How Home-Country Political Connections Influence the Internationalization of Service Firms

This study investigates how home-country political connections affect the internationalization of service firms. There are conflicting arguments in the literature on the effect of political connections on firms’ internationalization with some researchers arguing that political connections have a facilitating effect while others argue that they have a constraining effect. In this paper, we argue that which effect dominates largely depends on the type of firm–because of the importance of being locally responsive to customers and heterogeneity among service firms, it is difficult to transfer and utilize the benefits of home-country political connections in international markets, as they are context-specific and home-country based. We also argue that, compared to content-oriented services, process-oriented service firms face less need for customer involvement and have a greater dependency on technical skills; therefore, the negative effect of home-country political connections will be weaker in process-oriented service firms. However, marketing capabilities possessed by the firm can help firms transfer and utilize the home-grown advantages in other countries, which can positively moderate the relationship between political connections and internationalization. We test our hypotheses using data on a sample of publicly listed service firms in China from 2012 to 2016 in a dynamic panel model.