor of clean energy, lobbies heavily for (and receives)
substantial subsidies for its products, and only produces electric vehicles (EVs). In
the USA, this amounts to a $7500 tax credit for each of the company’s first qualify-
ing 200,000 EVs, a potential total of $1.5 billion in taxpayer funding ostensibly
provided to transition the country away from fossil fuels. Similar government sub-
sidies are provided in other nations throughout Europe and Asia. Even with govern-
ment support underpinning demand for its cars, Tesla has been plagued with cash
and production problems and received a costly credit downgrade from Moody’s
Investor Services in early 2018 (Goldfarb and Higgins 2018).
The situation is a bit more complex for companies like General Motors. GM
addresses clean energy and fossil fuels in its sustainability report, a proxy for social
NMS. GM benefits from EV subsidies for its Chevy Bolt but also relies heavily on
vehicles that consume fossil fuels, so its social position is not as bold as that of
Tesla. Moreover, GM has an interest in both electric vehicle (EV) subsidies that
promote sales of the Chevy Bolt and corporate average fuel economy (CAFÉ) stan-
dards that boost miles-per-gallon requirements of its other vehicles. Meanwhile, the
company continues to develop its EV platform and is positioning to benefit from
China’s increasing subsidies (Muller 2017).
The connection between political and social NMS for EV producers is not diffi-
cult to understand. Elected officials often regulate firms whose activities run counter
to their social agendas. On the flipside, they can directly support the business inter-
ests of firms that share their agendas. Interestingly, companies are often said to be
pursuing CSR when their business activity responds to public policy, but their lead-
ers are often called cronies when they make the first move and attempt to influence
the political process. Of course, it is often unclear whether such arrangements are
initiated by business leaders, politicians, or both. Regardless, the same issue can
have both political and social NMS implications. The extent to which this occurs
underscores the notion that both dimensions of NMS—whether coupled with mar-
ket strategies or not—should be viewed as a single strategic effort.
Integrating Market and Nonmarket Strategies
Some firms view market and nonmarket strategies and integrated components of a
single comprehensive, strategic approach (dos Reis et al. 2012; Henisz and Zelner
2012; Kingsley et al. 2012; Sawant 2012; Sun et al. 2012; Singer 2013; Baron
1995), while others view NMS as a stand-alone endeavor (Vázquez-Maguirre and
172 14 Conclusion
Hartmann 2013; Porter and Kramer 2002, 2006). Because of different constituen-
cies, blending market and nonmarket approaches can involve trade-offs (Frynas
et al. 2017; Singer 2013). If an integrated perspective is adopted, managers should
consider action in areas where nonmarket and market considerations coincide and
are directly related to strategic success of the firm (Bach and Allen 2010; Hadani
et al. 2015). For example, a health food store could seek to support organic farming
and a restaurant could pursue or oppose certain food safety regulations. In this
respect, the NMS reinforces the market strategy, thereby advancing the firm’s
broader strategic orientation. There are many other instances where firms appear to
blend market and nonmarket strategies, with varied results.
In early 2018, Google’s Chrome browser began blocking certain types of online
advertising. Google described the decision as a collective, user-friendly, industry-
wide effort led by the “Coalition for Better Ads” to eliminate spam and unwanted
popups. Critics argued that Google controlled most of the research on which deci-
sions were based, dominated the decision-making process, and ultimately produced
a self-serving policy. They note that most of Google revenue emanates from rectan-
gular display and text search ads, not the visually rich media ads, banned by the
coalition (MacMillan 2018).
Consumer groups have lobbied governments and fast-food restaurants to pro-
mote healthier food alternatives, reduce the use of processed foods and preserva-
tives, and require suppliers to support human treatment of animals. McDonald’s has
taken steps to shed its supersize image by abandoning supersize portions, cooking
its French fries in a healthier canola oil blend, including apples with happy meals,
and adding products such as snack wraps, oatmeal, and fruit smoothies. None of
these healthier alternatives has achieved the status of the Big Mac, Chicken
McNuggets, or McGriddles, and salads only account for about 3% of sales. In early
2018, the fast-food giant began using fresh beef instead of frozen patties in its
quarter-pound hamburgers (McGroarty 2018).
The case of REC watches (www.recwatches.com) illustrates the overlap
between market and nonmarket strategies. REC is based on a recover-recycle-
reclaim model and an ostensibly environmentally sensitive approach to watch pro-
duction. Each high-quality watch is unique and crafted using parts from a salvage
vehicle. But with prices in excess of $1000 per watch, it is difficult to argue that
purchasing one is a cost-effective means of managing an environmental problem.
REC’s business model appears to be more about virtue signaling than about envi-
ronmental cleanup.
As of 2017, emission standards in the USA required vehicles produced in 2025
to average about 36 miles per gallon in real-world driving, a standard that vehicle
producers claimed was too difficult to achieve, especially in an era of cheap gaso-
line. Low fuel prices encourage consumers to purchase larger, less fuel-efficient
cars and trucks. Carmakers lobbied for a revised standard for years and in 2018, the
US EPA concurred (Spector 2018). The modified standard was largely good news
for the industry, but the issue is more complex. Carmakers have been producing
(and continue to produce) based on expectations about the standards. Costly deci-
sions about vehicle design and the use of specific materials in production are made
A Long-Term Perspective on NMS 173
based on anticipated requirements. California and other states have different require-
ments, which can add costs as well. Moreover, there is no guarantee that the EPA
will not change course again in the next few years.
A Long-Term Perspective on NMS
Market strategies can have immediate, intermediate (i.e., lag), or long-term effects.
For example, launching a fast-food value menu can increase market share in the
short run but prompt competitors to follow suit and lead to lower margins and
reduced profits over time. Investing heavily in new technology can lower per-unit
production costs in the short run but can commit a firm to old technology when new
processes are developed. Similarly, a given NMS can have different short- and long-
term implications.
For example, prior to passage of the Affordable Care Act in 2010 in the USA,
executives in insurance and pharmaceutical firms had to decide whether or not to
support and attempt to influence legislation that was forecast to harm their firms.
Pfizer and others decided to trade support for influence by negotiating with the bill’s
political advocates while also reorganizing their firms to coordinate with the Act’s
requirements. Some argue that public-private collaboration was the most effective
approach under the political circumstances. As they note, “if you’re not at the table,
you’re on the menu” (author unknown). However, others insist that opposition to the
plan could have prevented its passage altogether (Whelan 2012; Fera 2013).
The previous example reinforces the idea that firms should carefully consider
long-term implications before pursuing direct, nonmarket involvement in contro-
versial or potentially contentious areas. Of course, this is easier said than done.
Consider firm responses to the tragic school shooting in Florida in early 2018. Gun
control advocates argued for additional legislation to prevent such violence in the
future and began to pressure firms to support their effort. Many did. Citigroup
became the first US bank to announce restrictions on the sale of firearms by its part-
ners. The policy disallows the sale of bump stocks and high-capacity magazines. It
also prohibits the sale of firearms to customers under 21 years of age or who have
not passed a background check, actions it refers to as “common sense measures.”
This mean clearly inserts Citigroup into a social debate not directly related to its
core business, banking.
Atlanta-based Delta Airlines responded to activist pressure by disassociating
with the National Rifle Association (NRA), the most prominent defender of gun
ownership rights in the USA. In doing so, the airline eliminated a discount offered
to NRA members who fly Delta to the organization’s annual convention. Delta man-
agement probably anticipated few if any consequences from the move, but the
Georgia House and Senate immediately struck an amendment from consideration
that would have renewed a $50 million jet fuel tax exemption for the company.
Lieutenant Governor Casey Cagle summarized the sentiment this way: “Businesses
have every legal right to make their own decisions, but the Republican majority in
174 14 Conclusion
our state legislature also has every right to govern guided by our principles”
(McWhirter 2018). Indeed, what the government gives, it can take away, but this
issue is more complicated.
The type of group discount Delta eliminated is common in the industry and does
not reflect any kind of endorsement between an airline and the recipient organiza-
tion, but Delta decided to pull the NRA discount anyway. The airline cited “neutral-
ity” in the gun debate as the impetus, but the timing and political nature of the move
are difficult to ignore. As with Citigroup, activists pressured Delta to base a business
decision on a social issue—gun ownership—that is not directly related to its busi-
ness activity as an airline. Delta’s alleged standard of neutrality places all airline
discounts under scrutiny, including those it might seek to employ in the future.
This issue should be examined from another perspective as well. Why was
Georgia’s state government pondering a transfer of $50 million in taxpayer funds to
Delta in the first place? As addressed previously in this chapter, defenders of tax
breaks like this one argue that they create jobs and pay for themselves in increased
revenues overall. Of course, the political fallout from Delta’s response is directly
related to Delta’s political NMS.
While it appears that Delta’s response had a negative impact on performance, it
is difficult to calculate the short- and long-term costs of the move to the firm. To
suggest that it simply cost the airline $50 million is shortsighted because it does not
consider how customers might have changed their purchase behavior if Delta had
not responded the way it did and how they might alter their purchase decisions
going forward. It would be difficult for a major airline like Delta to link a social
position on either side of the gun debate to its market strategy.
As the Citigroup and Delta examples suggest, there appears to be a silent assump-
tion that a firm’s political or social NMS should seek a path of least resistance; if
threatened with boycotts or negative publicity, a firm should simply issue a state-
ment and take some type of action to eliminate the risk. Advocates of such an
approach should recognize that in the highly connected world of social media and
instant information transfer, the path of least resistance may not be easy to identify
anyway. Although Delta claimed to be seeking neutrality with its response to the
NRA, the company is now perceived as less than neutral on an issue that has nothing
to do with flying.
Global Trade as an Illustration of NMS
The nexus between global trade and NMS demonstrates how firms tend to take cal-
culated political and social positions that align with their market strategies and reali-
ties in the industry. The win-win basis for global trade is based on the economic
concept of comparative advantage, the idea that certain products can be produced
more cheaply or at a higher quality in certain countries due to better access to
required resources. Comparative advantage has caused manufacturers in the USA,
UK, and other developed nations to shift production to Asia and other parts of the
Global Trade as an Illustration of NMS 175
world. The process is dynamic, however. Chinese manufacturers enjoyed some of

