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Strategic Management JournalStrat. Mgmt. J., 27: 321–345 (2006)

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.519

FIRST MOVER ADVANTAGES IN INTERNATIONALBUSINESS AND FIRM-SPECIFIC POLITICALRESOURCES

JEDRZEJ GEORGE FRYNAS,1* KAMEL MELLAHI2 andGEOFFREY ALLEN PIGMAN3

1 Middlesex University Business School, London, U.K.2 Nottingham University Business School, Nottingham, U.K.3 Bennington College, Bennington, Vermont, U.S.A.

While the currently prevailing conceptual framework of first mover advantages (FMAs) specifiesvarious market mechanisms through which first movers can gain pioneering benefits, it isincomplete by failing to consider the role of political resources in creating FMAs. In this context,this article aims to add the political mechanism to the current classification of FMA mechanisms.The article further serves as a window to an understanding of the long-term process of acquiring,sustaining, and exploiting firm-specific political resources in international business, which hasbeen neglected in prior studies on business–government relations. Detailed analysis of threecase studies suggests that the causal relationship between political resources and FMAs is acomplex one; while non-market strategies can be used successfully by first movers, they can alsobe used by late movers to neutralize FMAs. The article proposes a model for understanding thelink between FMAs and political resources. Copyright 2006 John Wiley & Sons, Ltd.

Royal Dutch/Shell and BP were the first compa-nies to produce crude oil in Nigeria in the late1950s and the former still dominates the country’soil production today. Volkswagen was amongst thefirst foreign investors in the Chinese car industryin the early 1980s and has remained the leader inthe country’s car market. Lockheed Martin was thefirst foreign aerospace company to collaborate withRussian firms in the field of aerospace technologyand this early technological advantage allowed theresulting joint venture (International Launch Ser-vices or ILS) to gain leadership in the global mar-ket for commercial space launch services. In all ofthese cases, firm-specific political resources playedthe key part in creating first mover advantages(FMAs) for the respective firms. Shell and BP

Keywords: political resources; government; first moveradvantages; resource-based view; transition economies;international business*Correspondence to: J ¸edrzej George Frynas, Middlesex Univer-sity Business School, The Burroughs, London NW4 4BT, U.K.E-mail: [email protected]

benefited from the support of the British colo-nial authorities, Volkswagen enjoyed the support ofhigh-ranking Chinese officials and Lockheed Mar-tin benefited from top-level U.S.–Russian politicalcooperation in the field of aerospace.

Experienced international managers know thatpolitical support can be critical in establishingan early market entry, especially in transitioneconomies where free market competition did notexist until fairly recently. However, as discussedbelow, the currently prevailing conceptual frame-work of FMAs does not take account of politi-cal resources in creating FMAs (e.g., Liebermanand Montgomery, 1988; Kerin, Varadarajan, andPeterson, 1992; Vanderwerf and Mahon, 1997).It encompasses market factors, which can createFMAs, but it curiously fails to encompass non-market factors. In this context, this article aimsto add the political mechanism to the currentclassification of FMA mechanisms.

The neglect of the political dimension inFMA studies is surprising given a large

Copyright 2006 John Wiley & Sons, Ltd. Received 17 March 2003Final revision received 15 August 2005

322 J. G. Frynas, K. Mellahi and G. A. Pigman

literature on business–government relations, withimportant contributions published in the StrategicManagement Journal (SMJ ) from the journal’sinception until today (Mahon and Murray,1981; Baysinger and Woodman, 1982; Shafferand Hillman, 2000; Delios and Henisz, 2003).Coinciding with the rise of the resource-based view (RBV) in strategic management,many contributions have explored how politicalresources can help firms to obtain firm-specificadvantages in the market (for a review of firm-level responses to government regulation see,for example, Shaffer, 1995). However, we findthat there remain underexplored areas in theliterature. Above all, despite the universal natureof the RBV, which is not limited to the strategicbehavior of firms within their domestic setting,most of the strategic management research onfirm-specific political resources has so far beenconducted on the domestic political process.As exemplars of this literature, prior studiesin SMJ have shown that political resourcescontribute toward the creation of shareholdervalue or what management processes firmsuse to develop political strategies domesticallyin the United States (Hillman, Zardkoohi,and Bierman, 1999; Shaffer and Hillman,2000) but have not discussed the internationaldimension. In the words of Henisz (2003:174), ‘The international literature examiningthe management of institutional idiosyncrasiesremains relatively underdeveloped as comparedwith the corresponding literatures on technologyor marketing strategies.’ This prevents us fromunderstanding how firms may be able to use thepolitical process when the support of the homegovernment becomes only of limited value. Theinternational expansion of firms raises specificissues in the analysis of the political process;for instance, to what extent political resourcesare transferable across international borders andhow firms balance the sometimes contradictorydemands from the home and the host government.Therefore, in addition to our primary aim ofadding the political mechanism to the currentclassification of FMA mechanisms, this articlesheds light on how firms may acquire, sustain,and exploit political resources when faced withthe liability of foreignness. Furthermore, our studyserves as a window to an understanding of theprocess of acquiring, sustaining, and exploitingfirm-specific political resources in the very long

term, which is visibly absent from much of existingliterature on political resources.

The article starts with a discussion of the FMAconcept and reveals that the currently prevailingconceptual framework of FMAs is incompletelyspecified. It then introduces several strands in theexisting business literature to inform our inves-tigation on how firm-specific political resourcesmay constitute crucial building blocks for compet-itive advantage. Building upon these insights, weexamine three case studies of different time-spansand from different industries and countries to ana-lyze the process by which political resources cantranslate into FMAs. Based on this analysis, theo-retical propositions are developed, which providethe basis for our model on how political resourcesinfluence the evolution of FMAs.

POLITICAL RESOURCES AND FIRSTMOVER ADVANTAGES

The FMA concept and the role of government

On the most basic level, the idea of an FMA sug-gests that pioneering businesses are able to obtainpositive economic profits as the consequence ofearly market entry, that means, profits in excessof the cost of capital. According to Lieberman andMontgomery (1988), the key element of an FMA isan initial asymmetry among competitors, enablingone firm to gain a head start over its rivals.

In line with previous studies (e.g., Urban andStar, 1991; Tellis and Golder, 1996), this arti-cle uses market share and the rate of companysurvival as indicators of FMAs. Numerous stud-ies suggest that order of market entry and mar-ket share are causally related. Research suggeststhat first movers have higher market shares thanearly followers, who in turn have higher marketshares than later entrants (Urban and Star, 1991;Kerin et al., 1992), although the beneficial impactof early market entry has not been unchallenged.Both empirical work (Tellis and Golder, 1996) andtheoretical work (Shankar, Carpenter, and Krishna-murthi, 1998) suggested that there are considerablefirst mover disadvantages and early market entrydoes not automatically endow pioneers with higherprofitability.

Nonetheless, previous conceptual contributionson FMAs have common elements. Both mar-keting and strategy literatures have specified themechanisms through which first movers can gain

Copyright 2006 John Wiley & Sons, Ltd. Strat. Mgmt. J., 27: 321–345 (2006)

First Mover Advantages and Political Resources 323

pioneering benefits, which provide a commonFMA conceptual framework. The important stud-ies by Kerin et al. (1992) in the Journal of Mar-keting and by Lieberman and Montgomery (1998)in SMJ offer a strikingly similar classification ofsuch mechanisms.

According to Kerin et al.’s (1992) typology offour types of mechanisms, economic mechanismsrelate to cost advantages (scale and experienceeconomies and marketing cost asymmetries); pre-emption mechanisms relate to cost asymmetries infactor inputs (e.g., procurement contracts whichensure raw materials at lower prices than laterentrants) and spatial preemption (e.g., preempt-ing competitors by securing a specific geographicspace or marketing channel); technological mecha-nisms relate to product, process, and organizationalinnovations; and behavioral mechanisms relate todifferentiation advantages (e.g., through switch-ing costs or product-specific reputational advan-tages). The SMJ study by Lieberman and Mont-gomery (1998) has a strikingly similar typologywhich also specifies four types of mechanismsand largely corresponds to Kerin et al.’s classifica-tion: preemption of geographic space (correspond-ing to spatial preemption); preemption of tech-nology space (technological); preemption of cus-tomer perceptual space (behavioral); and moldingthe cost structure of customers (economic). Basedon an investigation of market mechanisms, empir-ical studies have investigated various factors thatmay influence FMAs, including firm size (Loweand Atkins, 1994), industry factors (Robinson andMin, 2002), differences in national markets (Alpertet al., 1996), and country of origin (Chen andPereira, 1999).

But, surprisingly, the FMA conceptual frame-work and the empirical literature fail to investi-gate political resources in creating FMAs. Evenif political and legal factors are discussed, FMAstudies consider these factors as exogenous vari-ables and the role of governments is seen as abarrier to FMAs for foreign investors. Prototypi-cal for this view, Nakata and Sivakumar’s (1997)study of FMAs in emerging markets considered theimpact of political and legal conditions on FMAs.The authors concluded that the impact of polit-ical factors such as political instability reducedFMAs for foreign investors. They ascribed positiveinfluences on FMAs to economic liberalization andprivatization, which ultimately reduce the impactof governments on markets. Yet they entirely failed

to consider the possibility that the intervention ofgovernments may actually constitute another FMAmechanism.

At this stage, it should be pointed out thatnumerous business history and political sciencestudies have provided empirical evidence thatpolitical resources can assist early market entry.The business historian Geoffrey Jones (1981:128–141) demonstrated how the support of Britishgovernment officials at different levels helpedD’Arcy and Burmah Oil to gain an early footholdin Persia (today Iran) at the beginning of the20th century. The political scientist William Reno(1998: Ch. 2) illustrated in some detail how smallSouth African firms reaped profits when enteringhighly risky African markets such as Sierra Leoneand Angola thanks to specific skills and clandestinepolitical networks at the end of the 20th century.However, these studies have never aspired to yieldany general lessons for business research and,conversely, they have been altogether ignored bystudies on FMAs and much of mainstream businessresearch.

