Does context really matter? The influence of deficient legal services on the intensity of political ties in the regulatory and legal arenas

The purpose of this study is to apply the institution-based view and resource dependence theory in arguing that perceived deficiencies in a legal service sector where a foreign subsidiary operates will influence the intensity of its political ties with actors in both the regulatory and legal arenas. The authors further theorized that these relationships will vary across governance environments.

The research context for this study was multinational enterprises (MNE) wholly owned foreign subsidiaries and international joint ventures (IJVs) operating in the Philippines and Thailand. Data for most variables in this study came from primary survey data collected in 2018 from senior managers of MNE WOSs and IJVs operating in the Philippines and Thailand.

The authors’ analysis of 352 foreign subsidiaries operating in the Philippines and Thailand show that, in a flawed democracy, perceived deficient legal services enhance the intensity of foreign subsidiary political ties with government actors in both the regulatory and legal arena. However, in a hybrid regime, perceived deficient legal services enhance only the intensity of foreign subsidiary political ties with government actors in the regulatory arena. The authors’ findings also suggest that the relationship between perceived deficiencies in legal service sector and the intensity of political ties is stronger for foreign subsidiaries that operate in heavily regulated industries across both a flawed democracy and hybrid regime. Conversely, the authors do not find the market orientation of these foreign subsidiaries to play a role in this process.

The authors’ study was unable to control for whether managerial perceptions of deficient legal services were well informed at the local or federal level. This issue raises the question of will the presence of an in-house legal department influence managerial perceptions with regard to deficiencies within a legal service sector? Based on these limitations, the authors suggest that future research can further extend political ties research by using a fine-grained analysis in investigating the antecedents of managerial perceptions of legal services within different legal jurisdictions.

The political ties literature has largely argued that political ties are more prevalent in environmental contexts comprising institutional voids as MNEs attempt to mitigate volatility associated with the lack of developed institutional infrastructure (e.g. Blumentritt & Nigh, 2002; Bucheli et al., 2018). However, the concept of institutional voids is very broad and still rather abstract in nature. Hence, scholars have yet to fully understand what types of institutional voids may drive MNE foreign subsidiary political tie intensity in varying governance contextsThe authors’ study attempts to contribute to this important line of research by investigating how one type of institutional void, namely, perceived deficiencies in the legal service sector, can influence the intensity of political ties in varying governance environments.