the lowest global labor rates for unskilled or semiskilled production in the 2000s,
but increased worker skills and production quality has boosted average wage levels
above those in neighboring nations like India, Pakistan, Indonesia, Cambodia, and
Vietnam. By the late 2010s, the lowest labor costs were more likely to be found in
Africa. In 2015, garment workers in Ethiopia earned as little as $21 per month com-
pared to $67 in Bangladesh and $155 in China. Africa’s comparative advantage in
textiles extends beyond low labor costs, because many nations can grow their own
cotton as well (Passariello and Kapner 2015).
Of course, firms do not (and should not) engage in production only where they
can do so most efficiently. Cross-border transportation costs for raw materials or
finished goods can exceed potential savings associated with producing abroad.
Political turmoil and trade restrictions can create barriers, and even if one nation
enjoys a complete absolute advantage over another, the weaker nation must produce
something to maintain economic viability and create jobs. Firms in these nations
typically produce in areas where the absolute advantage is lowest. All nations ben-
efit from this type of arrangement, provided they are willing to pursue it free of
protectionism.
Because comparative advantage is a national concept, it does not dictate firm
strategy. A nation’s comparative advantage or disadvantage is only one consider-
ation of many when a firm’s strategies are considered. Costs aside, firms often estab-
lish operations in other countries, for political reasons—whether formally required
by a government or not—especially if a substantial proportion of sales is derived
abroad. Doing so can also help a firm position itself for anticipated growth abroad.
Traditionally, the USA has been a strong advocate of free trade, but this position
became more complicated when Donald Trump was elected president in 2016.
Trump’s global business interests were widely known, but candidate Trump distin-
guished between free and fair trade, arguing for a renegotiation of the North
American Free Trade Agreement (NAFTA) with Canada and Mexico, against the
Trans-Pacific Partnership with 11 other nations, and for retaliation against China
and other trade partners for unfair trade practices. In January 2018, the Trump
administration approved tariffs of 20% on the first 1.2 million washing machines
and 50% on subsequent imports during the upcoming 2 years, and a 30% tariff on
solar panel components, with a rate declining to 15% over 4 years. In February,
President Trump—amid dissent from leaders in his own party—announced 25%
steel and 10% aluminum tariffs on most countries. China was the ostensible target,
as it held a 49.6% share of 2016 global steel production. Moreover, nine of the ten
largest steel producers in China are state-owned. A $60 billion package of tariffs
against Chinese imports followed shortly thereafter (Bender and Nicholas 2018;
Schlesinger and Ballhaus 2018).
An irony here is worth noting. Ceteris paribus, tariffs on solar panels would
likely stunt growth in the industry by raising prices, but other government mandates
promoting “green energy” actually work in the opposite direction. State and local
policies require utilities to procure renewable energy and many states tax breaks for
consumers who make their homes more energy-efficient; these subsidies often
176 14 Conclusion
include the application of solar panels. It is not surprising that some firms argue for
a governmental intervention approach regarding green energy and a hands-off
approach regarding trade. Overall, the next effect of the solar subsidies and tariffs
appears to be positive for the industry (Ailworth 2018).
Broadly speaking, US business leaders tend to advocate free trade because it cre-
ates opportunities for their firms abroad, but they often identify certain exceptions
unique to their specific companies or industries. They are also careful to support
US-based production, lest they be branded as socially irresponsible. Steel producers
claim to support free trade once inequities with companies in China are alleviated.
Tesla CEO Elon Musk argued against President Trump’s 2018 steel tariffs while
lobbying for an extension of the $7500 EV subsidy (Goldfarb and Higgins 2018).
The point here is not that unrestricted global trade is always “free” and beneficial to
nations like the USA. On the contrary, structural issues require government negotia-
tion. For example, trade issues such as state ownership of enterprises, import tariffs,
and the protection of intellectual property must be settled among politicians in the
USA and China. Nonetheless, each firm’s political and social NMS reflects its own
market realities.
Unresolved Issues and Future Research
Over two decades of NMS research notwithstanding, many unanswered questions