The neglect of the political dimension in theprevious FMA research prevents us from betterunderstanding how certain firms obtained FMAswhen expanding internationally. In a rare excep-tion, the positive impact of governments on pio-neers was mentioned in passing by two writers ina study on FMAs in transition economies. Basedon empirical research in China, Luo and Peng(1998: 159) pointed to the impact of governmentpolicy on foreign investment and remarked that‘in China, a large number of early movers havebeen rewarded handsomely due to their collabo-ration with the government.’ They cited Volkswa-gen as an example of a company that benefitedfrom political conditions in establishing an FMAin China and suggested in general terms that for-eign investors ‘have to pay careful attention togovernment policy in transitional economies whichtend to encourage early entrants’ (Luo and Peng,1998: 159). Unfortunately, these writers did notexpand on the importance of political resourceselsewhere in their study and failed to integratepolitical resources in research design. The avail-able tools of analysis simply prevented them frominvestigating political resources. As a consequenceof the limitations of the current conceptual frame-work of FMAs, the question of the governmentimpact on FMAs remains largely unexplored.



Studies by Nakata and Sivakumar (1997) andLuo and Peng (1998) provide indications thatthe existing classification of FMA mechanisms isincompletely specified and requires the additionof a fifth—a political—mechanism. The politicalmechanism that we propose is complementary tothe other four mechanisms of the existing concep-tual framework (e.g., an early entrant may pre-empt rivals in a geographic space as well as buildup superior government relations) but it does notfit into any existing category. Indeed, our arti-cle shows that the mechanisms by which politicalresources translate into FMAs are distinctly differ-ent from technological or economic ones; henceour contribution consists of a more complete spec-ification of the FMA conceptual framework.

Political resources in the business literature

The incomplete specification of the currently pre-vailing conceptual framework of FMAs is strik-ing since other strands of the business literaturehave long recognized the importance of politicalresources. It is recognized in the literature on thebusiness–government interface that ‘the effects ofgovernment on competitive position are an impor-tant determinant of firm performance’ at the levelof the firm and that ‘regulation often has asymmet-ric effects on competing firms’ (Shaffer, 1995). Atthe core of the link between firm performance andregulation is the recognition that the capabilitiesof firms to cope with new legislation are highlyunevenly distributed (Oster, 1982; Leone, 1981,1986). In some cases, a firm may even supportlegislation, which is damaging to it, if that leg-islation has an asymmetric impact on individualplayers in an industry by disproportionately rais-ing the rivals’ costs and thereby improving thefirm’s overall competitive position (Oster, 1982;McWilliams, Van Fleet, and Cory, 2002).

The impact of government intervention on indi-vidual firm performance has directed academicattention to the importance of ‘political capital,’‘political resources,’ or ‘political competences,’which have been variously defined in the liter-ature. Boddewyn and Brewer (1994: 135–136)considered political resources in terms of ‘intel-ligence and cognitive maps about nonmarket envi-ronments, better access to decision makers andopinion makers, and better bargaining or non-bargaining skills,’ but they can extend further toencompass financial resources (e.g., in terms of

the ability to pay bribes), reputation, coalition-building ability and political entrepreneurship. Inthis article, we broadly define political resourcesas any firm attributes, assets, human resources, orany other resources that allow the firm to use thepolitical process to improve its efficiency and prof-itability. In this context, we contend that politicalresources can vary considerably. But we suggestthat they can broadly fall into Barney’s (1991)threefold typology of physical capital resources(e.g., a firm’s formal corporate nationality as a wayof obtaining the home government’s protection),human capital resources (e.g., the experience ofmanagers in operating in transition economies orpaying bribes), and organizational capital resources(e.g., informal relations between the firm’s man-agers and political decision-makers).

There is much empirical evidence to supportthe view that ‘political resources’ are among thekey factors in explaining firm performance, espe-cially in transition economies such as China wherethe impact of the government on business is stillvery strong, various large enterprises are state-owned, good government links can be importantfor a firm to be successful, and there is a highdegree of uncertainty with regard to governmentregulation (Peng, 2000). Research on China con-sistently found that good relationships with gov-ernment and other institutional bodies are keysuccess factors (Sit and Lui, 2000; Yoshimatsu,2000; Peng, 2000). Airriess’s (2001) study of HongKong-based Hutchison Port Holdings success inChina found that in addition to traditional eco-nomic factors Hutchison Port Holdings’ marketshare dominance is explained partly by institution-ally embedded practices in China’s socio-culturaland political environment. Yeung’s (2000) studyof Singaporean firms investing in China found thatsuccess was ‘embedded in dense networks of socialand political relationships.’ In a survey of man-agers in the Chinese electronics industry by Tanand Litschert (1994), the state regulatory regimewas regarded as having the key influence on firmperformance out of eight different factors in thebusiness environment.

While firm-specific political resources are proba-bly of greatest importance in transition economies,they are still important in developed countries,which continue to impose countless regulationsand subsidize some sectors of the economy. Exten-sive research on the domestic political process inthe United States discussed in detail the importance



of firm-specific strategic uses of political resources(see, for example, Mitnick, 1993; Shaffer and Hill-man, 2000; Hillman et al., 1999). For instance,Hillman et al.’s (1999) study in SMJ found astrong positive relationship between personal ser-vice of corporate managers in the U.S. govern-ment and the performance of their former corpo-rate employers; the article concluded that ‘selectivebenefits accrue to the individual firms linked tothe government.’ In general terms, Harris (1989:262) even argued that the growth of regulationin the United States from the 1960s has led to a‘politicization of management’ whereby businessmanagers became more aware of government andbecame increasingly motivated to influence gov-ernment policy.

Since special emphasis was placed on differ-ences between firms in terms of political resources,various recent studies have linked political re-sources to the resource-based view (RBV) ofthe firm (Boddewyn and Brewer, 1994; Mai-joor and Van Witteloostuijn, 1996; Oliver, 1997;McWilliams et al., 2002). Access to a key gov-ernment minister, experience in dealing with cor-rupt officials and other political resources, whichresult in a firm’s advantageous treatment by polit-ical decision-makers, are frequently in scarce sup-ply and difficult to obtain. Therefore, politicalresources can be aligned with Barney’s (1997)VRIO framework, as key resources are valuable,rare, difficult to imitate, and a firm must be orga-nized to exploit their full competitive potential.Political resources are difficult for rivals to match,so they may be a source of competitive advantage.Indeed, Boddewyn and Brewer (1994: 136) arguedthat political resources fit the requirements of theRBV rather well in that ‘the most effective polit-ical behaviors are often covert in nature, whetherlegal or not,’ hence ‘barriers to imitation may behigher in the case of political competences becauseof their lower visibility.’ Yet this influential strandof the business literature has made no imprint onFMA studies, despite the explicit recognition thatthe FMA concept should be aligned with the RBVview (Lieberman and Montgomery, 1998).

This article suggests that political resourcesshould be given a prominent place in the FMA con-ceptual framework, not least since a key conceptof FMA studies is the ‘barrier to entry’ derivedfrom industrial organization economics. Much ofthe conceptual work on FMAs offers explanationsof how FMAs can be obtained as a result of entry

barriers including scale effects, experience effects,or reputational effects (see Kerin et al., 1992). ButFMA studies fail to discuss the crucial role thatgovernments can play in establishing entry barri-ers. As early as the 1970s, business scholarshipsuggested that government regulation can act asan important entry barrier either directly—by pre-scribing certain forms of business activities—orindirectly—inter alia, by raising the minimum effi-cient scale in an industry (Leone, 1977; Oster,1982; Salop, Scheffman, and Schwartz, 1984). Byextension, one would expect that, by erecting entrybarriers, government actions could help to createFMAs for some firms and industries. However,while the concept of entry barriers plays a key rolein the currently prevailing FMA conceptualization,the question of government action and politicalresources in creating entry barriers for late movershas been neglected.

Political resources and timing of market entry

While the literature on business–government rela-tions emphasizes the importance of political re-sources, it does not investigate the relationshipbetween political resources and the timing of mar-ket entry, which is so crucial to the FMA concept.

A diverse range of theories points to the impor-tance of the timing of market entry. We suggestthat resource dependence theory and reciprocitytheory offer useful avenues for examining the rela-tionship between political resources and early mar-ket entry.

Resource dependence theory—associated withthe work of Pfeffer and Salancik (1978)—indicatesthat organizations are generally dependent on theirsurroundings in order to guarantee the flow of crit-ical resources for their survival. Hence, organiza-tions must attend to the demands of those in theirenvironment that provide resources necessary andimportant for their continued survival. Althoughthe resource dependence theory was originally for-mulated to understand relationships between orga-nizations and among units within organizations, thetheory is found to be readily applicable to relation-ships between firms and government institutions(Getz, 1997; Oliver, 1991; Mullery, Brenner, andPerrin, 1995).

Resource dependence theory points to changesin dependence over time, assuming that depen-dence on external actors is not constant, as theexternal environment is bound to evolve. In the



words of Pfeffer and Salancik (1978: 3), ‘problemsarise not merely because organizations are depen-dent on their environment, but because this envi-ronment is not dependable.’ Conversely, depen-dence on the government is not constant and firms‘may not need to be continuously politically active’(Getz 1997: 58). As the dependence on govern-ment institutions changes, the importance of afirm’s political resources is also likely to changeover time. The key question for us is whether ornot this dependence is most pronounced during theearly stages of a government intervention in a mar-ket.

Getz and other theorists have not investigatedthe relationship between the shifting governmentdependence and FMAs, but we posit that thedependence on government institutions is likely tobe greatest in the early stages of industry forma-tion. If we accept the idea of path dependence,political resources are likely to be most valu-able to firms during early industry formation whenpolitical action can translate into entry barriersfor late movers. Government intervention duringearly industry formation could, for instance, pre-vent future rivals from entering the market throughformal regulatory barriers to entry, or it couldendow first movers with spatial preemption (e.g.,preempting competitors by securing a specific geo-graphic space or marketing channel) and behav-ioral advantages related to differentiation (e.g.,through switching costs or product-specific reputa-tional advantages of early entry) (cf. Kerin et al.,1992). In this way, a combination of insights fromindustrial economics and resource dependence the-ory provides us with an explanation of why depen-dence on political resources may be greatest aswell as most profitable for early market entrants.

