Global Firms, the Government Affairs Function and the WTO

 

 

Stephen Young
University of Strathclyde
Strathclyde International Business Unit
173 Cathedral Street
Glasgow G4 0RQ
UK

Tel: +44-141-548-3146
Fax: +44-141-552-2802

Email: stephen.young@strath.ac.uk

and

Thomas L. Brewer
Copenhagen Business School
Department of International Economics and Management
Nansensgade 19, 7 sal
1366 Kobenhavn K
Denmark

Tel: (45) 38 15 25 18
Fax: (45) 38 15 25 00

Email: tb.int@cbs.dk

Global Firms, the Government Affairs Function and the WTO

(1).

Abstract

This paper focuses on the government affairs strategies of multinational corporations concerning international trade and investment policy. In particular, the emphasis is upon "globalization" as an influence both on the international trade and investment environment of business, and on business strategies and management in the corporate government affairs function. The paper suggests that there should be a revision of the prevailing wisdom that governmental strategies by their nature require a multi-domestic response. Instead, a combined global-local approach may be as appropriate for government affairs as for other corporate value chain activities. The article draws on evidence from interviews with the Washington, DC, offices of major corporations, officials in government agencies, international organizations, non-governmental organizations, and members of law firms with substantial international trade and investment interests..

 

 

Global Firms, the Government Affairs Function and the WTO

In previous work an important distinction has been made between the market and nonmarket components of the environment of business (Baron, 1995a, b; 1997). In particular, Baron notes that the nonmarket environment includes "those interactions that are intermediated by the public, stakeholders, government, the media, and public institutions;" by comparison, the market environment relates to interactions between the firm and other parties involved in markets or private agreements. Four dimensions of the company’s nonmarket environment have been identified:

The purpose of a nonmarket strategy is to analyze these nonmarket environmental dimensions (present and future) and to put in place strategies which effectively respond to and/or shape the environment. As with market-oriented strategies, a nonmarket strategy is intended to create value and improve firm performance.

Nonmarket strategies are more important to firms when market opportunities are government controlled and less important when opportunities are controlled by markets. The position of a sector on the continuum from government control to market control obviously varies as a consequence of factors such deregulation and privatisation. But additional regulatory features may also emerge as new agenda issues are raised by interest groups (e.g. human rights and environmental issues); and as new products, processes and services are developed (e.g. genetically modified foodstuffs). For new innovations, companies may be able to shape the market environment by writing the rules of the game, such as by setting standards. But they may also seek to defend domestic markets, for example, by petitioning for antidumping duties, or supporting local content requirements which favour existing market participants. Even if the level of government control or government influence is not directly very high, the industry (or indeed firm) may be highly visible or sensitive politically or may generate a high level of public interest, and hence nonmarket strategies can still be important.

Government regulation has, historically at least, taken place primarily at the national level, therefore requiring a strategic response from firms at that level. For multinational corporations (MNCs), too, it has been argued that a comprehensive global or international nonmarket strategy is unlikely to be successful simply because many issues (such as intellectual property rights, tariff and non tariff trade barriers, liability rules) have a strong domestic orientation and therefore require multi-domestic strategies. The latter are strategies which are tailored to the specific issues, institutions and interests in a country. Although there are common principles that underlie the strategies (for instance, in respect of information provision in lobbying), differences in the national institutions and political structures can require country-specific strategies.

Focusing upon corporate government affairs concerning international trade and investment, this paper addresses the following questions:

The environment facing multinational corporations has become increasingly influenced by global drivers (Yip, 1989). Included within these are forces such as deregulation and privatisation, which have become of growing importance since the late 1980s, and have been linked to regulatory reform to attract foreign direct investment (FDI); the liberalization of services industries, including financial services and telecommunications; and international, regional and national developments, from the formation of the World Trade Organization (WTO), to the creation of NAFTA and both the single market and single currency programs in the EU, and to economic liberalization in China.