remain. Debates continue over key terms and different philosophical perspectives
on the appropriate role of business firms in a free economy. A link between NMS—
broadly understood—and firm performance is generally accepted, but with notable
exceptions. Identifying the exceptions is challenging.
Each of the conclusions presented in this chapter underscores the need for addi-
tional research. The importance of context suggests that more work should be done
across industries and nations. The prominence of strategic capabilities as building
blocks of NMS requires greater exploration. The distinctions and overlap between
political and social NMS point to the complexity of the nonmarket arena. Support
for an integrated strategy that includes both market and nonmarket considerations is
growing, but it is not always clear how such a strategy should be developed and
implemented. Different perspectives on the interplay between firms and govern-
ments—what one person calls social responsibility another might call cronyism—
beg for more integrated frameworks. Indeed, opportunities for future research
abound.
Perhaps the greatest unanswered questions extend beyond firm performance and
are focused on the long term. The very notion of NMS suggests that firms should
invest resources in areas not directly related to customer satisfaction. Is a strong
emphasis on NMS beneficial to firms over the long term or does it create nonmarket
expectations among customers that the firm is not well-equipped to address? Does
a broad, strong emphasis on NMS across firms in an economy benefit the nation
overall? Does the broad shift toward mixed economic models in the USA, China,
Unresolved Issues and Future Research 177
and European nations that underscores the importance of NMS foster or impede
freedom and human flourishing? These questions extend beyond the disciplines of
management and economics, the interpretation of data, and the wholesale applica-
tion of models and frameworks from one part of the world to another. NMS is more
than a business problem and is best understood when addressed from perspectives
both within and outside of the business realm.
The broad benefits of social NMS for firms and societies are debatable, but links
between the political dimension and cronyism are clear. Nations are best served
when governments are structured so that opportunities for legislators and other offi-
cials to reward political NMS are minimized. But this is generally not the case, and
the problem transcends developed and developing economies. Unless and until gov-
ernments change, the payoffs for political NMS will continue, and societies will pay
the price.
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Index
A Banking scandals, 69
Affordable Care Act (ACA), 37, 39, 40, 43, Batory Foundation, 143
47, 173 Beifa Group, 119
Africa Report, 155 Biotechnology Innovation Organization
Akufo-Addo, N., 151, 153 (BIO), 44
Alibaba’s campus, 118 Bitcoin, 78, 91
Amazon, 44, 45, 53 Black market, 91
American Association of Retired Persons Blue Nile River, 104
(AARP), 44 Brazilian construction company, 78
American Recovery and Reinvestment Act Business regulations, 154
(ARRA), 47 BYD, 119
America’s economic power, 91
America’s inter partes review (IPR) system, 44
Anadolu Agency, 131 C
Anti-corruption effort, 132 Cairo-based financial expert, 103
Anti-corruption police, 118 Cambridge Analytica, 170
Anti-discrimination law, 57 Carrefour Poland, 144
Anti-graft legislation, 155 Catholic Church, 143
Apple, 115, 118 Centrica, 59
Arab Spring, 99 CEO Compensation, 170
Arepas, 91 Chávez, H., 87, 89–91
Assessing data quality Chieftaincy system, 153
analytical approach, 35, 36 China, 114, 121, 123
statistical protocol, 36 advantages, 119
testing stages, 34, 35 Alibaba’s campus, 118
Association to Advance Collegiate Schools of anti-corruption police, 117–118
Business (AACSB), 16 Apple, 118
Austrian school of economics, 17 assessment
Automobile industry in US, 48, 49 national context, 114
Average variance explained (AVE), 35 strategic capabilities and strategy, 121
strategy and performance, 123
automobility, 119
B Beifa Group, 119
Bailey, A., 58 business activity, 117
Baksheesh, 103 business and political environments, 118
Balanced scorecard, 4, 9, 10 BYD, 119