While resource dependence theory focuses oncalculative and self-interested gains that both firmsand government institutions anticipate from mutualcooperation, it does not explain situations whenbusiness–government cooperation may not bedriven by organizational gain alone. Resourcedependence theory needs to be supplemented bya theoretical lens, which allows for a behavioralexplanation to account for continuing cooperationwhen organizational behavior may not be drivenby processes of interest mobilization. Reciprocitytheory offers such an approach.

Reciprocity theory explicitly predicts relation-ships to be based on each partner’s motivationalinvestment and anticipated social gain (Fischer and

Bristor, 1994: 329). Reciprocity is often consideredas one of the most robust effects found in thepsychological literature (Moon, 2000). The normof reciprocity evokes obligation towards others onthe basis of their past behavior (Gouldner, 1960).The key principle of reciprocity states that peopleand institutions should return good for good, inproportion to what they receive (Bagozzi, 1995).Reciprocity is more than an instant tit-for-tat inter-action between two parties. Rather, it is a stableprocess of long-term cooperative interactions bythe involved parties (Larson, 1992). That is, coop-erative relationships based on truthful and honestattitude from all parties do not only oblige theparties to behave reciprocally, but they also tendto lead to a spiral of self-fulfilling mechanismsthat nurture further cooperation and strengthen therelationship over time as the partners commit tomore agreements, share information, build trust,and look for ways to improve the relationship(Ring and Van de Ven, 1994; Dyer, 1997, Tallmanand Shenkar, 1994).

To our knowledge, reciprocity theory has notbeen used in research on business–governmentrelations but we posit that it is readily applicablehere. One could argue that, if a firm enters a coun-try early on, when other firms are still weighing theadvantages and disadvantages of so doing, the hostgovernment may reciprocate by providing greatersupport to first movers than late movers. Recip-rocation creates a general positive atmosphere,removes barriers to coordination of economicactivities between the government and a firm, pro-vides privileges, and enables the two parties tobuild on the relationship and move forward. Recip-rocal relationships may make it harder for latemovers to establish strong ties with political actors,at the same time as political actors may favor thefirst mover due to social bonds and obligationseven if an immediate gain is not visible. Reci-procity theory therefore points to the durabilityof business–government relationships, which canprovide a basis for maintaining FMAs over time.

CASE STUDY METHODOLOGY

Since political behaviors are ‘often covert innature,’ political resources are difficult to evaluatein quantitative terms, unless studied in the contextof a systematic questionnaire survey of managers.Even then managers may be reluctant to disclose



political strategies such as attempts at bribery.However, this article is not aimed at analyzingmerely managerial perceptions but rather at deter-mining the actual sources of competitive advantagein the real world. We are interested in possiblepolitical events and processes, which may con-stitute an FMA for specific firms. This endeavorwould be very difficult, if not impossible, usingstatistical analysis. As Shaffer (1995) remarked,‘events are unpredictable and sporadic; outcomesare hard to specify; coalitions are transient; andthe environment is extremely complex.’ Case studymethodology lends itself better to investigating thesignificance of political events and processes.

A further reason for adopting a case studyapproach is that research on the link between polit-ical resources and FMAs is almost non-existentin the mainstream business literature, as demon-strated earlier. It is yet too early to embark ona process of hypothesis testing, as the issue stillrequires a more careful conceptualization and the-ory building. As Eisenhardt (1989) argued, thecase study approach is especially appropriate innew topic areas. For the above reasons, our studyadopted a case study methodology.

Given our interest in understanding how FMAscan be obtained in the global economy, we aimedto study the process of obtaining FMAs in enteringforeign marketplaces. As our research focused onthe process of how political resources can translateinto FMAs, we specified that our selected casestudies had to be major firms which are said tohave obtained a substantial FMA in a major worldmarket primarily as a result of political processes.Since any case study research faces the problemof generalization, our research design attemptedto ensure broad geographic focus of the study asmuch as possible. We also attempted to ensurea broad sectoral focus of the study to controlenvironmental variation. Finally, we sought threecase studies of different time-spans.

Our three case studies—Shell-BP in Nigeria,Volkswagen in China, and Lockheed Martin inRussia—fit our initial sample specifications, com-ing from three major markets in different parts ofthe world and from three very different sectors, andall three firms are said to have obtained substan-tial FMAs in entering the respective markets. Webelieve that this diverse sampling hopefully allowsus greater generalizability of results. The case stud-ies are of further significance in that they concernthe key firms in some of the key sectors in the

respective markets. Shell has been Nigeria’s largestforeign investor since the start of oil production inthe 1950s; Volkswagen has become China’s largestautomobile producer, and Lockheed Martin’s jointventure with Russian firms is the leader in theglobal market for commercial space launch ser-vices. Hence our findings cannot be accused ofbeing related to some anomalies in non-marketbehavior but rather deal head-on with the processby which major foreign firms entered importantnew marketplaces.

Our study combines multiple collection meth-ods. We wanted to examine how the three firstmovers benefited from political resources toachieve FMAs. As most of the events took placea long time ago, it is very hard to trace actorswho were involved. Most of them left their com-pany, retired, or died. Therefore, the primary datasource for this research has been archival data andinterviews with key actors, supplemented by pub-lished material. The Shell-BP case study, whichdeals with an FMA obtained several decades ago,relied heavily on archival work conducted at theBP Archive at the University of Warwick, thePublic Record Office in London, and the UnitedStates National Archives. The Volkswagen and theLockheed Martin cases, which are more contem-porary, relied heavily on interviews with the rel-evant company managers. We conducted at leastfive in-depth interviews with managers for eachof those case studies. The interviewees were allsenior managers of either the first mover or thelatecomer, who were personally involved in tak-ing key strategic decisions over the expansionof the respective companies in China and Rus-sia and had intimate knowledge of the dynamicsof creating and using political resources. Becauseof the diverse sources of information and data,we have constantly cross-checked information anddata from different sources to increase the reliabil-ity and accuracy of our explanations. This allowedus to be confident in our case study analysis.

CASE STUDY 1: SHELL-BP IN NIGERIA

Case history of first mover

In 1938, a joint venture between Shell and BPwas granted an exclusive oil exploration licensecovering the entire territory of Nigeria. Nigeria, atthe time, was a British colony, which it remained



Table 1. Overview of case studies

Market entry Production start Current market share (%)

Shell-BP in Nigeriaa 1938 1957 39Late moversMobil (now part of Exxon) 1955 1969 23Chevron (formerly Gulf) 1961 1965 20Texaco (now part of Chevron) 1961 1970 4Agip 1962 1970 7Elf (now part of Total) 1962 1966 5

Volkswagen in Chinab 1982 1985 40.2Late moversShanghai GM 1997 1999 9.4FAW-Xiali 2000 2002 9.4Guangzhou Honda 1998 2001 5.7Tianjin Toyota 2000 2002 2.1Beijing Hyundai 2002 2002 2.2Yueda-Kia 1998 2002 1.6

Lockheed Martin in Russiac 1993 1996 50Late moversBoeing 1995 1999 8Arianespace 1996 1999 42

a Market share refers to crude oil production by ventures operated by the company in Nigeria (2001 data).b Market share refers to number of car units sold in China (2002 data).c Market share refers to global satellite launches using assets from Russian partnerships by number of launch contractsawarded (2003 data).

until 1960. In December 1957, Shell-BP startedoil production. While BP’s assets in the jointventure had been nationalized in 1979, Shell hasremained the largest oil-producing firm in Nigeriaand the country’s major foreign investor to date.As new companies entered Nigeria, Shell’s shareof oil production declined from 100% in 1960 toless than 40% by 2001 (see Table 1). However,as a result of the initial asymmetry, Shell hasretained its dominant position until today, despitethe opening up of large new oil exploration areasand the entry of dozens of other oil firms intoNigeria.

An obvious and crucial explanation for Shell-BP’s FMA in Nigeria is that the joint ventureheld the majority of oil licenses at the country’sindependence. There were three types of license:at first, a company obtained an oil explorationlicense (OEL); once the OEL expired, the sameoil company could either surrender the explorationarea or apply for an oil prospecting license (OPL);after the OPL expired, the oil company couldobtain an oil mining lease (OML). In January 1960and in January 1962, the OPLs granted to Shell-BPunder colonial rule had expired. The OPLs gave a

venture the right to take up to 50 percent of thearea under OMLs for a period of 30 or 40 years.1

Shell-BP, unaffected by competitors, was able toacquire 46 OMLs covering 15,000 square miles(approximately 38, 850 km2) for 30 or 40 years inthe areas with the best geological indications foroil deposits, an area almost the size of Switzerland.Therefore, it is evident that the nature of thelicensing process made political resources mostvaluable at the early stages of industry formation; afirst mover was able to preempt rivals by securinglong-term leases in the most promising areas. Fromthis perspective, dependence on political resourceswas at its highest during early market entry.

The role played by Shell-BP was not sim-ply that of a passive receiver of governmentfavors. Archival evidence shows that Shell-BPmanagers had privileged access to British gov-ernment officials and used that resource to obtainmore favorable treatment. When Shell-BP’s oil

1 Circular Letter of A. C. F. Armstrong, Permanent Secretaryin the Ministry of Lagos Affairs, Mines and Power to Shell-BP, Gulf, Pan American, Standard Oil, Mobil and CaliforniaExploration Company (August 1, 1959), File POWE33/421,Public Record Office, Kew, London.



exploration licenses (OELs) expired in the early1950s, the British government amended the termsof the oil prospecting licenses (OPLs) in favor ofShell-BP in Nigeria. The Nigerian colonial gov-ernment, with the full authority of the British Sec-retary of State for the Colonies, agreed to increasethe size of Shell-BP’s OPLs.2 It appears that thedecision was made at the request of oil managers.An internal oil company report in 1954 statedthat ‘As a result of representations made by ShellD’Arcy [renamed Shell-BP in 1956], the CentralGovernment have agreed that the area of theselicenses shall be increased from 500 sq. milesto 2,000 sq. miles and the obligation to drill awell shall be at any time during the period ofthe license.’3 Under these terms, Shell-BP had toapply for only six or seven licenses, as againstapproximately 28 licenses for the same area underthe previous regulation. This reduced the num-ber of wells that the company was obliged todrill to meet license terms. Using access to gov-ernment officials, Shell-BP was therefore able toaffect a change in government regulations in orderto reduce its costs of oil exploration.

