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InternationalConferenceonPublicPolicy3

SingaporeJune28-30,2017

PanelT12P02GlobalCorporatePowerinanAgeofGlobalisation

FirmsinForeignPolicy

ExtendingNonmarketStrategyintoInternationalRelations*

CeyhunEmreDogru

PhDCandidate

KocUniversity,Istanbul

cdogru@ku.edu.tr

Thepoliticalpoweroffirmshaselevatedintotheinternationallevelasaresultoftherapidlyglobalizingworldeconomy.However,theexistingnonmarketstrategyliterature remainsmostly confinedwithin the public policy domain. This paperarguesthatcorporatepowernowextendsbeyondnationalborders:firmsbecomeinternational political actors with the capacity to influence relations betweengovernments.Thecentralcontributionofthisresearchistoconjoininternationalrelations with international business to create a more inclusive paradigmaticapproach. I suggest a theoretical framework to explore the firm’s impact onforeignpolicymaking.ByconductingacomparativestudybetweenTurkeyandtheUKviain-depthinterviews,aswellaswithprocesstracingincertainforeignpolicyissues; I clarify the causal mechanisms of firms’ involvement in internationalrelations.Thefindingsdemonstratethatasector’sdependencyonthecountry’sforeign policy, institutional structures of foreign policy making, the strategicsignificance of the sector to a country’s economic development and nationalsecurity, as well as the firm’s nonmarket capabilities are the most importantfactorsthatdetermineitsinfluenceonforeignpolicy.

*Draftversion.Thispaper includestheoretical frameworkand initial findingsoftheempiricalstudy.Pleasedonotcirculateorcitewithoutauthor’spermission.

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INTRODUCTION

The research on nonmarket strategy has been expanding over the past few years,

encompassingvariousaspectsoffirm’spolitical,social,culturalandlegalenvironment.The

everincreasingcomplexityofthebusinesscircumstancesleadstotherecognitionthatfirms

needtodealwithgovernments,socialgroups,individualsandothernonmarketactorsmore

attentively tomaintain sustained competitive advantage (Bach & Allen, 2010).While the

strategicmanagementliteraturehasatendencytofocusontheimpactofnonmarketstrategy

onorganizationalperformance,publicpolicydomainprovideperspectivesontheimplications

forpolitical,institutionalandregulatorystructures.Fromthenonmarketactors’pointofview,

regulatingthepoliticalandsocialinteractionswithfirmsisanessentialelementofeconomic

andsocietaldevelopment(Ordeix-Rigo&Duarte,2009).Therefore,thenonmarketresearch

continuestobeaninterdisciplinaryfieldwiththepotentialtobringaboutnewparadigmatic

approaches.

Thisstudyarguesthatonesuchapproach,namelytheinternationalrelationsdimension

ofthenonmarketstrategy,needsfurthertheoreticaldevelopment.Globalizationhasturned

internationalrelationsintothestudyofacomplexwebofrelations.Boththevarietyofactors

suchasgovernments,firms,andinternationalorganizations,aswellastheinterdependency

of issues such as politics, business and security require new conceptual elaborations.

However,progressinthisrespectlagsbehind.Ourunderstandingoftheinteractionsbetween

firmsandgovernmentswithintheforeignpolicydomainisstilllimited,despitethecallsfrom

scholarsthatinternationalrelationsandinternationalbusinessshould“talktoeachother”for

abetterunderstandingofwhygovernmentsandfirmsbehaveinthewaytheydo(Stopford,

Strange,&Henley,1991).

Thispaperaimstofill thisgapbydevelopingageneraltheoryofthe impactofprivate

firms on foreign policy making and thereby influencing political relations between

governments. Therefore, the main purpose of this research is to explain the causal link

between firms’ nonmarket activities and variation in foreign policy outcomes. More

specifically,thisstudyaimstofindoutwhyfirmsinfluenceforeignpolicyandwhatdetermines

theleveloftheirinfluence.Bykeepingthefocusonthefirms’involvementinforeignpolicy,

thisstudyaimstoextendthenonmarkettheoryintothefieldofinternationalrelations.Since

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theissueismostlybusiness-to-governmentinextent,corporatepoliticalactivity,asubsetof

nonmarketresearch,isofparticularinterest.

Thescopeofthisstudydiffersfromthepreviousresearchesintheliteraturethatattempt

to generate a multidisciplinary framework supported by both international relations and

internationalbusinessfields(Lee&Ruel,2012).Confusionmayariseaboutseemingsimilarity

withcommercialdiplomacy,thoughtherearecleardistinctionsregardingresearchinterests.