https://doi.org/10.1007/978-3-319-93242-2
198 Index
China (cont.) Context

China’s National Development and Reform domestic market issues, 165
Commission, 118 financial performance, 165
Chuanfu, W., 119 market-orientation, 165
CITIC Bank, 120 NMS, 165
composite, 124, 125 think global, act local, 164
cultural concerns, 117 Cook, T., 118
data, 120–122 Corporate average fuel economy (CAFE),
economic anomaly, 113 48, 171
economic/social policy, 117 Corporate monsters, 19
environmental regulations, 119 Corporate political activity (CPA), 6, 7
EV manufacturers, 118, 119 Corporate social responsibility (CSR), 6–8,
financial and non-financial performance, 121 10, 37
foreign vehicle producers, 119 Corruption, 7, 9, 131
GM, 119 Corruption Perceptions Index (CPI), 103
government size, 115 Cost leadership, 29, 32, 35, 163
Guanxi, 117 Cronyism, 7–9, 20, 58, 176, 177
Heritage Index, 113, 114 Cross-national analysis, 165
HNA Group, 120 Cryptocurrencies, 78
market freedom, 116–117 Customer anxiety, 17
marketing capabilities, 121
market potential, 118
misunderstandings, 117 D
nation’s IPO system, 117 Data collection and analysis
OECD, 113 market and nonmarket strategy survey
political NMS, 121, 122 items, 32
political realities, 118 sample demographics, 30
practical limits, 118 survey items—performance, 33
PRC, 113 survey items—strategic capabilities, 33
regulations and price controls, 113 Deferred Action for Childhood Arrivals
regulatory environment, 116 (DACA), 43
rule of law, 115 Delta Airlines, 15
social NMS, 121, 122 Differentiation, 29, 32, 35, 163
SOEs, 117, 119, 120 Dodd-Frank Act, 40
state-directed capitalism, 122
stock exchanges, 117
strategic capabilities and strategy, 122 E
strategy and performance, 123 Egypt, 100, 106, 108, 109
technology capabilities, 120 Arab Spring commence, 99
Tesla, 119 assessment
track record, 117 composite, 109
China CITIC Bank, 120 national context, 100
China’s judicial effectiveness score, 115 strategic capabilities and strategy, 106
China’s National Development and Reform strategy and performance, 108
Commission, 118 baksheesh, 103
Chuanfu, W., 119 business leaders, 103
Citibank, 144 Cairo-based financial expert, 103
Coalition for Better Ads, 172 coefficient alpha scores, 105
Common sense measures, 173 composite, 105, 110, 111
Commonwealth of Nations, 55 construction, 104
Communist Party, 115, 117 corruption, 103
Composite models, 164 cost leadership, 105
Consumer Financial Protection Bureau data, 105–106
(CFPB), 40–41 discriminant validity, 105
Index 199
economic freedom score, 99 Free exchange, 1