The departure of British colonial administratorsin 1960 did not end Shell’s ability to influencepolitical outcomes. From the late 1950s—whenNigerians took over the responsibility over oilindustry matters from the British—Shell built up anetwork of political contacts at the highest levels.Political activities were used strategically at cru-cial moments, for instance, through donations. Justbefore the Nigerian Council of Ministers discussednegotiations with Shell-BP regarding oil licenses in1958, the company donated funds for the expan-sion of technical education in Nigeria to obtainmore favorable treatment. At the same meeting inAugust, the Council then discussed two memos:one dealing with Shell-BP’s assistance to technicaleducation and another dealing with licensing nego-tiations.4 Strategic interventions of this type helpedthe company to benefit from key decision-makers’reciprocity at various points.

2 Letter by the Permanent Secretary, Ministry of Lands, Minesand Power in Lagos to J. M. Kisch, the Colonial Office inLondon (June 25, 1957), File CO1029/255, Public Record Office.3 K. R. H. (initials of unknown author), ‘Some Notes on theAdministration Departments of the Shell D’Arcy PetroleumDevelopment Company of Nigeria’ (May 22, 1954), File BP52584, BP Archive, University of Warwick.4 ‘Conclusions of the 29th Meeting of the Council of Ministers ofthe Federation of Nigeria’ (August 18, 1958), File CO1039/87,Public Record Office.

At a minimum, reciprocal relations with keygovernment officials allowed Shell to avoid someof the political risks which befell others, includingits business partner BP, and helped Shell to reducethe threat from the phenomenon known as theobsolescing bargain. An example was the polit-ical debate over fiscal terms for oil companiesin 1958. Thanks to the earlier use of politicalresources, Shell-BP was previously promised thatthe company would not pay any tax until 1974.But the Minister of Finance wanted to amend thecompany’s favorable fiscal terms in 1958, whilethe oil minister Mohammadu Ribadu (a Shell-BPally) defended Shell’s fiscal terms. The oil minis-ter pointed out in a cabinet meeting that Shell-BP‘were the first company to undertake oil explo-ration in Nigeria and that the whole question oftax worried them a lot’ and that ‘it was desirablethat the Government be sympathetic to that pioneerorganization.’ Following the oil minister’s inter-vention, the Nigerian Council of Ministers agreedon a compromise whereby the date on which thefirst tax would be payable would be 1962, not1974 as the previous agreement suggested. How-ever, ‘the total amount of tax payable before 1974would be less than that payable if the allowanceswere limited to ensure the payment of a quarterof the tax otherwise payable.’5 Therefore, Shellcontinued to gain profits from more advantageousearly terms, which were unavailable to late movers.

This case suggests that Shell was able to obtainan FMA in Nigeria with the help of politicalresources. Having the longest time-span of ourthree case studies, this case indicates that FMAscan be sustained over a very long period of time.However, political resources were not sufficientto maintain an FMA. Thanks to technical andfinancial resources, Shell-BP was able to expandits drilling program in the late 1950s despite itsinitially uncertain success, which might have dis-couraged other, less financially resourceful, com-petitors. The expanded drilling program providedShell-BP with geological information necessary tomake reasonable guesses about the location of themost prolific oil reservoirs. Therefore, Shell-BP’sFMA in Nigeria was the result of a combina-tion of political and non-political resources anddepended as much on the venture’s skills and

5 ‘Conclusions of the 43rd Meeting of the Council of Minis-ters of the Federation of Nigeria’ (December 23, 1958), FileCO1039/87, Public Record Office.



active behavior as on the British government’sinitial grant of exclusive oil licenses. An impor-tant lesson of the case is that the firm resources,which led to Shell-BP’s initial monopoly position,were not necessarily enough to sustain Shell-BP’sFMA in the long term. Nigerian government pol-icy threatened Shell-BP’s privileged position atvarious times. Thus Shell’s ability to upgrade itspolitical resources in the new post-colonial Nige-rian environment was instrumental in maintainingits FMA.

Case history of late movers

Until the mid-1950s, Shell-BP had a formal mono-poly over exploiting oil resources in Nigeria,which was actively supported by the colonialauthorities. Before the 1950s, Socony-Vacuum Oil(later renamed Mobil) had already sought oil con-cessions in Nigeria and the Gold Coast (Ghana).The U.S. government actively supported Socony-Vacuum’s efforts in Nigeria throughout the SecondWorld War, but the British government repeatedlyrefused to grant oil concessions to the company.6

Political resources protected Shell-BP from anycompetition. In this context, the late movers’ keyweakness was their lack of a British base. Thiswas perhaps somewhat surprising in that RoyalDutch/Shell was also not purely British. It wasan Anglo-Dutch firm with a 60 percent Dutchshare ownership and archival materials suggest thatBritish colonial officials viewed Shell with a cer-tain measure of suspicion. However, a 40 percentBritish ownership and its close association withthe state-owned BP proved to be key resourcesfor Shell, which allowed the company to receivefavors from the British government in contrast tothe foreign late movers.

In 1955, the British government turned aroundand granted Socony-Vacuum an explorationlicense, despite the fact that Nigerian legislationformally barred the entry of non-British oil compa-nies. Archival data clearly shows that this changein policy was related to the growing bargainingpower of the U.S. government vis-a-vis the Britishgovernment. A senior official of the British Colo-nial Office summarized the British predicament asfollows:

6 Memo from the Division of Near Eastern Affairs (December30, 1942), State Department Decimal File no. 880.6363/5, UnitedStates National Archives (Record Group 59), Washington, DC.

For some years a number of our territories havereceived a limited amount of technical assistancefrom the United Nations and from the UnitedStates. While we have been glad in many cases tohelp the territories to get this assistance, there havebeen not a few cases where we have felt that boththe Colonial and United Kingdom interests wouldbe much better served if we could supply (good)British subjects instead of foreigners.7

As the British government came to face eco-nomic difficulties and became dependent on U.S.assistance, the U.S. government insisted on abetter treatment of U.S. firms—especially thosewith influence in Washington—within the BritishEmpire. Therefore, the very entry of Socony-Vacuum in the mid-1950s was made possiblethrough its political resources.

From the late 1950s, successive Nigerian gov-ernments pursued a policy of diversification inorder to expand the country’s oil sector. Oil con-cessions were granted to Tennessee in 1960, Gulf(later Chevron) in 1961, American Overseas (alsoknown as Amoseas) in 1961, Italy’s Agip in 1962,France’s SAFRAP (later Elf) in 1962, Phillips in1965, and Exxon in 1965. As a result, nine for-eign oil companies were engaged in exploration inNigeria by 1965. By 1971, five latecomers startedproducing oil in Nigeria (see Table 1).

Nonetheless, given Shell-BP’s ability to choosethe most promising concessions, newcomers weremerely confined to market niches left behind bythe first mover. Furthermore, Shell’s superior polit-ical resources slowed down the progress of latemovers. One example was that the colonial author-ities refused to release previous geological data tolate movers (even on concessions abandoned byShell), so that an official of the British Ministryof Power noted in 1959 that ‘any new applicantpractically starts anew unless he purchases fromShell-BP the main geological data’.8

The late movers’ greatest gains were in offshoreexploration and production. With respect to newoffshore licenses, the Nigerian Council of Minis-ters in 1959 agreed that ‘not more than four blocksof 1,000 square miles each should be granted in the

7 Letter from T. B. Williamson of the British Colonial Office toA. H. P. (initials of unknown recipient) of the CommonwealthRelations Office (August 16, 1960), File CO852/1749, PublicRecord Office.8 Comment on a letter from the British Colonial Office sent byMr. Rutherford to H. Scholes, Ministry of Power (August 25,1959), File POWE33/421, Public Record Office.



Continental Shelf area to any one company.’9 Of10 licenses for offshore blocks granted in 1961,four were awarded to Shell-BP and two eachto Mobil, Gulf (later Chevron), and Amoseas (aChevron-Texaco venture). Subsequently, the latemovers were able to fully eclipse Shell-BP inoffshore production thanks to their superior non-political resources, that is, technical skills in off-shore exploration. Gulf, Mobil, and Texaco weremuch more successful in offshore operations thanShell. By 1975, Shell-BP accounted for 77 per-cent of onshore discoveries, while the three U.S.firms—Gulf, Mobil, and Texaco—accounted for76 percent of offshore discoveries (Madujibeya,1975: 3). The late movers’ superior non-politicalresources help to explain why Shell was not ableto extend its dominant position in onshore opera-tions to those offshore. In more general terms, thissuggests that the relative strength of the late movermay help to neutralize the first mover’s pioneeringadvantages.

CASE STUDY 2: VOLKSWAGEN INCHINA


Volkswagen (VW) was one of the first internationalcar manufacturers to initiate commitment to Chinaand was the first to conclude an international jointventure (IJV) agreement in China’s auto sector.The first contact between the Chinese governmentand VW took place in 1978. In 1982, VW andthe Chinese government signed a trial assemblyagreement for manufacturing the VW Santana inShanghai. A year later they signed a 25-year jointventure (JV) agreement with Shanghai AutomotiveIndustrial Corporation (SAIC) for Shanghai Volk-swagen Automotive Co. Ltd (SVW). SVW wasestablished in October 1984 and started operationsin September 1985 to produce the VW Santanamodel. Ever since, VW has dominated the Chinesecar market. In 2002, VW held a 40 percent shareof the Chinese car market, with SVW providingthe majority of VW’s sales (see Table 1).

In the late 1970s and early 1980s, the Shang-hai government regarded auto-making as the city’s‘first priority industry.’ The Shanghai government

9 ‘Conclusions of the 19th Meeting of the Council of Ministersof the Federation of Nigeria’ (July 22, 1959), File CO1039/108,Public Record Office.

looked for a strong and trustworthy internationalpartner with whom to build a partnership to helpChina upgrade its automobile industry. Soon afterSVW was established, the regional governmentgave it a special status, it listed SVW as a ‘pillarfirm’ in the Shanghai’s government developmentplan, and it implemented various policies to sup-port SVW. Although SVW was not a project of thecentral government, it was championed and sup-ported by senior political figures in Beijing. Thesupport by the central government was partly dueto the fact that those who were involved in estab-lishing SVW were later powerful political actorsin the central government. They include the Pres-ident of China, Jian Zemin, (until 1987 mayor ofShanghai, 1987–89 party secretary of Shanghai)and Prime Minister Zhu Rongji. In addition, thesupport and assurances given by the German gov-ernment assisted VW’s market entry into China.Interview data suggest that from the start the Ger-man government, VW, and the Chinese govern-ment put an effort into making the SVW joint ven-ture a success. The fact that SVW enjoyed highest-level political support from the German govern-ment enabled Chinese and German governmentofficials to work together to jointly solve some ofSVW’s critical problems on various occasions.