At the same time, MNCs have been responding strategically through regional and global sourcing, manufacturing and marketing activities to create international production systems. No general agreement exists on the definition of terms such as global industry, global company or global strategy (but see Porter, 1986; Prahalad and Doz, 1987; Bartlett and Ghoshal, 1989). In its original conception, a global strategy was one which involved a co-ordinated and/or integrated approach to operating multinationally; and this was contrasted with a multi-domestic or local responsiveness strategy which stressed the requirement to operate on a country-by-country basis. Such distinctions, at least in the stark way in which they were presented, probably no longer apply. Recent work has stressed more strongly that the extent of globalization may vary widely among constituent parts of the value chain according to differences in environmental forces, the globalization potential of the value activity and firm strategy. Moreover, an effective world-wide strategy for an MNC will require an appropriate interaction between the dimensions of global strategy and local implementation.

Many large MNCs maintain a government affairs function to manage their relationships with national governments and national, regional and global institutions. The activities of government affairs might typically encompass international trade and investment (the emphasis in this paper), legal, health care and other workplace matters, and environmental issues. In some cases this function will be included within the more broadly defined public affairs activity, which includes media relations and perhaps other issues.

Analytic Framework

An analytic framework for the development of nonmarket strategies – as represented by the government affairs function – is shown in Figure 1. The purpose of this framework is to provide structure and focus to the analysis of the government affairs function of corporations, particularly in an era of the globalization of firms and economies. The framework emphasizes the diverse domains (or spatial levels) of the nonmarket environment in which issues of importance to firms emerge; these domains range from the sub-national, local level to the global level. The framework similarly emphasizes the broad range of domains (levels) at which corporations operate – again from the local level of individual facilities to the global level of corporate headquarters. In a parallel way, the framework includes a conception of the government affairs function that ranges from the local to the global.

FIGURE 1. Analytical Framework

The government affairs function is depicted in an interactive relationship with both the non-market environment and the corporate context in Figure 1. In that figure, the emphasis is on inputs to the government affairs function from both the non-market environment and the corporation as a whole, and outputs to them from the government affairs function. In addition, there are interactions between the corporation and its non-market environment that occur outside the formal government affairs function but that nevertheless may involve significant issues of business-government relations. The various arrows linking the boxes therefore represent actions, exchanges, communications and other types of activities between the corporation, its government affairs function, and the non-market environment.

The boxes represent the key dimensions of each of the three principal components of the framework: the government affairs function, the corporate context of that function and the non-market environment. The dimensions represented by the columns within each box thus reflect the distinctive features of that particular component of the framework. Figure 2, representing the non-market environment, presents a matrix which identifies the three key dimensions of this environment, namely issues, institutions and interests, but also considers the level at which these environmental issues tend to emerge. There are, therefore, global issues, institutions and interest groups to which government affairs must respond, as well as regional, bilateral, national and sub-national, local domains.

FIGURE 2. The Non-Market Environment in International Trade and Investment


Domains

Dimensions of Environment

Issues

Institutions

Interests

Global

 

Multilateral rules on tariffs, non-tariff barriers and investment related issues

Kyoto Protocol on greenhouse gas emissions

Foreign corrupt practices

World Trade Organization

The World Bank

International Monetary

Fund

MNCs and international trade associations

International labor and environmental groups

Regional

 

European Union expansion and terms for new members trade and investment practices

Mercosur trade and investment policies

APEC sectoral initiatives

North American Free Trade Agreement

European Union

European Energy Charter Treaty

Regional development banks

Regional associations of companies and industries, e.g. coalition of Asian Pacific Chemical Associations

Regional labor and environmental groups, e.g. European Trades Union Confederation

Bi-lateral

 

Canada-Japan auto tariffs & rules of origin

Investment barriers

Bilateral free trade areas, e.g. US-Israel Bilateral trade-investment councils
National

Corporate tax policies

Export financing, e.g. US Ex-IM Bank funding

Tariff levels, investment barriers

Food regulations

National governments, regulatory bodies concerning issues, e.g. competition, and sectors, e.g. telecommunications

Domestic companies, MNC subsidiaries

National interest groups e.g. chambers of commerce, national trade unions

Sub-national

 

Local boycotts

Inward FDI subsidies

 

Local & national governments

 

Local affiliates of labor unions

 