economic opportunities, 104 Friedman, M., 37
FDI, 104
GDP, 99
government size, 101 G
government’s reputation, 104 General Electric (GE), 69
Mada Masr, 103 General Motors (GM), 49, 89, 119
market freedom, 102 Ghana, 153, 158–161
marketing capabilities, 105 Accra-based policy, 153
market-linking capabilities, 105 Blue Skies, 156
MENA region, 99, 104 Cocoa Board, 155
Ministry of Investment and International context assessment, 152
Cooperation, 104 data
Mubarak, H., 99, 103 African economy, 161
Nile River, 104 financial performance, 160
political-legal environment, 102 management capabilities, 158
political NMS, 103, 105, 106 marketing capabilities, 159
political stability, 99 non-financial performance, 160
regulatory environment, 101–102 technology capabilities, 158
rule of law, 99, 101 economic reforms, 155
social NMS, 103, 105, 106 fiscal policy, 154
strategic capabilities and strategy, 107 government size, 153, 154
strategy and performance, 108 judicial effectiveness, 153
technology capabilities, 105 market freedom, 154
Transparency International’s CPI, 103 MTN, 155
Egypt’s financial freedom score, 102 pervasive corruption, 155
Electric vehicles (EVs), 22, 40, 49, 118, political NMS, 153
119, 171 Procurement Act, 155
ElectroMobility Poland, 144 reforms, 154
el-Sisi, A.F., 99, 103, 104 regulatory environment, 154
Environmental Protection Agency (EPA), 40 rule of law, 153
Erdoğan, T., 127, 129 political corruption, 153
ESPN, 24, 25 stakeholders, 153
Ethics and social NMS social NMS, 153
Dodd-Frank Act, 170 sugar mills, 155
Facebook, 170 Vodafone, 156
Fuan Textiles mill, 170 Ghana Cocoa Board, 155
Ethisphere Institute, 68 Ghana model
European Union (EU), 55–58 composite, 160, 161
evaluation, 157
performance, 159
F strategic capabilities, 158
Facebook, 44 Global trade
Families of Victims Committee (Cofavic), 92 comparative advantage, 174, 175
Federal Drug Administration (FDA), 40 free, 176
Federal regulatory agencies, 40 green energy, 175
Federal Reserve, 45 NAFTA, 175
Financial Conduct Authority (FCA), 58 political turmoil, 175
Financial performance, 22, 23, 33 González, C.X., 79
Firm-specific factors, 25 Google, 43, 44
Fiscal health, 56, 57 Grand Ethiopian Renaissance Dam, 104
Ford, 49 Gross domestic product (GDP), 27, 38, 43, 67,
Foreign Corrupt Practices Act, 91 77–79, 99, 115, 116
Foreign direct investment (FDI), 104, 140, 143 Guanxi, 117
200 Index
H International Monetary Fund (IMF), 102, 151

Hands-off approach, 176 Istanbul Textile and Apparel Exporters’
Hayek, F., 37 Association (ITKIB), 132
Heritage Foundation, 28
GDP, 27
government size, 27 J
national context, 28 Jinping, X., 118
open markets, 28 Joint ventures, 69
regulatory efficiency, 28 JPMorgan, 143, 169
rule of law, 27
Hill, J., 25
HNA Group, 120 K
Human resources (HR), 4 Keynes, J.M., 37
Human Rights Watch (HRW), 130 Keynesianism, 37
I L
Imani, 153 Lacuna, V., 91
Index of Economic Freedom, 27, 28, 37 Lag effect, 34
India, 65, 66, 70–72 Laurel Powers-Freeling, 59
assessment Legally unwarranted social cleansing, 92
composite, 72 Length of interview (LOI), 34
national context, 65, 66 Lobbying politicians, 19
strategic capabilities and Long-term firm value, 18
strategy, 70 Lozoya, E., 79
banking scandals, 69
composite, 73, 74 M
cost leadership, 73 Mada Masr, 103
data, 70–74 Maduro, N., 87, 89, 90
economic advances notwithstanding, 69 Mallya, V., 69
economy ranks, 65 Marketing, 2, 3
Ethisphere Institute, 68 Market-linking capabilities, 64
fraud, 69 Market-oriented activity, 19
government size, 67 Market-oriented firms, 2
joint ventures, 69 Markets, 1–3, 9
market freedom, 68 McDonald, 15, 16, 172
marketing capabilities, 72 Mexicans Against Corruption and Impunity,
market-linking capabilities, 73 79
nonmarket context, 70 Mexico, 76, 80, 82, 83
political NMS, 73 assessment
regulatory environment, 67–68 composite, 83
rule of law, 65, 66 national context, 76
social NMS, 73 strategic capabilities and strategy, 80
strategic capabilities and strategy, 71 strategy and performance, 82
strategy and performance, 72 business attractiveness, 75
taxes, 69 composite, 83, 84
technology capabilities, 70 cost leadership and differentiation, 81
vestiges of colonialism, 68 cronyism persists, 85
Indian liquor tycoon, 69 data, 80–85
Initial public offerings (IPOs), 116 economic uncertainty, 78
Institutional theory, 5 economy, 75
Intellectual property theft, 115 GDP, 79
Internal economic data, 87 government size, 77
Index 201
Heritage Index, 75, 76 Non-financial performance, 22, 23, 28, 33