Thanks to its political resources, SVW receivedpreferential treatment in taxation, foreign loans,exchange rates, and procurement of materials. Forinstance, when SVW faced trouble in 1985 dueto the city’s failure to raise funds to develop nec-essary infrastructures for the localization projects,the vice mayor intervened and solved the problem.Similarly, in 1998, the Shanghai municipal govern-ment levied a $10,000 license fee on SVW rivalCitroen cars made in the nearby Hubei province.

Interview data strongly suggest that politicalresources were crucial to establishing an FMA.During the 1980s and 1990s SVW’s political capi-tal was used as a barrier to entry for late movers tosome segments of Shanghai’s institutional market,which accounted for over 90 percent of the totalmarket. For example, the Shanghai municipal gov-ernment once required that every city taxi must beSVW’s Santana model and it still levies a lowerlicense tax to Santana buyers who live in its sub-urban areas. As a result, most of the taxis in usein the urban areas are SVW Santanas, accountingfor over 80 percent of the taxis in Shanghai alone.Political resources also assisted VW to cope betterwith the high uncertainty of the Chinese business



environment, as no firm would have been able toplan for all possible future contingencies duringthe early formation of industry structures. Thanksto the special relationship with Chinese officials,VW was confident that Chinese officials wouldhelp them make necessary adjustments as condi-tions change, as one manager noted. Furthermore,being first to market helped SVW negotiate a betterdeal than that of late rivals. Interviewees reportedthat the negotiations between the Chinese partnersand VW led to the birth of the IJV laws in China.As one interviewee put it, ‘at the negotiation tablewe have written the Chinese laws on joint ventures. . . we had nothing apart from a little booklet withsome regulations. Everything else both partnershad to find out in talking to each other.’ Help-ing to formulate the rules of the game inevitablydisadvantaged late rivals. Most crucially, interviewdata suggest that SVW benefited from the fact thatShanghai mayor, Zhu Rongji, was sympathetic inthe first years of operations and as a result theShanghai government often sided with the SVWposition at a time when an FMA was established.

Even before it entered China, VW realized that itneeded strong political capital if it was to alleviatethe likely costs of market uncertainties and possi-ble opportunistic behaviors of its Chinese partner.Similarly, from the Chinese perspective, Chineseofficials realized that VW would be more willingto bring in new technology and share informa-tion with Chinese partners if they could trust theirChinese partners not to poach their technology orbehave opportunistically. The fact that both theChinese government and VW had resources andcapabilities beneficial to, but not possessed by theother party, created a simultaneous strategic inter-dependence between the two parties.

While the interdependence between VW and theChinese government created the necessary condi-tions for SVW to establish political capital, inter-viewees noted that interdependence per se was notsufficient to account for the formation of politicalcapital. VW needed a management team capableof establishing and nurturing such resources. Inter-view data suggest that VW deliberately set out toutilize its extensive previous experiences in dealingwith political actors in developing countries suchas Brazil, Nigeria, and socialist Yugoslavia (VW’sfirst international joint venture). Indeed, as many as80 percent of the first batch of VW expatriates sentto China were individuals with a background ofinternational operations in countries such as Brazil,

Nigeria, and Yugoslavia. These prior experiencesgreatly helped to navigate China’s political arena.One interviewee explained how his experience inmanaging a VW plant in a country where politicalconnections and tacit unwritten rules and regula-tions mattered made him aware of the importanceof political institutions and how to deal with politi-cal actors. Another interviewee noted that, becauseof his previous experience, he was aware of thefact that transactions in emerging economies suchas China were based on non-contractual, ratherthan contractual mechanisms. He added that bydeveloping political capital they eliminated theneed for further formal contracts, which wouldbe costly to monitor and impossible to enforce inChina.

Prior experiences related to political capital andthe initial support by the Chinese authorities werenot sufficient by themselves to maintain politi-cal backing over time. All interviewees empha-sized the fact that Chinese officials took a strategicdecision to assist SVW as a result of trustwor-thiness that arose from dealing with SVW man-agers. Reciprocal relationships can help to explainwhy senior government officials were prepared togrant concessions to VW, even if the governmenthad little to gain in the short term. For instance,while the Chinese authorities insisted on localiza-tion for foreign auto firms, the State Council andthe State Planning Commission granted SVW 2000additional import licenses for so-called ‘completeknocked down’ (CKD) kits in 1989. Similarly, VWgranted several concessions during the early stagesbecause of the expectation that the Chinese part-ner would reciprocate in the future. In addition,VW’s CEO showed genuine interest in Chineseoperations by visiting China not less than twice ayear, partly in order to maintain top-level relation-ships.


Not long after VW’s market entry, severalother foreign auto producers were allowedinto the Chinese market, including BeijingJeep (1983/started production 1985), GuangzhouPeugeot (1985/started production 1987), andTianjin Daihatsu (1986/started production 1987).Our interview data suggest that these early latemovers (1980s until mid 1990s) failed to challengeSVW’s FMA because they lacked non-politicaland/or political resources.



First, after VW entered China, the Chinese gov-ernment had become less dependent on latecomerswith regard to non-political resources. Once theChinese government established links with VW toupgrade its auto industry, late movers added less tothe technological capabilities already transferred orpromised by VW. Furthermore, our intervieweesnoted that finding a capable and reliable world-class partner willing to help China to launch its keyindustry was a costly and time-consuming process,which perhaps deterred the Chinese from searchingfor new partners.

Second, the commercial progress of late moverswas inhibited because they lacked the politicalresources of the first mover. The high commitmentof the Chinese and VW to their mutual relationshipled to stronger ties between the two partners char-acterized by a solid reciprocal relationship. OneGerman SVW manager noted that because of therisk VW took to enter China first, it expected loy-alty from its Chinese partners and pressured itsChinese partners to have a ‘monogamous’ rela-tionship with VW by precluding late movers fromgenerating political capital. In contrast to VW, latemovers lacked the capabilities, and in some casesthe will to generate political resources in China.For instance, in the case of Peugeot, the project‘never seemed to be a priority of the head officein Paris’ and ‘the fact that Peugeot’s CEO visitedChina for the first time in 1994 to sell his sharesto Honda after its IJV failed is an indication of nottaking China seriously by the French company,’ asput by one interviewee. Further, Guangzhou Peu-geot JV went ahead with the project without theapproval and blessing of the central governmentin Beijing. The lack of will and political resourcesplayed a key part in Peugeot’s withdrawal fromChina in 1997.

Similarly, Beijing Jeep lacked the skills to gen-erate and use political capital in China. Soon afterthe Beijing Jeep JV contract was signed, Jeep real-ized that the modernization of the old technologyinherited from its Chinese partner was going to bemuch higher than expected. Subsequently, ratherthan developing a new Jeep as agreed with theChinese government, the JV decided to importCherokee parts and assemble the Cherokee withoutthe approval of top-level Chinese officials. In con-trast to SVW, which negotiated and obtained animport license for CKD parts, Beijing Jeep wentahead with import of parts and assembly of theCherokee without an import license. Furthermore,

and partly due to lack of political capital, BeijingJeep did not obtain similar support to that of SVWwhen it faced foreign exchange shortage in 1986.This led to the so-called ‘Beijing Jeep 1986 crisis’which resulted in Beijing Jeep’s president Don St.Pierre threatening the Chinese to stop new invest-ments, put a hold on the technology transfer policy,and call back Jeep’s experts from China. Despiteits threats, Jeep did not receive a reply from Chi-nese officials; production was halted for 2 monthsand Jeep’s management made the threats pub-lic by publicizing them in international businessoutlets such as the Wall Street Journal and Busi-ness Week. While an agreement was later reachedbetween Jeep and Chinese officials, the confronta-tional attitude of U.S. managers precluded Jeepfrom developing a reciprocal relationship with thegovernment, even if there was a will to do so. Thefailure to generate strong political capital was acrucial explanation of why Jeep had produced nomore than 9294 cars by 1999.

The biggest challenge to VW’s dominant mar-ket position in China came from a second waveof late movers in the late 1990s, notably Gen-eral Motors (GM). As the size of the marketfor up-market cars grew during the late 1990s,the Shanghai Automotive Industrial Corporation(SAIC) (VW’s original partner) formed multiplerelationships with different local and foreign com-panies in the late 1990s and early 2000s, whichaided the entry of GM as a new latecomer in 1997.One of the key aims of SAIC’s partnership withGM was to produce ‘up-market’ cars, a growingniche not targeted by SVW. However, being lateto market, GM had to overcome higher barriersto entry than those imposed on SVW and earlymovers in the 1980s. This put GM in a weakbargaining position vis-a-vis SAIC. As a result,GM’s cost of entry was reported to have beenhigh. Further, GM was pressured by SAIC to pro-duce the up-market Buick model rather than asmall car—the SAIL—appropriate for the Chi-nese market as GM originally planned. As Oliverputs it, ‘poor timing was the main reason why GMfound itself so exposed to the “whims of Chinesepolicy.” Had GM entered China 15 years before,when the country was looking for foreign invest-ment, it could have had “a sweet deal” such asVW. GM paid dearly for the Shanghai license, out-bidding Ford because it thought the window wasclosing’ (Oliver, 2003: 148–149).



