The Rise of the SDGs and Multinational Enterprises
The United Nations Sustainable Development Goals (SDGs) are changing the way multinational enterprises (MNEs) engage with host governments. The SDGs offer MNEs a unique opportunity to build political influence by assisting governments in attaining a host country’s social needs. However, international business scholars have largely remained silent on how MNEs strategize to repurpose ‘doing good’ into political influence.
Based on a multiple case study of four Western European MNE subsidiaries in Indonesia, our research uncovers the strategies that MNEs use to turn their SDG initiatives into political access and influence. Our study reveals three key nonmarket strategies:
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SDG-directed cross-sector partnership: MNE-initiated partnerships with host-government departments to achieve shared SDG goals while strengthening relationships and influencing legislative action.
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SDG-directed conflict management: MNE actions aimed at managing conflicts with local authorities while gaining access and influence on host governments by supporting SDG goals.
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SDG-directed constituency building: Mobilizing SDG-directed investments to gain the support of important constituencies among local communities, especially government-prioritized constituents, in order to improve government relationships and indirectly influence governmental actors.
These actionable strategies help MNEs manage the tensions arising from misaligned government priorities, high levels of perceived corruption, and skepticism toward foreign firms. Our findings advance the literature on international nonmarket strategy by explaining how MNE subsidiaries resolve these tensions and convert SDG-directed investments into political access and influence without succumbing to locally institutionalized norms of corruption.
Navigating the Complexity of Emerging Markets
Emerging markets, such as Indonesia, present a unique challenge for MNEs seeking to gain political influence. These environments are often characterized by heterogeneous government priorities, weak political institutions, and pervasive corruption. MNEs must navigate a complex web of central and district-level government actors, each with their own agendas and power dynamics.
In Indonesia, the government’s recent adoption of the SDGs as a guiding framework has created new opportunities for MNE subsidiaries to engage with political actors. By aligning their corporate social responsibility (CSR) initiatives with the SDGs, MNEs can demonstrate their commitment to addressing local social and environmental needs, potentially gaining access and influence with government officials.
However, the path to political influence is not straightforward. MNEs must carefully navigate the tensions and conflicts that arise from misaligned priorities and the prevalence of corruption. Our research reveals how MNE subsidiaries in Indonesia have developed innovative nonmarket strategies to leverage the SDGs and build constructive relationships with both central and district-level governments.
SDG-Directed Cross-Sector Partnerships
One key strategy employed by the MNE subsidiaries in our study is the use of SDG-directed cross-sector partnerships. These partnerships involve MNEs collaborating with government agencies to achieve shared SDG goals, while simultaneously strengthening their relationships and influencing legislative action.
The MNEs in our study have established formal partnerships with multiple government ministries, aligning their sustainability initiatives with the government’s SDG priorities. For example, Consumer Goods, one of the MNEs in our study, has partnered with nearly two dozen government departments on SDG-related projects. This has granted the company greater access to policymakers and the opportunity to provide input on legislative decisions.
As the Government Affairs Manager at Consumer Goods explained, “Our SDG partnerships give us more access to the government, to understand their perspective, and at least have a dialogue with them. Because when the engagement happens in the partnership, the conversation with them about other issues is slightly different than perhaps with other companies which do not have such programs.”
These cross-sector partnerships allow the MNEs to position themselves as trusted advisors and experts on SDG-related matters, enhancing their influence with government officials. By demonstrating their commitment to addressing local social and environmental challenges, the MNEs are able to gain a seat at the table when it comes to policy discussions and decision-making.
SDG-Directed Conflict Management
Another strategy employed by the MNEs in our study is the use of SDG-directed conflict management. This involves using their SDG-aligned initiatives as a bargaining chip to navigate conflicts and gain access and influence with host governments, particularly at the district level where corruption is more prevalent.
The decentralized nature of the Indonesian government means that MNEs must engage with a multitude of district-level authorities to secure the necessary permits and licenses for their operations. However, these local officials often have their own agendas and may demand “extra fees” or other concessions in exchange for their cooperation.
Rather than succumbing to corruption, the MNEs in our study have leveraged their SDG-directed investments to negotiate with local officials. As one Mineral Unique manager explained, “You cannot come empty-handed. Without a sustainability program, they will simply say, ‘Sure, we can help you.’ This implies that they will help you only after you pay. But if we manage to work with the district government and help them achieve their sustainability targets, the politicians in the ministries will be happy with us.”
By demonstrating their contributions to the government’s SDG goals, the MNEs are able to gain political influence without resorting to illegal practices. This strategy allows them to resolve conflicts, secure the necessary permits and licenses, and maintain positive relationships with both central and district-level authorities.
SDG-Directed Constituency Building
The third nonmarket strategy identified in our study is the use of SDG-directed constituency building. Here, MNEs mobilize their SDG-directed investments to gain the support of important local communities, particularly those prioritized by the government. This indirect approach aims to improve the MNEs’ relationships with government officials and exert influence on their decision-making.
District-level government officials in Indonesia are often deeply embedded within their local communities, relying on the support of constituents such as farmers, business owners, and religious leaders. By investing in initiatives that address the needs of these government-prioritized constituencies, the MNEs can build goodwill and generate a base of support that can be leveraged to influence the government.
As one Dairy Cooperative manager explained, “You must know who within the community is close to the local government. Of course, the governments rely on their constituents, so when we are supporting them, we are also supporting the government.”
This strategy allows the MNEs to indirectly influence government officials by demonstrating their ability to mobilize local support. Even if the central government is skeptical of foreign firms, positive stories about the MNEs’ contributions to the community can ease concerns and improve their relationships with political actors at all levels.
The Instrumental Use of the SDGs
The overarching theme that emerges from our study is the instrumental use of the SDGs by MNE subsidiaries in emerging markets to gain political access and influence. While the SDGs are generally viewed as a global framework for addressing social and environmental challenges, our research shows that MNEs can strategically repurpose ‘doing good’ to serve their own political interests.
By aligning their corporate objectives with government priorities through the SDGs, the MNEs in our study were able to obtain political access and influence without having to engage in illegal practices. The SDGs provided a shared language and common ground for dialogue between the MNEs and government actors, enabling constructive relationships and collaborative initiatives.
However, it’s important to note that the instrumental use of the SDGs is not without its challenges. The tensions and conflicts inherent in emerging market environments, such as misaligned government priorities and pervasive corruption, can still pose significant obstacles for MNEs. The strategies we identified – cross-sector partnerships, conflict management, and constituency building – represent the MNEs’ efforts to navigate these complexities and convert their SDG-directed investments into political influence.
Implications for MNEs and Policymakers
Our findings have important implications for both MNE executives and policymakers in emerging markets. For MNEs, this study provides a roadmap for developing nonmarket strategies that advance business objectives while contributing to societal goals. By leveraging the SDGs, MNEs can build constructive relationships with government actors, gain political access, and influence decision-making without resorting to corruption.
For governments, our research suggests that fostering collaborations with MNEs on SDG initiatives can attract sustainable investment and improve societal conditions. By providing clear guidance and multi-stakeholder platforms, emerging-market governments can encourage MNEs to align their CSR activities with national development priorities, ultimately leading to more effective and impactful partnerships.
Looking forward, this study opens up new avenues for understanding how businesses can contribute to global development goals while achieving their strategic objectives. As the influence of the SDGs continues to grow, it will be increasingly important for both MNEs and governments to navigate this complex landscape in a mutually beneficial manner.