market and nonmarket activity, 78 Nongovernmental organizations (NGOs), 6
market freedom, 77–78 Nonmarket factors, 20
marketing and management capabilities, 81 Nonmarket-oriented activity, 19
market-linking capabilities, 80 Nonmarket strategy (NMS), 4, 5, 9, 10, 18,
market-linking scale, 80 155, 156
Mexican authorities, 78 AACSB, 16
nonprofit organizations, 79 activities, 3, 4
political NMS, 79, 82, 83 categories, 14
political side, 78 context, 164, 165
regulatory environment, 77 contextual approach, 36
reliabilities, convergent validity and corruption, 7, 9
discriminant validity, 80 CPA, 6, 7
rule of law, 75–76 cronyism, 7–9
social NMS, 79, 84 CSR, 6, 8, 10, 22, 156
strategic capabilities and strategy, 81 data collection and analysis, 11
strategy and performance, 82 decision-making process, 172
technology capabilities, 80 development, 3, 13
Middle East North Africa (MENA) region, 99, dimension, 4
101, 102, 104 domains, 166
Modi, N., 67, 69 employing multiple methods, 20
Monsant, 47 ethics, 16, 21
Moral hazard, 18 financial performance, 22, 23,
Morsi, M., 99 166, 167
Mubarak, H., 99, 103 firm performance, 23
Multinational data collection Ghana, 155
cross-national research, 30 culture, 156
financial statements, 34 technological development, 155
measurement error, 34 HR, 4
NMS, 28 influence, 24
Porter’s typology, 29 institutional theory, 5
positive links, 29 issues
ROA, 32 environment, 18
strategic capabilities, 29 moral hazard, 18
survey approach, 30, 31 short-term financial returns, 18
Musk, E., 116 market economies, 2, 3
marketing, 3
marketing capabilities, 163, 165, 166
N market-oriented firms, 3, 4
National Aeronautics and Space market strategy, 8, 10
Administration (NASA), 48 motivation, 20
National Basketball Association (NBA), 8 non-financial performance, 22, 23, 166
National Football League (NFL), 41, 169 NRA, 15
National Freedom Institute’s Center for the objectives, 4
Development of Civil Society, 143 PCSR, 6
National Highway Traffic Safety performance impact, 167
Administration (NHTSA), 48 political and social dimensions, 29
National Rifle Association (NRA), 15, 173 RBV, 5
Nation’s initial public offering (IPO) system, research, 176, 177
117 ROA, 9
New Coke, 19 scholarship favors integration, 10
Nieto, E.P., 79 social and political dimensions, 14
Nile River, 104 social responsibility, 21
Non-financial measures, 4 stakeholder, 5
202 Index
Nonmarket strategy (NMS) (cont.) marketing capabilities, 145

approach, 9, 10 NGOs, 143
impact, 4 political NMS, 142, 148
interests, 9 property rights, 141
orientation, 10 PZU, 143
strategic decisions, 9 regulatory environment, 141
theory, 5, 9 regulatory reform, 141
strategic capabilities, 24, 163, 166 rule of law, 141
strategic consideration, 13, 14 social NMS, 142, 144, 147
survey-based measures, 29 strategic capabilities, 145, 146
technology capabilities, 163 strategy and performance, 147
trade-offs, 172 technology capabilities, 146
UK, 58, 59 trade freedom, 142
Nontariff barriers, 154 Political action committee (PAC)
North American Free Trade Agreement advertisements, 42
(NAFTA), 39, 43, 75, 175 Political corporate social responsibility
(PCSR), 6
Political, economic, social, technological
O (PEST), 16
Obama, B. Political networks, 32
ACA, 37, 39 Political NMS, 10, 42–45
administration, 40, 43, 49 Amazon, 168, 169
ARRA, 47 bureaucratic capitalist, 156
DACA, 43 China, 121, 122
federal government’s regulatory burden, 39 corruption, 168, 169
vs. Trump, 42 CPA, 6
Objective data, 31 cronyism definition, 168
Octavio, M., 91 Delta, 173, 174
Odebrecht, 78 economic development, 168, 169
Organization for Economic Cooperation and Egypt, 103, 105, 106
Development (OECD), 113 Ghana, 156–158, 160
India, 73, 74
Mexico, 79, 82, 83
P Poland, 142, 148
Papa John’s, 23 SOE, 165
Partial least squares (PLS), 35 Turkey, 133
PDVSA, 89, 91, 92 UK, 62
People’s Republic of China (PRC), 113 USA, 47
Petro cryptocurrency, 92 AARP, 44
Petróleos Mexicanos (Pemex), 79 ACA, 43
Poland BIO, 44
assessment, 140 by businesses, 43
banking sector, 142, 143 business spending, 42
composite model, 148, 149 DACA, 43
corruption, 141, 143 Democrats and Republicans, 42, 43
CSR, 144 firm and industry levels, 45
data, 145–149 GDP, 43
economy, 139 IPR system, 44
EU members, 142 NAFTA, 43
EVs, 144 PAC advertisements, 42
FD, 143 party level, 42
government size, 141 political contributions, 42
index, 139, 141 in presidential administrations, 43
market freedom, 142 public policy, 43
Index 203
social media platform, 44, 45 State-owned enterprises (SOEs), 116, 117,