Monitoring the nonmarket environment has become more difficult because of a greater number of national governmental participants, including new emerging democracies and new members of the World Trade Organization (WTO). In addition, there has been an increase in the number and range of interest groups. These include new entrants (e.g. labour, human rights, environmental groups) with different nonmarket agendas and different strategies (e.g. globalization through the Internet). But what is particularly important is the growing range of these nonmarket issues, institutions and interests which are regional or global as opposed to simply national. For instance, the existence of the WTO means less recourse to unilateral trade measures and the more frequent resolution of trade disputes at the multilateral rather than the national level. Furthermore, although the dispute settlement mechanism in the WTO is concerned with government – government disputes, many of the cases which have arisen involve specific company interests. This was clearly evident in the international trade dispute on consumer photographic film and paper, where Eastman Kodak and Fuji Photo Film were directly involved (Baron, 1997).

The case material in this article is derived from interviews with international trade and investment specialists in Washington, DC. In total 37 interviews were undertaken during the period September – November 1998. The distribution according to type of organization was as follows: companies, 12; business lobbying groups, 4; trade associations, 2; law firms, 3; US Government staff, 7; US Congressional staff, 3; international organizations, 4; other organizations, 2. The pattern of interviews was selected in order to include the range of companies and organizations with an interest and involvement in the area of international trade and investment. Selection of the respondents was determined primarily by recommendation and introduction, although efforts were made to ensure a wide range of activities and opinions. In the case of companies, interviews were undertaken with the international trade specialists of government affairs offices in the Washington area. All firms were large corporations with extensive international operations, representing a variety of manufacturing industries; 10 of the corporations were US-owned, 2 were European-owned. All except one were represented in the Fortune Global 500 for 1997, and eight of the twelve were among the top 100 corporations in this listing (Fortune, August 3, 1998).

The Government Affairs Function

Size, Location and Organization

The government affairs function was quite small in employment terms – averaging 6-7 people in the Washington offices. An exception among the firms interviewed is a firm which is heavily involved in sales to the US government as well as being one of the largest US exporters. Even within the two US subsidiaries of European-based corporations, the Washington, DC, office is the largest within the group. This was explained in terms of the fact that the "pure" government affairs function exists only in the US: the political system places a heavy emphasis on lobbying the US Congress and administration, with a view to influencing its government policy agenda and programmes. (This important issue, which may tend to generate ethnocentrism, is discussed more fully later in the paper). Outside the US, the function is more likely to include public affairs (media relations, etc.) and perhaps other activities, although sometimes government affairs in the US is also consolidated at headquarters level or even in Washington within public affairs.

Only one of the firms has no government affairs staff outside the US, the assumption being that despite the company’s substantial overseas investments, policy issues were primarily driven by the US legislative and foreign policy agenda. Because of differences in organization and activities it was not possible to establish exact employment outside the US. In a typical case, however, a corporation might have one or two employees in Brussels and a similar number in two or three other locations such as Hong Kong, Tokyo and Latin America.

The organization of the government affairs function was inevitably linked to the organization of the corporation as a whole. Since all except one firm were large foreign investors, the need to respond to globalization drivers at corporate level was apparent. There was evidence of an approach that emphasized global strategy and local implementation in many of the sample firms. Organisationally, a corporate structure which encompassed both business units and regions (whether a formal matrix or not) was quite common. In a number of instances the organizational response to globalization was quite recent, and the organization of government affairs did not appear to have kept pace with wider corporate developments, linked in part to uncertainty about its role. As discussed previously (Baron, 1997), there would be an expectation that government affairs would be more closely focused on the country level. At the same time there are a growing number of issues in the international trade and investment arena that are not restricted to a single jurisdiction.

Factors in the Strategy and Management of Government Affairs

The corporate context was important in explaining the variety of practice within the government affairs function. For example, a strong trade orientation was associated with a centralised organization, and a strategy that emphasized a US-based agenda and a US-government orientation in terms of actions. Government purchases were only important in one of the sample corporations, but this factor tended to reinforce the US focus of government affairs. Although there were many offices around the world, interfacing with national governments, the Washington office was pre-eminent. The Senior Vice-President in charge was one of only six in the company, giving direct access to the Chief Executive Officer (CEO). A third variable that had a somewhat similar effect on the government affairs function was industry sector: thus in large project-based sectors, government affairs tended to be a centralised, US-oriented activity linked to the need for government support for project finance and for assistance with market access problems. Other distinctive characteristics of government affairs offices concern the basic orientation, and role and activities of government affairs; and key issues relating to agenda setting and performance evaluation.

