INSTITUTIONS AND MNE-EXTERNAL STAKEHOLDOR RELATIONSHIPS
Name: Piyali
Rudra
Affiliation: Aalto University School of
Business
Phone:
+358505763851
Overview
Email: piyali.rudra@aalto.fi
Firms all over the world interact with numerous stakeholders such as employees, governments and the civil society in
general. Certain industries possess a greater risk of government involvement because society expects that the
owners/operators of the industry will balance private objectives (profit maximization) and public objectives
(economic growth etc.). Examples include electricity generation, telecom and natural resource extraction. i
In the mining industry, the respective stakeholders involved (primarily the governing body of a state, the mining
entity, and the affected community) have particular aspirations, which they wish to achieve. The difficulty in
providing a vigilante (in order to regulate the access to minerals) by way of institutions, arises due to the overarching
need to align these aspirations, to a level that is broadly acceptable to the majority of parties involved.ii
In this paper, I will analyse how the same firm, operating in the same industry (mining) but in different countries
(having different institutional endowments) manage interests (of individuals and groups with preferences of stake in
an issue: stakeholders) while maintaining equilibrium amongst economic/legal/political criteria.
Empirical Context
The Nordic countries are viewed as some of the most lucrative jurisdictions in the world for mining investment.iii
These countries have, in the last few years, revised their mining legislations and in each case, the effect has been to
increase the attractiveness of the country’s mineral potential to outside investors, while maintaining stringent
requirements for environmental protection and adherence to the socio-economic framework.
The focus here is to put the spotlight on the Nordic countries by comparing them, not only amongst themselves but
also across similar countries such as Canada thereby understanding why very different institutional structures are
sometimes equally conducive to growth and also why similar institutions lead to very disparate outcomes.
This paper is second in the series of papers in my dissertation, the first being a precursor to this one. The first paper
lays down the foundation of this study, namely to compare the costs and benefits of alternative institutional
arrangements in the Northern Mining Belt.
Theory
Theoretically, I would like to augment the traditional bargaining power perspective by considering the institutional
context in which bargains are struck and changed.iv
Study of Bargains: Eden et al.’s (2004)v political bargaining model focuses on the relationship that is formed
between a MNE and a variety of stakeholders (investors, interest groups, citizens and political actors - all of whom
are subject to varying institutional constraints and exogenous influencesvi) as the MNE enters into and remains within
a given country—that is, a series of bargains.vii
Study of Institutions: Literature review renders the observation that institutions have been studied in terms of
mechanisms of governance. Institutions are compared in terms of how they embody different coordination
mechanisms, such as markets, hierarchies, social networks, community norms, associations, and state intervention.
Method
In this paper, I will follow theory building: a combination of theory testing and heuristic development. Theory testing
case studies “assess the validity and scope conditions of a single or competing theory,” while heuristic case studies
“inductively identify new variables, hypotheses, causal mechanisms and causal paths” (George and Bennett, 2005, p.
75). The approach will be to understand how stakeholder engagement impacts the way firms manage the entry
process/operations by controlling for firm level strategy and state policy. The primary sources behind the case
studies will be company documents, semi-structured interviews with representatives from various mining
multinationals, relevant ministries/government bodies and other sources such as consultants, accountants, auditors,
lawyers and trade organizations. I am working with Mineral Cluster North for procuring my data and for carrying out
my subsequent analysis.
Issues Under Investigation
Mining is essentially concerned with wealth generation for the stakeholders involved. Consequently, risks that inhibit
access to mineral resources commonly follow the progression from economic, to political, to legal concerns.
According to POLINARES working paper no 56, page – 3, “The modern mining industry embodies an extensive
tri-partite matrix of complex relations between political, legal and economic criteria. The interplay between these
criteria makes it problematic to consider any particular one in isolation, as the presence or absence of a set of
criteria almost always influences the other. Some potential lines of enquiry can be:



For instance, a fair and reasonable legal system have economic reverberations in that it placates investors
by offering assurance of a mining entity’s investment against national expropriation by a host state.
Similarly, the flexibility that a fiscal regime allows for a mining entity to arrange taxes and royalties to
accommodate the particular needs of its investment will be major considerations of potential investors.
In turn the fiscal regime might be heavily influenced by the political attitude of the host government, its
position on resource nationalism, and its desire to attract or oppose foreign investment.
Some areas of analysis are given below:
Institutions:


Political Institutions and the State: How economic and political markets interact, and how, when and why
states enforce or violate property rights and contracts.
Legal and Regulatory Framework: How legal institutions enforce contractual obligations and protect
property from state predation.
Organization Arrangements:


Modes of Governance: Market or Hierarchy or Hybrid?
Contractual Arrangements: Williamson argues that frequency, asset-specificity and uncertainty of
transaction affect costs and contract design.
Conclusion
In this paper, I will identify and analyse bargains as crucial determinant of the choice of governance and the
transactional attributes in MNE-external stakeholder relationships. Finally, I will highlight important parameters in a
nation’s institutional environment that influence the choice between the aforementioned governance mechanisms.viii
References
i
Henisz, W. 2003. The power of the Buckley and Casson thesis: the ability to manage institutional idiosyncrasies.
Journal of International Business Studies, 34: 173–184.
ii
Gerber, L. & Warden-Fernandez, J. December 2012. The institutional framework for access to mineral resources.
POLINARES. Working paper n. 56. University of Dundee funded by the European Commission.
iii
Mining Legislation in the Nordic Countries - Mining Journal, 18 October 2013, by Rachel Speight and Bushra
Shabazz.
iv
Nebus, J & Rufin, C. 2010. Extending the bargaining power model: Explaining bargaining outcomes among
nations, MNEs, and NGOs. Journal of International Business, 41: 996–1015, page 1000.
v
Eden, L., Lenway, S., Schuler, D. 2004. From the obsolescing bargain to the political bargaining model. Bush
School Working Paper #403, January.
vi
Henisz, W & Zelner, B. 2003. Legitimacy, Interest Group Pressures and Institutional Change: The Case of Foreign
Investors and Host Country Governments. William Davidson Institute. Working Paper Number 589.
vii
Conway, E. 2013. The risk is in the relationship (not the country): Political risk management in the uranium
industry in Kazakhstan. Energy Policy, 56: 201–209.
viii
Henisz, Witold J. and Bennet A. Zelner. 2004. Political Risk Management: A Strategic Perspective In Theodore
Moran (Ed.) International Political Risk Management: The Brave New World. Washington D.C.: The World Bank
Group pp. 154-170.