staffers and bureaucrats, 45 119, 120, 122
state/local level, 42 State-sponsored capitalism, 3
Uber, 44 Strategic capabilities, 24
Venezuela, 93, 97
Political and social NMS overlap, 171
Powell, J., 45 T
Prawo i Sprawiedliwość political party, 143 Tesla, 48–49, 116, 119
Price of admission, 167 Think global, act local, 164
PricewaterhouseCooper (PwC) consultant, 45 Toyota, 48–49
Pro-consumer orientation, 59 Transparency International, 89, 103
Property rights, 24 Transport for London (TfL), 59
Purchasing power parity (PPP), 38 Troubled asset relief fund (TARP), 49
Trump, D.
administration, 43, 49
R campaign positions on immigration and
Raj, 67, 68, 73, 74 trade, 42
REC business model, 172 FCC, 43
REC watches, 172 federal regulations, 41
Refounding the Fatherland, 91 NAFTA, 39, 43
Reliability, 31, 34–36 vs. Obama, 42
Research and development (R&D), 20 policy, 41
Resource-based view (RBV), 5 regulatory burden on financial sector, 42
Return on assets (ROA), 9, 32 regulatory reform, 39
Rule of law, 27 Turkey, 134, 136
Anadolu Agency, 131
anti-corruption effort, 132
S assessment, 128
Schnatter, J., 23 composite model, 134, 136, 137
Scholarship favors integration, 10 financial performance, 136
Scottish National Party, 58 marketing capabilities, 134
Security and Exchange Commission (SEC), 40 technology capabilities, 134
Self-declared counter-offensive against crime, 92 corruption, 131
Selfridge, H., 2 crimes, 129
Short-term financial returns, 18 data, 134
SmartPLS, 35 EU report, 132
Social media activity, 23 fiscal health, 129
Social NMS, 10 government size, 129
China, 121, 122 Heritage Index, 127
CSR, 7, 10 HRW, 130
Egypt, 103, 105, 106 IMF support, 132
Ghana, 156 ITKIB, 132
green energy, 59 market freedom, 129, 130
India, 73, 74 NMS, 130
market-linking capabilities, 64 pertinent information, 130
Mexico, 79, 84 political NMS, 133
Poland, 142, 144, 147 property rights, 127
Turkey, 133 reforms, 132
UK, 64 regulatory regime, 129
USA, 46, 47 strategic capabilities and strategy,
Venezuela, 93, 95 133, 134
Social objectives, 18 strategy model and performance, 135
Solyndra, 47, 53 TIM, 132
Stakeholder theory, 4, 5, 9 VAT, 130
204 Index
Turkish Exporters’ Assembly (TIM), 132 Index of Economic Freedom, 37

Twitter, 44 international trade, 39
NFL, 41
political NMS, 42, 47
U PPP, 38
Uber, 44 social NMS, 46, 47
UK’s Society of Motor Manufacturers and strategic capabilities and strategy, 51
Traders, 119 strategy and performance, 52
United Arab Emirates (UAE), 99 strong economy, 41
United Kingdom (UK), 60–62 tax burden, 41
assessment
model—composite, 62
strategic capabilities and strategy, 60 V
strategy and performance, 61 Validity, 31, 34–36
cost leadership, 64 Value-added tax (VAT), 130
data, 60, 64 Variance inflation factors (VIF), 35
economic freedom, 55 Venezuela, 88, 93–95
free markets, 57 assessment
government size, 57 composite, 95
green energy, 59 national context, 88
marketing capabilities, 60 strategic capabilities and strategy, 93
model—composite, 63 strategy and performance, 94
national context, 56 composite, 93, 96
NMS, 58, 59 corruption, 90–92
political NMS, 62 cost leadership and differentiation, 95
regulatory environment, 57 data, 91, 93–97
rule of law, 55 domestic firms, 92
social NMS, 64 economic disaster, 87
strategic capabilities and performance, 61 in economic freedom, 87, 88
strategy and performance, 62 economic returns, 97
TfL, 59 election of Hugo Chávez, 87
Uber, 59 energy minister, 91
United States Department of Transportation Families of Victims Committee
(DOT), 48 (Cofavic), 92
USA, 37, 38, 50, 52, 53 foreign firms, 92
assessment government
composite, 53 control and corruption, 97
national context, 37, 38 harassment of business, 91
strategic capabilities and strategy, 50 size, 89, 90
strategy and performance, 52 Heritage Index ranks, 87, 88
automobile industry, 48–49 internal economic data, 87
business and labor freedom, 39 labor freedom ranking, 90
composite, 53, 54 labyrinth of exchange rates, 91
consumer expectations of business firms, 41 legally unwarranted social cleansing, 92
cross-national assessment, 37 market freedom, 90
CSR, 37 marketing capabilities, 93
culture in, 37 market-linking capabilities, 93
data, 50–54 political domain, 92
GDP, 38 political NMS, 93, 97
government price controls, 91
integrity, 40 production and asset valuation decisions, 91
regulation, 40–41 Refounding the Fatherland, 91
spending, 40 regulatory environment, 90
Index 205
resource-rich nation, 87 X
rule of law, 87, 89 Xiaoping, D., 113
socialist catastrophe, 92
social NMS, 93, 95
state-run oil company, 91 Y
strategic capabilities and strategy, 94 Yamuna River, 69, 70
technology capabilities, 93
tragic irony, 91 Z
version of cryptocurrency, 92 Zedong, M., 113
violence and insecurity, 92 Zuckerberg, M., 44