However, wittingly or unwittingly, SAIC’s JVwith GM—Shanghai General Motors CompanyLimited (SGM)—has put pressure on SVW tochange its production policy (relying on a singleproduct) and upgrade its technology. The corner-stone of SGM strategy was to roll out new productsfaster than SVW. SVW replied to SGM strategy byupgrading its production plants to produce world-standard quality cars and introduce new modelsfaster than it did previously. By 2002, SVW wasproducing several different models in Shanghai,i.e., the Santana (since 2000), Passat (since 2000),Polo (since 2001), and Golf (since 2002); thishelped to slow down GM’s gains in market sharefor a number of years. VW’s ability to match GM’snon-political resources—especially in terms of itsinnovativeness—helped the firm to maintain itsFMA. Likewise, thanks to its superior non-politicalresources, GM has made major inroads into theChinese auto market in recent years and has cometo seriously threaten VW’s dominant position andmay well overtake VW’s market share, whichdemonstrates that political resources are not suf-ficient to maintain FMAs.

CASE STUDY 3: LOCKHEED MARTININ RUSSIA


Lockheed Martin (then Lockheed Corp.) came toRussia on the back of a JV with two Russianaerospace firms in 1993 and, being a first moveramongst the Western aerospace firms in Russia,was able to gain access to previously restricted keyassets. The entry of foreign firms into the Rus-sian market must be seen in the context of theglobal marketplace, as it played a pivotal role inthe formation of the global market for commer-cial launch services. In the early 1990s, a globalmarket for commercial launch services emerged,making possible the lofting of the vast satelliteinfrastructure required to power the explosion ofglobal telecommunications that occurred duringthat decade. The emergence of this new marketwas made possible by a series of unilateral, bilat-eral, and multilateral government decisions, rang-ing from regulatory reform to the signing of inter-national treaties, that established new parameterswithin which private firms and public entities couldoperate and compete on a global basis. The U.S.firms that became Lockheed Martin were able to

convert their first mover position amongst Westernaerospace firms in Russia into a dominant marketshare in the now fully global satellite launch ser-vices sector.

During the Cold War, access to launch ser-vices for public and private entities was tightlyregulated by, and in many cases controlled by,nation-state governments because of their closelinkage to strategic defense requirements. Afterthe end of the Cold War, successive U.S. admin-istrations took steps to liberalize the space sec-tor. Coinciding with the election of U.S. Pres-ident Bill Clinton in 1993, Russian firms seek-ing satellite launch customers began to approachWestern firms about forming launch services part-nerships. For their part, the Clinton administra-tion operationalized the new pro-commercial U.S.space policy by launching two major initiativesat President Clinton’s first summit meeting withPresident Yeltsin in April 1993. The first was ahighest-level binational commission to promotecooperation between the two countries called theU.S.–Russian Joint Commission on Economic andTechnological Cooperation (known informally asthe Gore–Chernomyrdin Commission or ‘GCC’).In the space sector, GCC’s aims included promot-ing cooperation between NASA and the RussianSpace Agency, promoting integration of Russianfirms into the global production chain through con-tracting to build portions of the International SpaceStation, and, crucially, promoting the privatizationof Russian firms and commercialization of Rus-sia’s space sector to facilitate JVs and subcontract-ing agreements between U.S. and Russian firms.The second Clinton initiative was to negotiate abilateral treaty (signed in September 1993), whichremoved Cold War era technology transfer barriersand opened the way for Russian firms to participatein the global commercial launch services market(U.S.–Russia Trade Agreement 1993).

The undertakings of the GCC and the 1993treaty enabled the commercialization of Russia’saerospace sector. In April 1993, the same monthas the Clinton–Yeltsin summit, Lockheed Corp.formed a joint venture with Khrunichev, a publiclyowned firm that Yeltsin had created by decree in1993 by combining various state aerospace designand construction facilities, and RSC Energia (pri-vatized in April 1994), called Lockheed-Energia-Khrunichev International (‘LKEI’), to market glob-ally commercial launch services for payloads



aboard Proton rockets from the Baikonur Cosmod-rome. In 1995, Lockheed Corp. and Martin Mari-etta merged to form Lockheed Martin, which thenestablished Lockheed Martin Commercial LaunchServices Company (‘LMCLS’) to market launchservices using Lockheed Martin’s Atlas II andIII rocket boosters to be launched from CapeCanaveral and Vandenberg Air Force Base, Cal-ifornia. LMCLS and LKEI then joined forces toform a highly innovative new company, Interna-tional Launch Services (‘ILS’), to market jointlythe commercial launch services of the Proton andAtlas boosters on a global basis. The first ILS com-mercial launch using a Proton booster took placein 1996, and business grew steadily.

Lockheed Martin’s early entry into Russiaallowed the company to benefit from the techno-logical base and infrastructure of the Russian firms.The company was able to get access to key assetsincluding technology (such as the Proton rocketbooster and the RD180 engine) and launch facili-ties of the Baikonur Cosmodrome in Central Asia.Having sufficient launch platform capacity and afull range of launch vehicles (rockets) to accom-modate different size payloads would be majordeterminants of who would succeed in capturingnew market share, so an FMA in Russia gave thecompany a crucial advantage in the global marketfor satellite launches. All of this was made possi-ble by a favorable political business environment.U.S.–Russian public cooperation in the space sec-tor gave a privileged position to U.S. companiesin Russia. More specifically, Lockheed Martin wasable to draw on their prior political capital in theUnited States as a major defense contractor for theU.S. government, while the Russian partners (whohad a history of being state-owned enterprises)had superior knowledge of Russia’s institutionalenvironment. Indeed, one interviewee suggested tous that RSC Energia’s selection of Lockheed asan original JV partner was partly dictated by thedesire to ‘co-opt a large industrial partner with sig-nificant influence in the U.S. government’ becauseRSC Energia needed U.S. approval for importingsatellites.

The U.S. and Russian governments actively sup-ported the ILS venture; for instance, the Russiangovernment negotiated with the government ofKazakhstan to allow ILS the use of the Baikonurspace facility in Kazakhstan. Dependence on thispolitical support was at its highest during earlymarket entry, as the 1993 treaty set quotas on

the number of commercial launches from Russianlaunch platforms. Originally set at eight launchesover the course of the treaty’s 8-year duration andrevised when the treaty was amended in 1996to three-quarters each year of the total numberof annual global projected launches, these quotaswere intended to ensure that integration of Rus-sian assets into the global marketplace would beorderly and encourage competition according tofair market principles (U.S.–Russia Trade Agree-ment 1993, 1996). In practice, these quotas meantthat the first mover would have the first choiceto use the Russian launch slots, which had theeffect of discouraging additional early entrantsinto the Russian market. Once the 1996 amend-ment to the treaty raised the number of permit-ted launches, ILS was already beginning launchesfrom Baikonur, and its competitors were 3 yearsbehind. In December 2000 the quotas were endedaltogether, by which time Lockheed Martin andILS had established a competitive advantage overglobal rivals. Political support also helped ILS tocope better with existing government restrictionsin the space sector (e.g., pricing restrictions) andto obtain speedily the required government per-mits (e.g., export licenses), amongst others. As oneinterviewee put it, ‘because of Lockheed Martin’saccess to governments, we were able to put issuesin front of decision-makers’, which helped to solvemany critical problems.

Lockheed Martin managers were not simplyusing political resources to create rents like Shell-BP or SVW, but rather used political capitalto compete globally against their rivals. ForLockheed Martin, using non-market resources toenter Russia meant forming a JV with two ofthe largest Russian aerospace firms that procuredhardware, technology, and access to a major launchplatform, the Baikonur Cosmodrome—marketresources needed to gain an advantage over itsglobal competitors. In this way Lockheed Martinwas able to achieve a dominant position in thenew global launch services market by offeringcustomers a fuller range of types of booster, launchdate, and location than it could have done usingsolely U.S.-based assets.


Several years after Lockheed Martin’s entry, othermajor Western firms were able to enter into part-nerships with Russian firms. Indeed, entry into



Russia proved essential for company survival inthe formation of the global market for commer-cial launch services. Lockheed’s key U.S. com-petitor in the early 1990s, McDonnell Douglas,lost out in this global market precisely becauseit did not enter Russia and did not obtain Russiantechnology, which put Lockheed at a competitiveadvantage; McDonnell Douglas was subsequentlypurchased by Boeing.

In contrast to McDonnell Douglas, Boeing andArianespace entered Russia in the mid 1990s. In1995, Boeing joined with Russian RSC Energia,the Ukrainian aerospace firm Yuzhnoye Yuzhmash,and Norwegian shipbuilders Kvaerner to formSeaLaunch, an ambitious venture to use Russianassets in launching commercial payloads froma mobile floating platform towed from its LosAngeles home port to a Pacific Ocean location onthe equator; SeaLaunch lofted their first satellitein 1999. In 1996, Arianespace joined with Arianerocket launch integrator EADS (the EuropeanAeronautic Defence and Space Company), Russianfirm Samara Space Center (‘TsSKB Progress’),which manufactures the Soyuz booster, and theRussian Aviation and Space Agency to formStarsem, an enterprise to market launch servicesusing Soyuz boosters launched from Baikonur.Starsem’s first Soyuz with a payload was launchedin 1999. In addition to the Starsem JV, Arianespacealso contracted with Samara Space Center tosupply the Soyuz booster for launch fromArianespace’s Kourou Spaceport in Guiana, whichcollectively gives Arianespace the same rangeof boosters for different-sized satellite payloadsand choice of launch sites held by LockheedMartin/ILS.

Nonetheless, Boeing and Arianespace failed toexploit their Russian partnerships to the sameextent as Lockheed Martin. Evidence provided bya Lockheed Martin official interviewed suggeststhat in 2003 they captured 52 percent of theiraddressable market, the 2.5–6 ton payload marketserviceable by ILS’ Atlas V and Proton boosters,compared to 40 percent for Arianespace/Starsemand the remaining 8 percent for SeaLaunch (seeTable 1),10 although an alternative method of mea-surement by Arianespace puts Lockheed Martin’smarket share somewhat lower. Our interview data

10 Given the difficulty of separating the commercial launchrevenue stream from non-publicized defence-related overheads,commercial satellite launch market share is generally measuredin terms of number of launch contracts awarded.

suggest that the timing of entry into Russia playeda key role in influencing these relative marketpositions and that late movers in Russia failedto challenge Lockheed Martin’s/ILS’s dominantglobal market position because they either lackedkey non-political or political resources.