A Global Approach to the Government Affairs Functions

From the perspective of this article, the key issue to be considered in government affairs strategy and management is that of globalization. Table 1 illustrates the case of the one company in the sample where an integrated global nonmarket government affairs strategy was being pursued. A global government affairs strategy is defined as one which involves a co-ordinated and integrated world-wide approach to the analysis of the nonmarket environment; and leads to the establishment of an integrated government affairs programme, focusing upon issues, institutions and interests as appropriate, and facilitating long term or short term actions at the global, regional or local level across the global enterprise.

 

TABLE 1. Categorising the Strategy and Management of Government Affairs: The Global Government Affairs Function

 

This large European-based MNC, with a long history of foreign direct investment in many countries world-wide, operates through 12 geographic business units, with government relations also handled geographically and each business group having its own staff. The role of the government affairs office (as represented by the Washington office, which reports to the CEO of the North America Business Group) was twofold. Firstly, the management of US government relations; and, secondly, a representative role on behalf of the parent company on international issues that affected the corporation globally or significant parts of its global business. The split of time on these two roles was about 50/50, but the international share had increased significantly as compared with the past, with an expansion in the number of "international" policy issues, that is those which do not respect jurisdictional boundaries.

In this European multinational, an International Corporate Relations Network, comprised of representatives of the chief executives of the twelve business units, had overall responsibility for overseeing and co-ordinating the management of corporate government affairs for the world-wide group. Furthermore this Network had a sub-committee – entitled the Issue Management Committee - with a specific remit for handling "global issues". Within this company, decision-making for government affairs begins with the External Relations Committee which included representatives from all the regional business groups together with the government relations group The recommendations of this group would then be transmitted upwards to the International Corporate Relations Network.

The strong corporate view in this MNC was that government relations should have a long-term focus. Ninety per cent of their work was viewed as preparation and influence-building for the future. And performance was evaluated not by whether their involvement produced a specific outcome but by the process by which government relations was managed. It was indicated that in more than ten years, there were only two issues in the US which were of such importance to the company that the government relations office was judged on the outcome (one was a tax bill which would have cost the company over $100m).

Competing Pulls in Government Affairs

There is no implication in the above case that there is only one way to manage a government affairs function within a global enterprise, or indeed that this is the best way. Indeed there were other sample firms where a systematic strategy was operated at global level. But in most other cases there appeared to be barriers of one sort or another to the successful implementation of a global strategy.

A large American producer of consumer products in the sample is a case in point. Reporting lines are clear and formal. Thus the government relations staff person in each of the non-US locations – Europe, Brazil, Mexico, Hong Kong and Japan – reports on a matrix basis to the Vice President Public Affairs in Washington, and to the Regional General Manager in the area. Meeting three times a year, there is also a Corporate Trade Policy Committee, chaired by the CEO and involving two executive Vice Presidents and other senior staff but also the international trade relations director within the Washington Public Affairs office. Agenda setting is formal and systematic. The process involves, inter alia, meetings with the business unit Presidents around the world, and leads finally to the publication of a formal document that is circulated widely within the corporation. Evaluation is also formal. It entails the preparation of bi-weekly reports, and subsequently an annual report that quantifies the impact of what has been achieved.

The latter is key – this company is very focused on bottom line issues, namely, budget statements, costs saved, or revenues generated. Although some attention is given to longer term questions, there is inevitably an emphasis on short term performance. At the same time the Public Affairs function in this company has suffered staff cuts in both of the last two years.

Generalising to the sample as a whole, Table 2 illustrates some of the competing pulls within the government affairs function. The issue of down-sizing of government relations staff emerged as an important theme in the interviews: 7 of the 12 companies had reduced staff in Washington by 30 per cent or more in the recent past. One corporation had undertaken a 30 per cent across the board staff cut in 1986, with the Washington office being reduced in size from 18 to 12 people, and then further reduced more recently to the current level of 7. The total employment in government affairs offices in the sample had declined from just over 500 to 193 in 1998. In an era when down-sizing and the flattening of hierarchies has been in vogue, government affairs would not be expected to be immune; but the real question is whether the remaining staff have been able to perform effectively in a much changed environment. The government affairs agenda emerges as an important theme throughout this discussion. In the context of a response to down-sizing, the outcome in one firm was ‘much more direct action’ and a general reliance on IT; in another, the response was a sharing out of the portfolio, with some issues getting lower priority; and a third company remarked on the greater need for a short term pay-off.



