My best frenemy: a history-to-theory approach to MNCs’ corporate diplomatic activities

Abstract

We study how a multinational corporation may take advantage of geopolitical tensions to further its goals. We maintain that multinationals can influence the diplomatic relationship between the host and the home countries by acting as a diplomatic broker between the two. We advance the concept of corporate diplomatic activities to describe this strategy and to theorize its benefits and risks. To this end, we adopt a history-to-theory approach and examine the role the US multinational Standard Oil of New Jersey played in settling a diplomatic impasse between the United States and Colombia in the 1910s and 1920s. We show that the multinational can mobilize its political resources and capabilities at home to increase the host government's bargaining power vis-à-vis the home country and, in return, obtain business benefits in the host country. The corporate diplomatic activities, however, can backfire. If the multinational invests in site-specific assets in the host country after successfully negotiating on the host country’s behalf, the host government can use these assets as "hostages" to pressure the multinational into negotiating on its behalf again in the multinational's home country.