The case of Boeing is instructive, as the firm hadcomparable political resources to those of Lock-heed Martin, having previously acted as a contrac-tor to the U.S. government and enjoying strongreciprocal relationships with high-level politicalactors in the United States. Just as Lockheed Mar-tin, Boeing had the opportunity to benefit fromthe U.S.–Russian accords in the early 1990s inachieving an early entry into Russia. However,Boeing had a different market strategy from thatof Lockheed Martin by choosing to develop a newway to launch commercial satellites via launchesfrom ships on the equator, which was then believedto be cheaper than using sites further away fromthe equator. The firm believed that a new tech-nology would be cheaper and more reliable thanbuilding a new launch pad somewhere on theequator. In the process, the challenge proved tech-nically more complex and not as cheap or reli-able as had been previously envisaged. In otherwords, while Boeing had strong political resources,it lacked the non-political resources to succeed.Indeed, interviewees at Lockheed Martin and Ari-anespace argue that Boeing will ultimately notsurvive in the satellite launch market because theyare unable to launch enough satellites per year toachieve operational excellence (at the time of writ-ing, they have achieved an annual launch rate ofthree to four launches per year, whereas our inter-viewees suggested that a minimum of six to sevenlaunches per year would be necessary).

In contrast to Boeing, a key weakness of Ari-anespace was its lack of a U.S. base and the relatedlack of political backing in the United States,which prevented the firm from entering Russiaat the time of U.S.–Russian accords in the early1990s. The late entry into Russia disadvantagedArianespace in the early formation of a globalsatellite launch market, not least because accessto Russian assets enabled firms to lower their costbase. By the mid 1990s, even the French Pres-ident Jacques Chirac was very concerned aboutEurope being excluded from the advantages ofRussian resources in commercial satellite launchservices and pressed for the costly Ariane IV



booster to be replaced by the reliable yet inex-pensive Soyuz vehicle. By that time Cold War eraCoCom technology transfer restrictions had ended,and European firms did no longer require the samelevel of political and regulatory reforms to enterinto cooperation with Russian firms that Americanfirms had previously needed.

However, the lack of political resources contin-ued to hamper the use of Russian assets by Ari-anespace. Arianespace faced difficulties in usingSoyuz at Kourou to launch satellites for U.S.-basedcommercial customers because of onerous technol-ogy transfer-related security requirements imposedby the U.S. government upon Arianespace’s use ofRussian equipment and workers. Arianespace mustmeet these requirements as a condition of the U.S.government granting export licenses for the satel-lites to be shipped to Guiana for launch. Accord-ing to an Arianespace interviewee, these securityrequirements seem not to be problematic when thesame U.S. customers ship satellites to Baikonurfor launch atop Proton boosters sold by ILS, theimplication being that U.S. officials continue toconfer favors upon Lockheed Martin by applyingremaining export control security regulations insuch a way as to disadvantage Arianespace. Polit-ical resources also remain crucial to success in theRussian business environment, not least becausemany of the major Russian aerospace players, suchas Khrunichev and Samara Space Center, remainin the public sector.

Although the satellite launch market is costlyand time consuming to enter, this has not dis-couraged new enterprises from attempting to enterit. Chinese enterprises are already in the market,while interviewees expect Indian firms to enterwithin a decade. But the reciprocal relationshipsthat have developed between Lockheed Martin/ILSand the U.S. and Russian governments are likelyto preserve the venture’s advantageous position inthe global market for some time to come.

DISCUSSION

An analysis of the three case studies sheds lighton how political resources can lead to sustainableFMAs. Insights from both resource dependencetheory and reciprocity theory have offered use-ful theoretical lenses for interpreting the empiricalevidence. On the one hand, government interven-tion at the early stage of industry formation was

found to be crucial in creating an initial asymme-try among competitors, enabling the first moverto gain a head start. From this perspective, thefirst mover’s dependence on political resourceswas at its peak during this early stage. On theother hand, an early market entry allowed firstmovers to establish a lasting relationship with hostcountry governments, which was based on reci-procity. In turn, reciprocal relationships with politi-cal decision-makers allowed firms to maintain theirFMA as organizational surroundings evolved.

Since the case studies encompassed both firstmovers and late movers, our investigation allowedus to understand a wide range of factors, whicheither impede or promote the creation and con-tinuation of FMAs. The case studies thus pro-vide a unique opportunity to derive inductivelya generic model on how political resources influ-ence the evolution of FMAs. As Lieberman andMontgomery (1988, 1991: 21–22) have pointedout, the impact of the FMA is determined by thefirm’s skills and positions, the first mover’s com-petitors and changes in the business environment.This threefold division is an appropriate startingpoint for our discussion and will guide us in con-structing our model. We have partly modeled thisinductive approach on McKendrick’s (2001) articlein SMJ, which uses case study evidence to developa model and propositions.

Business environment

The political business environment has had aparamount influence on the evolution of FMAsin all three cases under investigation. The exis-tence of regulations such as government licensesand export permits as well as the ability of govern-ment officials to influence industry developmentthrough the interpretation of rules and regulationswere crucial in creating favorable conditions forthe creation of FMAs as a result of firm-specificpolitical resources. Conversely, the absence of thegovernment’s interest in influencing the industry’sdevelopment would result in a less favorable busi-ness environment for firms with political resources.The importance of political resources is thus likelyto vary by industry.

This finding falls in line with previous researchwhich has long recognized that the value ofpolitical resources is likely to be more impor-tant the more opportunities are controlled bygovernments and their value is likely to vary



between industries (e.g., Baron, 1995). While gov-ernment involvement may be country-specific orfirm-specific, research has shown that certain sec-tors such as extractive industries, finance, andinfrastructure-related sectors are particularly proneto government interference (Kobrin, 1980; Wellsand Gleason, 1995; Henisz, 2003). Electricity ratesor major extractive investments tend to be highlyvisible to the consumer and there may be a soci-etal expectation for such sectors to fulfill publicobjectives such as equity or national sovereignty.Governments are therefore ‘likely to intervene fre-quently to obtain the desired balance between pri-vate [profit maximization] and public objectives’in these sectors (Henisz, 2003 : 177). By extension,a firm’s political resources may be more likely tolead to FMAs in business environments character-ized by high government involvement. Thus weexpect:

Proposition 1: The greater the government inter-ference in the industry, the more likely it is thatpolitical resources will lead to FMAs.

Government interference in an industry was foundto be a necessary condition for the creation ofan FMA through political resources; as a corol-lary, the active government assistance to an earlyentrant in such an environment would lead to thatfirm’s FMA. In all three case studies, the sup-port of the home government was important, if notcrucial, for the first mover’s advantageous posi-tion. As such, this could be predicated on thebasis of the vast literature on the use of domesticprotectionism including previous articles in SMJ(Hillman et al., 1999; Shaffer and Hillman, 2000).All three case studies also point to the impor-tance of the host country government for foreignentrants. Indeed, one would expect host govern-ment support to increase in importance for firstmovers after the initial market entry. This insightcannot be readily derived from the existing busi-ness literature, which focuses on domestic polit-ical processes, but a handful of studies—mainlyfrom outside the business field—have elaboratedon the importance of host government support inobtaining FMAs (Frynas, 1998; Frynas, Beck, andMellahi, 2000; Reno, 1998: Ch. 2). A successfulfirst mover should therefore be able to count onthe active assistance by both the home governmentand the host government.

The case studies further demonstrate that thecooperative interplay between home and host coun-try governments was important in creating anFMA. Intergovernmental cooperation can beimportant in situations where a first mover requiresthe host government to reaffirm previous advan-tageous treatment by the home government (thecase of Shell), where intergovernmental cooper-ation can help to resolve day-to-day operationalproblems (the case of VW), or where such coop-eration can endow first movers with unique non-political resources (the case of Lockheed Martin).This is as yet an under-researched area, althoughindirect support for the importance of intergovern-mental cooperation for first movers can be inferredfrom recent work on the adoption of technical stan-dards (Lembke, 2002; Spar 2001a, 2001b). There-fore:

Proposition 2a: During the early formation ofan industry structure, the active assistance bythe home government and the host government ispositively related to the likelihood that politicalresources will lead to FMAs.

Proposition 2b: The greater the cooperationbetween a firm’s home and host governments,the greater the likelihood for a strong FMA.

The political business environment can be a keydeterminant of an FMA, but it may evolve overtime. The relative stability of the political businessenvironment played an important role in safeguard-ing the FMA in all three cases under investigation.Conversely, a shift in that environment could haveweakened the FMA; hence a first mover needsto consider the potential stability of the politicallandscape over time. Indeed, the obsolescing bar-gain model informs us that drastic changes in thepolitical business environment may be inevitablein some industries, as the bargaining power shiftsin favor of the host government once the ini-tial investment is made and the project is prop-erly established (Vernon, 1977; Vachani, 1995). Byimplication, a change in the terms of investment(through a renegotiation of previous concessionsor a shift in government policy) could weaken theposition of the first mover. Alternatively, a govern-ment’s decision to interfere less in a given industry(e.g., through a shift of support toward other indus-tries or deregulation) could lead to a shift of the



locus of competitive advantage away from polit-ical resources. In other words, favorable industrystructures related to political resources could provetransitory if the rules of the game change. Thus,we would predict:

Proposition 3: Political resources will be lessconducive to FMAs, if the political businessenvironment is changing and/or the locus ofcompetitive advantage is shifting.

Firm characteristics of first mover

This article demonstrates that a firm’s politicalresources can lead to FMAs, which is backed byour three case studies. A corollary question iswhether strong political resources can justify earlymarket entry in general. Indeed, our evidence sug-gests that political resources are of utmost impor-tance during early formation of industry structureswhen first movers have the opportunity to influenceindustry structures from the start (e.g., by influ-encing the development of industry regulation).Insights from the resource dependence perspective,reciprocity theory, and research on entry barrierssupport these conclusions. Furthermore, empiricalstudies have shown that early government inter-vention in the market may help to establish anindustry-wide technical standard (Lembke, 2002)or it may provide first movers with the opportunityto choose the most valuable market assets (Fry-nas et al., 2000), with the result that the industrybecomes ‘locked’ into a certain path of develop-ment. Therefore:

Proposition 4a: The greater a firm’s politicalresources, the greater the likelihood for an FMA.

Proposition 4b: Political resources are mostvaluable during the formation of industry struc-tures.