The greatest divergence in approach, nevertheless, occurred in performance evaluation. Five companies were bottom-line oriented. There was some view that the bottom-line approach had the advantages of, firstly, ensuring clarity and focus in terms of the issues to be worked on, ("nothing focuses you like the need to justify your existence; [Washington] D.C. is an easy place to fill your day"); and, secondly, forcing government affairs to build relationships with the corporate business units and regional management. However, the perhaps inevitable outcome of this approach is short-termism and a narrow range of agenda issues. In the latter respect one company commented that bottom-line accountability was aided by working on specific issues like tax policy and tariffs.

Within the sample, evaluation on the basis of quantifiable objectives in inevitably a reflection of the role of the business units in agenda setting. A bottom-up orientation was in evidence in 5 of the 12 corporations, a mixture of top-down/bottom-up in further 4 firms.

In a number of the MNCs, moreover, there was still a focus on issues that could be dealt with through the US political process, and hence an in-built bias towards American policy questions. A number of companies spoke of the danger of US-centrism in their trade and investment policies, and indeed, of Washington-centrism (see the early work of Perlmutter, 1969). One firm, which was about to implement a matrix management system involving global business units and market development organizations, remarked on a need for government affairs to become less focused on US domestic policy matters: "if we had our headquarters outside the US, we might have a different perspective." In the same vein, another MNC commented that as the group as a whole attempted to operate effectively through global-localization, increasingly government affairs issues arose which were more satisfactorily handled globally or in a centralised way. While being cognisant of these global issues, the government affairs function was not yet organized to tackle them effectively.

As against such pressures, which stressed national agendas and a short term issue orientation, other changes were taking place in the opposite direction. In one group of firms, there were moves, albeit tentative, to take a more corporate-wide and global approach, which was evidenced in the following:

Agenda setting was an area where the competing pulls were strongly evident. On the one hand, Table 2 reveals that some firms had begun consciously to identify "global issues" even if they were not described in these terms. On the other hand, the process of setting priorities tended to support short-termism. This is illustrated through a typical approach to agenda setting that would involve categorising issues into three groups:

The outcome of this agenda setting process is the identification of a small number of issues on which direct action will be taken, alongside others which companies will only monitor or pursue through associations or coalitions.

The Nonmarket Environment and Government Affairs Strategy

The nonmarket environment for government affairs is discussed at this point in the article because of the close interaction between environmental scanning, agenda setting and policy actions. As represented in the conceptual framework in Figure 1, policy actions through the government affairs function are designed to further the interests of the corporations by influencing government agendas and actions (hence the feedback loop in the figure).

Table 3 summarizes the major agenda issues for the sample corporations in the trade and investment fields for 1998/1999. As suggested earlier, emphasis has tended to be on a fairly limited range of policy matters where the company can have an impact. Some care needs to be taken in interpreting the results in the table. The roles of the Washington offices were generally specified in terms of the management of government affairs (both domestic and international matters) through actions directed at the US Congress and Administration. However, five of the companies had a role that was wider than this e.g. management of corporate government relations world-wide or management of international government affairs. In addition, some of the Washington offices had an important agenda setting role for the group as a whole. Therefore, the agenda matters listed are assumed be reasonably representative of the group MNCs’ government affairs agendas for the sample enterprises.

 

Table 3 International Trade and Investment Agendas in Government Affairs (1998/99)1

 

No. of
Response
(2).

