Non-Market Strategy

Non-Market Strategy

• Systematic efforts to influence and adapt to political, regulatory, social, and cultural factors
• Often targets governments, activist groups, regulatory agencies, media, and social norms to protect or enhance a firm's market position

Why Nonmarket Strategy?

• Market rules are often set politically
• It can mitigate risks and exploit opportunities
• Establishes a long-term license to operate by maintaining legitimacy and goodwill
• Necessary for firms expanding globally who face diverse regulatory regimes and cultural expectations
• Protects or enhances intangible assets like reputation, brand loyalty, and relationships with regulators

High-Profile Nonmarket Engagement Examples

• Ride-sharing platforms fought local taxi regulations using lobbying and user support mobilization to secure legal legitimacy
• Pharmaceutical companies allocate significant resources towards shaping healthcare policy, patent law, and price regulations
• Tech companies impact can influence evolving data protection laws, investing heavily in lobbying and compliance
• Apparel brands address labor standards campaigns via self-regulation or alliances with NGOs

Market Strategy

• Direct actions related to product-market competition like pricing, advertising, R&D

Nonmarket Strategy

• Actions in political, regulatory, social, and activist arenas
• Examples include lobbying, forming coalitions, mobilizing public opinion, and adopting industry codes

Integration of Strategies

• It is important to align Nonmarket strategy with a firm's overall business model
• For example, a car manufacturer pushing for looser emissions standards might face backlash if simultaneously advertising itself as environmentally friendly

Relationship of Non Market Strategy to Political Economy, Activism, and Media

• Public policy is shaped by competing interests
• Activism and civil society groups can pressure governments and impact reputations
• Relationships with the media are important for framing debates and defending positions during crises

The Goal of Baron’s 4I Framework

• To understand a firm's nonmarket environment

Key Elements Analyzed in this Framework

• Issues: Conflicts affecting the firm.
• Scope, timing, and stakeholders are key aspects
• Interests: Organized groups that care about the issue
• Consider those for and against the firm's position along with resources and motivation
• Institutions: Bodies deciding and enforcing policies
• Strategy is shaped by decision rules
• Information: Data shaping the issue's perception
• Sides compete to provide information; credibility is critical

How to apply Baron’s 4I Framework

• Outline the specific issue, relevant institutions, active interests, and information used by each side
• Determine which interest groups and institutions are important
• Provide information, build alliances, and engage the right institution early

Hillman & Hitt Sequential Decision Model

• Is used to decide whether to get politically involved
• This model includes Approach, Participation, and Strategy Type

Approach Options

• Transactional: Short-term engagement when issues arise
• Relational: Developing long-term relationships

Participation Options

• Individual: Direct action, hiring a lobbying team
• Collective: Joining trade associations, pooling resources

Strategy type Options

• Providing data/expertise
• Aligning policymaker incentives
• Mobilizing the public

How to Apply Hillman and Hitt

• Start by analyzing how vital and frequent your policy issues are
• Select a tactic, such as information strategy for regulatory agencies or financial/constituency-building for legislative success

Bonardi, Hillman & Keim Model

• Policy-making is a political market with supply (politicians) and demand (firms/interest groups)

Understanding Attractiveness in this Model

• Attractiveness depends on demand-side rivalry, supply-side rivalry, and issue characteristics

Key Elements

• Demand-Side Competition: Evaluate conflicting positions and the effectiveness of lobbying
• Supply-Side Competition: Assess potential allies and competing agendas
• Issue Salience Distribution: Understand public opinion on changes
• Diffuse issues see fewer opponents
• Policy Life Cycle: Recognize leverage and focus

Applying Bonardi, Hillman, & Keim Model

• How many groups want the opposite policy, and are they influential?
• Be aware of the current timing of an election or public debate
• Select a strategy according to the timing of involvement, such as shaping early or waiting

Core Idea of Stakeholder Theory

• To consider all parties with legitimate interests
• Each stakeholder's power, legitimacy, and urgency should guide a firm's engagement

Salience Criteria

• Power: Ability to influence the firm
• Legitimacy: Socially recognized claim or moral standing
• Urgency: How quickly the firm must respond

Engagement Tactics

• Collaborate for those high in legitimacy/power, where alignment is possible
• Negotiate for partial alignment with high demands
• Defend or monitor when stakeholders are powerful, not legitimate or are legitimate, but lack power

Applying the Stakeholder Model

• Map stakeholder power and interest/legitimacy as the next step
• It is important to then determine the priority for direct engagement

Core Idea of Resource Dependence Theory

• Firms rely on external entities for vital inputs, creating vulnerabilities
• Nonmarket actions can reduce or manage these dependencies

Key points of power and dependence

• The resource holder can exercise power without good alternatives

Bridging Strategies

• Partnering with/gaining control over the resource holder (i.e., JV with a local supplier)

Buffering Strategies

• Hedge your bets by diversifying supply sources
• Adopt self-regulatory measures and maintain multiple partnerships

Applying Resource Dependence Theory

• Next, identify the controllers of the resources and then assess how you can bridge and buffer

The Arenas Approach

• Examines how politics and debate happen in arenas
• Actors with Resources and Interests are important

Breakdown of the "AI3" Approach

• Actors include firms, NPOs, politicians, etc
• Arenas include formal and informal institutions
• Each actor/ stakeholders goals or Issue are interests
• Information includes data, evidence or claims
• Assets help to influence outcomes such as money and brand credibility

Adapt, Transform or Die

• These are various strategies to use when local laws clash with company value and public sentiment
• Adapt by retaining the businesses core proposition
• Transform by changing the context (e.g if powerful enough)
• Die/withdraw by leaving the country after thinking about sacrifices

Seven "A's" or Shapeholder Approach (Kennedy)

• Shapeholders guide environment
• Approach is a process on deciding on dealing with them

Authenticity

• Important to demonstrate genuine, consistent behavior

Anticipation

• Important to monitor and predict

Assessment

• Is used to evaluate a shapeholder's real power, legitimacy, moral standing, potential alliances

Advance

• Adopt pro actively if Demands are in harmony with the strategy

Avert

• Make partial self-regulation to big threats

Acquiesce

• Must concede if demands supported or unstopable

Assemble

• Partner of form partner or moderate nonprofit to bolster position

Definition of Political Risk

• The probability that political decisions will negatively affect investment or operations
• Macro Risk: Affects all foreign firms in a country, encompassing unrest or inconvertibility
• Micro Risk: Targeted at specific firms by license revocation

Assessment Tools

• Indices are numeric ratings for political stability, corruption, regulatory environment
• Expert Judgement through local experts
• Project analysis with regulatory history

Crisis Response through Transparency, Empathy, Expertise

• Must adapt to local norms
• Key is the four "I" in implementation

Key to Success

• Continuous Monitoring
• Authenticity is also key
• Must adapt to the proper cultural institutions to be successful