Our evidence does not suggest that political re-sources are sufficient in themselves to establishFMAs. Shell-BP’s entry was welcomed in Nigeriaas the government needed an experienced interna-tional firm with sufficient financial and managerialresources to jump start the country’s oil industry.Similarly, the Chinese and Russian governmentswelcomed VW and Lockheed Martin respectively,as they valued the firms’ unique market resourcessuch as technology and capital. Political resources

are likely to be of little value by themselvesunless they are combined with other valuable non-political resources.

At the same time, our evidence suggests thatpolitical resources must be closely integrated withnon-political resources into effective businessstrategies. To illustrate this point: during the 1950sShell-BP first intervened in the formulation ofgovernment oil concessions (use of political re-sources) to reduce its exploration costs; then thefirm pursued a more aggressive exploration pro-gram (use of non-political resources) in order tobe able to select the most promising governmentconcessions. Thus, the use of political resourcesin establishing an FMA needs to form an inte-gral part of the firm’s overall strategy; the CEOneeds to properly understand the interdependencebetween political and non-political strategies. Pre-vious work supports this conclusion (Baron, 1995,1997). As Baron (1995: 64) argued: ‘Nonmarketstrategies must not only be formulated and imple-mented effectively, but they must also be inte-grated with market strategies.’ Therefore:

Proposition 5a: The richer a firm’s non-politicalresources, the more likely its political resourceswill lead to FMAs.

Proposition 5b: The greater the integration ofpolitical resources and non-political resourcesinto an effective business strategy, the morelikely a firm’s resources will lead to FMAs.

The evidence suggests that building up politicalcapital through networking at various levels is asounder long-term strategy than relying on inher-ited political capital, especially when that capitalis tied to a particular regime or faction. In linewith recent research on the role of institutionalfactors in international investment strategies (Hol-burn, 2002; Henisz, 2003), the evidence highlightsthe importance of organizational learning whendealing with the political business environment.Continuous learning about the political environ-ment and upgrading of political resources was nec-essary to sustain the FMA in all three analyzedcases. Organizational learning theory informs usthat prior learning facilitates the learning of fresh,related knowledge (Cohen and Levinthal, 1990,1994). This insight can help to enlighten our inves-tigation insofar as the absorption of learning aboutthe political environment was possible because



the analyzed firms already had considerable priorexperience and prior political resources. Firmswithout those characteristics would have found itdifficult to absorb experiences about the politicalprocess and to obtain political resources. There-fore, our research suggests that the ability to copewith the political process can be learned and, byimplication, can lead to a key competitive advan-tage. While we recognize that organizational learn-ing is country-specific to some extent, our inves-tigation suggests that knowledge of how to copewith the political process is transferable across bor-ders. Indeed, previous research by Henisz (2003)suggested that the ‘evolution of learning processes’with regard to idiosyncratic institutional environ-ments ‘is particularly important, as in the absenceof such learning, international investors’ advantageover their domestic counterparts could well provetransitory.’ Thus:

Proposition 6a: Firms with high prior expe-rience related to political resources will havehigher chances of obtaining FMAs.

Proposition 6b: Sustaining an FMA will becontingent upon continuous learning related topolitical resources.

Firm characteristics of late mover

The business literature suggests that the potencyof an FMA not merely depends on the busi-ness environment and the characteristics of thefirst mover but also on the relative strengths oflate movers; the first mover may be ultimatelyovershadowed by a firm with superior resources(Lieberman and Montgomery, 1988, 1991). Byextension, we posit that late movers with superiorpolitical resources vis-a-vis the first mover couldhave a late mover advantage. The loss of globalmarket share by Arianespace to ILS illustratesthis point: the access to both Russian and Ameri-can governments smoothed the way for LockheedMartin into Russia, which in turn helped the ILSventure to reconstitute the global market previ-ously dominated by Arianespace (a firm reliant onFrench and other EU government support). Polit-ical resources are likely to be most crucial duringearly formation of industry structures and they maylead to durable reciprocal relationships with hostgovernments, but first movers may not be able toprotect their pioneering advantages if a late mover

with superior political resources is able to influencea shift in the business environment in its favor.Therefore:

Proposition 7: The weaker the second mover’spolitical resources, the greater the likelihood forstrong first mover advantage.

Just as the first movers’ non-political resourcesare instrumental in creating a durable FMA, thesecond movers’ non-political resources and anintegrated business strategy may help to decreaselate mover disadvantages. To illustrate this point:despite Shell-BP’s pioneering advantages in Nige-ria, its relative lack of expertise in offshore explo-ration and production technology curbed the firm’sexpansion in offshore oil production, which be-came dominated by the late movers Chevron andMobil. As pioneers may face first mover disadvan-tages such as free-rider effects or shifts in tech-nology or customer needs (Lieberman and Mont-gomery, 1988), late movers can use their skills tocapitalize on those opportunities. Research on pri-vatization has indicated that, even if pioneers areable to gain strategic advantages through collab-oration with the host government and other localnetwork partners, late movers may become influ-ential competitors if they exploit opportunities formarket entry (e.g., resulting from a first mover’sreliance on an outdated technology) on the basis ofsuperior non-political resources (Doh, 2000). Thus:

Proposition 8: The weaker the second mover’snon-political resources, the greater the likeli-hood for strong first mover advantage.

Evidence in this paper supports an interactive,rather than additive, effect of first mover character-istics, late mover characteristics, and the businessenvironment on firm performance. Utilizing theabove eight propositions, we propose a model onhow political resources influence the evolution ofFMAs.

We posit that the initial government interferencein an industry must be the starting point for anysuch model. Unless an industry is politically struc-tured, political resources cannot generate value forthe firm (P1). In order to obtain an FMA in a polit-ically structured industry, the first mover requirespolitical resources (P4a and P4b) which are supe-rior to those of late movers (P7). As a corollary



of the above, the government must actively sup-port the first mover during the early formationof industry structures (P2a and P2b). But politicalresources are not sufficient to obtain an FMA with-out valuable non-political resources and effectiveintegration of market and non-market strategies(P5a and P5b). As long as the late movers areunable to use non-political resources to neutral-ize the first mover’s resources (P8) and as long asthe political business environment does not shiftdecisively to the detriment of the first mover (P3),the conditions are favorable for the pioneer to safe-guard its initial advantages. Finally, the pioneeringfirm must be capable of learning in order to main-tain the FMA, as the business environment evolvesand the late movers upgrade their resources (P6aand P6b). This inductive model is presented inFigure 1.

CONCLUSION

This article has shown how political resourcescan lead to significant FMAs in the internationalmarketplace, by using case studies from differentcountries and industries. This analysis is consis-tent with past research, which suggested that gov-ernment intervention could create very effective(sometimes the most effective) barriers to entry inan industry. In a new market where early entry isrestricted by the government or where economicsuccess is influenced by linkages to governmentofficials, political capital can be the key resourcein competing for early market entry and in creat-ing economic advantages to the early entrant. Byadding the political mechanism to the current clas-sification of FMA mechanisms, our contributionconsists of a more complete specification of thecurrently prevailing FMA conceptual framework.

Nonetheless, the case studies suggested that thecausal relationship between political resources andFMAs is a complex one. Political resources canlead to early market entry (as seen most clearlyin the case of Shell-BP) but firms can also obtainconsiderable political resources by being first tomarket (as exemplified by Shanghai VW). Neithercan FMAs be taken for granted. Sustaining FMAsdepends on the pioneer’s capabilities in both themarket and the non-market arena. The pioneeringsuccess of Shell-BP and Shanghai VW dependedon various market and non-market resources rang-ing from the strength of financial resources to

the diplomatic skills of managers in dealing withgovernment officials. Moreover, both the strate-gies of rival firms and government interventioncan challenge the privileged position of pioneers.The loss of global market share by Arianespaceto ILS across different market segments demon-strated that non-market strategies can indeed beused by late movers to neutralize the rivals’ FMAs.Therefore, we find that non-market strategies canbe used successfully by both first movers as well aslate movers. In this context, our model and propo-sitions help to understand the contingencies underwhich political resources will translate into durableFMAs.

The article points to the continued importanceof political resources despite the advent of liberal-ization and globalization. But our third case studyindicates that liberalization has rendered politicalintervention in the economy more complex andmore covert. In contrast to the overt protection-ism we witnessed in the cases of Shell-BP andSVW, the Lockheed Martin case was marked byhighly sophisticated political cooperation betweengovernments, which did not necessarily involve thecreation of explicit market distortions. At the sametime, the analysis of the global market for commer-cial space launch services indicates that globaliza-tion is shifting the scope of competition from thecountry level (seen in the first two case studies)toward the global level. In the future, pioneeringadvantages from non-market strategies are perhapsless likely to be endowed by unilateral domes-tic protectionism but rather by complex interna-tional political cooperation in terms of poolingeconomic resources, establishing regional (ratherthan country-wide) barriers to entry or establish-ing global technical standards, which may benefitsome firms at the expense of their rivals. Yet theseconclusions must be seen as highly tentative giventhe limitations of this article.

Our research findings draw on a narrow sam-ple of case studies, so we need to be very cau-tious about making any generalizations at thispoint. The use of reconstructed histories as pri-mary sources may introduce further bias. However,while the small size of the sample and the subjec-tivity of reconstructed histories present method-ological limitations, the current over-reliance onpublicly available data such as political actioncommittee (PAC) contributions in studying busi-ness–government relations is unlikely to yield the



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same depth of insight provided by a small num-ber of longitudinal case studies. Indeed, since thecreation of political resources is intended to ben-efit the firm in the long term, the current ana-lytical focus on short-term correlations betweeninputs such as PAC contributions and outcomessuch as favorable regulation can only provide avery incomplete view of the political engagementof firms. Our study will hopefully stimulate morefuture research, which will take a more long-termview on how international firms acquire, sustain,and exploit political resources, and in particularhow firms learn from their experiences about thepolitical process.

ACKNOWLEDGEMENTS

The authors would like to give special thanks toJohn Child for providing invaluable feedback onseveral earlier drafts. Also many thanks to SteveMcGuire, Mike Peng, Suzana Rodrigues, and twoanonymous reviewers for helpful comments on anearlier draft.

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