Opposition to US unilateral sanctions -general and country specific

9

Company-specific tariff/investment/market access issues

9

Support for Fast Track legislation

5

China: MFN status/entry to WTO/market access issues

4

Tax policy: Foreign sales corporations/tax credits

4

Export finance: ExIM Bank funding/OPIC

3

Kyoto Protocol on greenhouse gas emissions

3

Transatlantic Business Dialogue/Transatlantic Economic Partnership

3

Counterfeiting/piracy; TRIPs Agreement

2

Foreign Corrupt Practices Act

2

APEC sectoral initiatives/tariff and non-tariff barriers

2

Food regulations: safety, ingredients

2

WTO-related:

· International Technology Agreement
· Trade and investment liberalization· Market access in Japan
· International trade and WTO Ministerial (1999)
· Trade and environment relationships

2

2

1

1

Source: Company interviews.

 

In the main, the issues listed in Table 3 were fairly specific to companies and industries, including tariff and other market access issues, export finance, tax policy and counterfeiting in foreign markets. This is even the case with the Transatlantic Business Dialogue (TABD)/ Transatlantic Economic Partnership (TEP).2 One MNC was chairing a sectoral working party in the TABD on the basis that it was such a large exporter, it had to ensure that its interests were safeguarded; while another firm reported that it was using the TABD as a tool rather than as a goal.

As part of this research, interviews were also undertaken with a number of the business lobbying organizations in the US. Their respective agendas reveal a commonality in respect of Fast Track, China (accession to the WTO), and opposition to US unilateral sanctions.3 These are all issues that fall into the category of high priority for companies, but since they are not unique, an alliance-oriented approach has tended to be employed.

The nonmarket environment encompasses issues, institutions, interests, and domains. The sample companies were strongly issue-oriented, and locally (US)-oriented. Speaking of the Multilateral Agreement on Investment (MAI) at the OECD4 and the WTO (Brewer & Young, 1998) for example, one company observed that it was "issue- rather than institution-oriented" and hence these organizations were only important where they had a responsibility for priority agenda issues such as tariffs. Another commented that it and similar large US MNCs in the past had a portfolio that included institutions like the GATT/WTO, but now they would only interact with them when there was a problem. The fact that such multilateral organizations did not deal with issues that were immediate enough was similarly mentioned by other firms.

Institutions (excluding the US Congress and Administration) were thus viewed as mechanisms to implement company-specific objectives. For instance, one company mentioned its high priority tariff elimination project. The goal of tariff reductions was pursued in a range of international and regional forums, e.g. APEC initiative on tariffs, Free Trade Area of the Americas, EU-South Africa free trade discussions and the WTO. The aim was to ensure that the company’s products would be early in the phasing process for tariff reductions.

In managing activities, an important dimension concerns the use of trade associations and coalitions to provide a united or at least strengthened business viewpoint. On the other hand, relatively little attention was paid to potentially competing interest groups, at least in any systematic way. This was shown very dramatically in the failure of the business community to mobilise its efforts in support of the MAI. In hindsight it was recognized that the business lobby had been outflanked by the labour and environmental groups which were able to use the internet so effectively as a global lobbying tool (Kobrin, 1998; Simmons, 1998). This case highlights very forcefully the consequences, firstly, of operating at the local (US) level on a multilateral issue involving a multilateral institution; and, secondly, of taking a short term, issue-oriented perspective which meant lukewarm support from the business community. It is, moreover, an extremely important matter for the future since there are indications that groups such as Preamble and Public Citizen are pursuing their labor and environmental agendas in other multilateral forums, including, for instance, opposition to developments in the WTO. In one company a meeting had been set up with the CEO specifically to discuss a response to these protectionist focused interest groups. But generally there were few ideas about an effective counter strategy. One sample MNC was sufficiently concerned about the negative publicity surrounding trade issues generally, as well as the WTO, that trade education had been brought on to the government affairs agenda for 1999: presentations on the benefits of trade and constructive trade relations will be made at all of the company’s facilities; a number of trade education projects are being pursued by the pro-business associations, but these had been bottom of the priority lists at this company until the present time.

Conclusions

This article indicates that there has been a disconnect between the government affairs strategies of US MNCs (in particular) and both the nonmarket environment and the corporation itself. In respect of the former, inadequate attention has been paid to the emergence of global and regional issues (e.g. multilateral trade and investment policy, global regulatory issues in information technology, telecommunications, climate change), institutions (e.g. WTO,) and interests (e.g. labour and environmental groups). In the corporate context, moreover, a prevailing ethnocentrism has meant a failure to respond to the globalization of the companies’ business activities and the implementation of global business strategies.

