Corporate political strategy and liability of foreignness: Similarities and differences between local and foreign firms in the South African Health Sector Albert Wo ¨ cke *, Terence Moodley Gordon Institute of Business Science, University of Pretoria, PO Box 787602, Sandton 2146, South Africa 1. Introduction Corporate political strategy is of critical importance for foreign firms that desire a reduction in their risk (Puck, Rogers, & Mohr, 2013; Sethi & Guisinger, 2002) and is especially important as relations between MNEs and governments could become antago- nistic, despite superficial cordiality (Ramamurti, 2004). Multina- tional enterprises benefit from greater access to traditional resources but face a liability of foreignness while local companies benefit from local understanding of institutional practices and social embeddedness. The direct impact on firm profits by policy changes is the main justification for engaging in CPS in countries where regulatory policy is more volatile. Hoffmann, Trautmann, and Schneider (2008) define regulatory uncertainty as the inability to predict the future state of the regulatory environment. They differentiate it from regulatory-induced uncertainty, which is defined as the inability to predict the future state of the non- regulatory environment that is caused by a regulation. Hoffmann et al. (2008) emphasised that uncertainty in this context is about perception, since firm decisions may be based on what the leaders perceive rather than what might objectively be the case. More recent scholarly research on corporate political activity has focussed on developed markets with less done emerging markets and evolving political systems (Lawton, McGuire, & Rajwani, 2013). However, research in this area, has largely focussed on the use of corporate political activities and strategies that are focussed on overcoming country risk by interacting with local governments and stakeholders (e.g. Puck et al., 2013). The shortcoming of these studies is that they do not compare the strategies of local and foreign firms and therefore imply a liability of foreignness for MNE subsidiaries. A comparison between the political activities of local and foreign firms is important to understand both how strategies are shaped to deal with a common business environment and what non-MNE specific factors may influence political strategies. Research into antecedents of corpo- rate political activities suggested that CPA may be influenced by other factors such as size of the firm, the degree of regulatory uncertainty and age of the firm (Hillman, Keim, & Schuller, 2004; Weymouth, 2013). However, research into antecedents has been confined largely to the US and local firm/government interactions and does not deal with evolving emerging market contexts. A good understanding of the potential differing strategies of local and foreign firms is vital for both policymakers and for firms themselves. An additional benefit from comparing foreign and local firms’ political activities is to derive insights into the role of liability of foreignness (e.g. Hillman, 2003; Zaheer, 1995). Foreign MNEs can trigger tough responses from local institutions by not using, or improperly implementing accepted practices, and the resultant tensions enhance the liability of foreignness and shape MNE strategic responses (Luo & Mezias, 2002). These and other factors, such as regulatory uncertainty, suggest that there should be a difference in the corporate political strategic choices of local and foreign companies. Our study explores possible differences and similarities in corporate political strategies of Corresponding author. Tel.: +27 011 7714000. E- mail address: wockea@gibs.co.za (A. Wo¨ cke). Keywords: Corporate political activity Liability of foreignness Multinational enterprises A B S T R A C T We investigate the differences between corporate political strategies (CPS) of local and foreign firms in the South African Health Sector. We expected to find significant differences inCPS due toMNE subsidiaries needs toovercome liabilityof foreignness (LOF) effects andMNEs possessing superior resources thanlocal firms. We surveyed 103 firms and found considerable commonality in perceptions of uncertainty for both groups of firms, however foreign firms are more likely than local firms to adopt adaptation and avoidance strategies. We find that antecedent conditions such as turn over, age of the subsidiary and industry are more importantthanLOFintheselectionofCPS.