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ISBN 978-3-319-93241-5 ISBN 978-3-319-93242-2 (eBook)

Library of Congress Control Number: 2018947501

© Springer International Publishing AG, part of Springer Nature 2019

Printed on acid-free paper

I am indebted to many individuals for their assistance. Several distinguished schol-

Nonmarket Strategy: The USA������������������������������������������������������������������ 41

Fig. 4.1 The USA model—composite������������������������������������������������������������ 54

Table 3.1 Heritage Foundation’s 2018 world and regional rankings

Table 7.1 Assessment of national context—Mexico���������������������������������������� 76

Table 12.3 Poland model—strategic capabilities and strategy������������������������� 146

© Springer International Publishing AG, part of Springer Nature 2019 1

The Nonmarket Strategy Nomenclature

Before proceeding, it is important to identify and distinguish among multiple

(www.cato.org/human-freedom-index)—examined in greater detail in future

Contemporary Market and Nonmarket Dimensions

Current Research on Nonmarket Strategy

proactive environmental policy, financially support community development, train

Integrating Nonmarket and Market Strategies

Existing research underscores what most managers already inherently understand,

A robust stakeholder orientation and a broad perspective on performance (e.g., a

The Plan for This Book

What Does Nonmarket Strategy (NMS) Mean to Managers?

© Springer International Publishing AG, part of Springer Nature 2019 13

Managers—particularly those in large companies in the USA and other

 hat Does NMS Mean to Students in Business

 hy Do Nonmarket Issues Receive More Attention Today

 o the Competitive Environment, the Industry,

 an We Determine What a Company Is Really Doing

As with market strategies, it is difficult to identify strategic intentions clearly. There

Going directly to the source is problematic as well. Of course, information

Is There an Ethical Dimension to NMS?

How Does NMS Influence Firm Performance?

former. While this type of NMS-financial performance link is complex,

Can NMS Hurt Firm Performance?

Just as an effective NMS can potentially improve firm performance, an ineffective

How Does NMS Vary Across Nations?

All strategy is contextual, as industrial, political, economic, social, and techno-

 an and Should Firms Simply Keep Their Market

Many firms attempt to sidestep integration of their market and nonmarket

 ow Should Strategic Managers Approach NMS in Their

The Heritage Foundation’s 2018 Index of Economic Freedom

© Springer International Publishing AG, part of Springer Nature 2019 27

The Multinational Data Collection

strategies not the only drivers of performance. Nonetheless, this approach

Table 3.2 Sample Variable n %

Table 3.3 Summary of data

asking multiple questions. Reliability and validity are important considerations

Table 3.4 Market and nonmarket strategy survey items

Table 3.5 Survey items—strategic capabilities

Table 3.6 Survey Item Summary

Assessing Data Quality

p­ rovide management level as a check on this qualification. Distinctions among

The Context for Business

© Springer International Publishing AG, part of Springer Nature 2019 37

Table 4.1 Assessment of national context—USA

Business and Labor Freedom

Excessive government spending misallocates resources and inhibits economic

Nonmarket Strategy: The USA�� 41

Fig. 4.1 The USA model—composite�� 54

Table 7.1 Assessment of national context—Mexico�� 76

Table 12.3 Poland model—strategic capabilities and strategy�� 146

The Nonmarket Strategy Nomenclature

Contemporary Market and Nonmarket Dimensions

Current Research on Nonmarket Strategy

Integrating Nonmarket and Market Strategies

The Plan for This Book

What Does Nonmarket Strategy (NMS) Mean to Managers?

hat Does NMS Mean to Students in Business

hy Do Nonmarket Issues Receive More Attention Today

o the Competitive Environment, the Industry,

an We Determine What a Company Is Really Doing

Is There an Ethical Dimension to NMS?

How Does NMS Influence Firm Performance?

Can NMS Hurt Firm Performance?

How Does NMS Vary Across Nations?

an and Should Firms Simply Keep Their Market

ow Should Strategic Managers Approach NMS in Their

The Heritage Foundation’s 2018 Index of Economic Freedom

The Multinational Data Collection

Assessing Data Quality

p rovide management level as a check on this qualification. Distinctions among

The Context for Business

Business and Labor Freedom

Nonmarket Strategy: The USA

Integrating Political and Social NMS

NMS in the US Automobile Industry: From Toyota to Tesla

The Context for Business

Nonmarket Strategy: The UK

The Context for Business

Nonmarket Strategy: India

The Context for Business

Nonmarket Strategy: Mexico

The Context for Business