A global strategy for the government affairs function requires the following:

(1) Identification of the various dimensions of the nonmarket environment, and particularly institutions and interests, to which inadequate attention has been paid in the past; and of the different domains of the nonmarket environment – from the global to the sub-national.

(2) A global scanning capability to monitor these dimensions and domains, placing strong emphasis on the tools of information technology.

(3) A systematic approach to agenda formulation, to ensure that both the short- and the long-term interests of the corporation are being managed effectively.

(4) Formulation of government affairs strategies which reflect the key priorities of the global corporation.

(5) Action plans which identify the appropriate dimensions and domains for action, and ensure a co-ordinated approach at the appropriate pressure points around the world.

(6) Evaluation and feedback, using both qualitative (process) as well as quantitative criteria.

This approach to government affairs strategy formulation and implementation process, as represented in Figure 3, is thus complicated. In part, this is because of the multiple dimensions and domains. But in addition, the interests and viewpoints of the MNC’s subsidiaries on occasions may be different from those of their parent; and host country interests may be different from parent interests. In a geocentric corporation, the criterion for decision-making is the performance of the global group. This suggests that on the "big picture" global issues at least, there must be involvement at top management level.


The organization of the government affairs function and the appropriate degree of centralisation as compared with decentralization will depend inter alia upon the importance of trade versus investment, the global spread of operations, corporate organization and other factors. However, the reality is that global and regional institutions, for example, are widely spread geographically. The principle of global strategy – local implementation would, therefore, suggest action wherever it is going to be most effective; for global agenda items, a co-ordinated effort across multiple domains and dimensions may be called for. Where government affairs activities are decentralized, then leadership may be passed to the executive closest geographically to the center of power and decision making, whether the US Congress and Administration, the European Commission, the WTO, or elsewhere.

Given corporate trends, there is unlikely to be additional staffing for governmental affairs. This means a stronger reliance on IT and on the regional business organizations, both in assisting the scanning and monitoring process and in decision-making on region-specific matters. The experience of Washington government affairs activities also suggests that better use could be made of the plethora of trade and industry associations that currently often pursue similar and fairly wide agendas. More focus and greater specialization is called for, and corporate leadership will have an important role in this process, in the US and elsewhere in the world too. This is critically important if business is to meet the challenge of the internet-based interest groups.

Bottom-line performance evaluation was shown to be a significant barrier to a strategic, longer-term approach to the government affairs function. However, as one company observed "nothing focuses you like the need to justify your existence." There are ways of estimating the net cash flow to the firm of long term policy changes. Even if quantification is not undertaken in this way, there must be clear and identifiable goals that can be justified across the global corporation. Culture change in the government affairs function is also required in some companies.

 

 

Notes: (1). Only the issues relating to companies’ international trade and investment agendas have been listed.

Sometimes the agenda item listed was being supported/actioned in a general way; sometimes in a specific way relating to a country or issue. This was especially the case with ‘opposition to US unilateral sanctions’ and ‘China’.

On a few occasions a distinction was made between US agenda and global agenda issues.

Notes: (2). A range of other important company-specific agenda items included:

 

NOTES

1. The material in the paper draws on a wider study of Multilateral Trade and Investment Rules and Corporate Decision Making, involving both personal interviews and WTO dispute settlement case analysis. The first author benefited from a grant as an EU-Fulbright Scholar-in-Residence while the research for this article was being conducted.

  1. TABD and TEP are linked initiatives to expand US-EU trade and investment through bilateral and multilateral negotiations.
  2. Fast Track legislation, if approved, allows the US President negotiating authority on a range of international trade and investment issues without further formal recourse to Congress until the completion of negotiations. Bills providing for Fast Track authority failed to pass Congress in both 1997 and 1998. US unilateral actions include most notably the Cuban Liberty and Democratic Solidarity Act of 1996 – but, in addition, other federal, state and municipal sanctions.
  3. The Multilateral Agreement on Investment (MAI) was being formally negotiated at the Organization for Economic Co-operation and Development (OECD) during the period of 1995 to 1998. It was designed to extend and strengthen rules on foreign investment liberalization and protection. The negotiations ended without agreement in December 1998.

 

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