Thecommercialdiplomacyresearchconcernsitselfwiththeapplicationofdiplomatictools

tothefieldofbusiness.AccordingtoKostekciandNaray,thetermisusedintwodifferent

types of activities (2007). The first is to use diplomacy for trade policy making between

countries. The second is to conduct activities that are supportive of business interests.

Another field that involves similarities is economic diplomacy or the political economyof

foreignpolicy(Kutlay,2011,2012;vanBergeijk,Okano-Heijmans,&Melissen,2011).Thefield

examinestheimpactofmacroeconomicinterestsinshapingtheforeignpolicyoutcomes.The

research question that this paper suggests significantly differs from these two areas by

putting the focus on the firm’s intention and ability to influence relations between

governmentsinfavorofitsbusinessinterests.

The structure of this paper is as follows. The first chapter reviews the literature and

providesanoverviewofthebusinessimpactonforeignpolicy.Whiletherearecaseswhere

firmshavehadasignificantinfluenceonforeignpolicymaking,thereviewdemonstratesthat

thequestionbegsatheoreticalexplanation.Thesecondchapterdeducesconceptsbasedon

theexistingstreamsofresearchthatcanallowustoprovidesuchanexplanation.Therefore,

inthesecondchapter,Isuggestfourhypothesesthatwillbetestedthroughouttheempirical

study. Those hypotheses aim to uncoverwhy andwhat questions regarding the business

influenceonforeignpolicy.Theempiricalpartconsistsoftheanalysisofinterviewfindings

andexaminationofarchival research. I thendiscuss the findings inageneral contextand

providethemainconclusions.

1.FIRMSININTERNATIONALPOLITICS:THEORETICALANDEMPIRICALCONSIDERATIONS

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Theanalytical literature review in this chapterdemonstrates twomain findings. First,

firmsinfluenceinternationalpoliticsbygettinginvolvedinforeignpolicymakingprocessesof

governments. Second, there is still a need for theoretical development to explain this

phenomenon.

OnMarch 26, 2014, the chief executive of Siemens Joe Kaesermetwith the Russian

PresidentVladimirPutininMoscowandannouncedhiscompany’s“commitmenttothelong-

termdevelopmentofRussia.1”ThemeetingtookplaceatatimewhentheWesternsanctions

onRussiawereimposedintheaftermathofitsannexationofCrimea.Thus,aprivatefirm’s

movetomaintainbusinesstieswiththetargetcountryofamultilateralsanctionscampaign

put itssuccessatrisk.Mr.Kaeseraimedtomaintainthe‘businessasusual’withRussiato

protecthisfirm’sshareholdervaluebygettinginvolvedinamatterofinternationalpolitics.

Reactions from Germany and the US followed shortly after the meeting. The US State

DepartmentspokespersonsaidinapressconferenceonMarch27,2014,that“ifindividual

companiesarelookingtodobusinessinRussia,theyneedtotakeaveryseriouslookright

nowatthesanctionswehave inplace,theyneedtothinkaboutwhatsanctionsmightbe

coming.2”GermanEconomyandEnergyMinisterSigmarGabriel,ChancellorAngelaMerkel’s

deputy, also commented on Kaeser’s visit to Russia by saying that “German companies

shouldn’tselloutEuropeanvaluestoprotectbusinesswithRussia.3”

Giventheeconomicinterdependencybetweenthetwocountriesandbusinessinterests

thatwereatstake,GermanbusinesseswouldbetemptedtoinfluencetheGermanforeign

policy towardsRussia.Suchan indicatorwasmadepublic inmid-May,when theGerman-

RussianChamberofForeignTrade,inalettertotheGermangovernmentthatwasleakedto

Reuters,warnedtheGermanpolicymakersthat"Deepereconomicsanctionswouldleadtoa

situationwherecontractswouldincreasinglybegiventodomesticfirms,projectswouldbe

suspendedordelayedbytheRussianside,andRussianindustryandpoliticianswouldturnto

1“SiemensCEOmeetsPutinandcommitscompanytoRussia”,FinancialTimes,26March2014,http://www.ft.com/intl/cms/s/0/6d774238-b506-11e3-a746-00144feabdc0.html2USDepartmentofStateDailyBriefing,27March2014,http://www.state.gov/r/pa/prs/dpb/2014/03/224055.htm3“SiemensCEORebukedasGermanBusinessDefendsPutinPartnership”,Bloomberg,31March2014,http://www.bloomberg.com/news/2014-03-30/siemens-ceo-rebuked-as-german-business-defends-putin-partnership.html

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Asia, inparticularChina.4" It’sadmittedlydifficult toprovetheexactconsequencesofthis

event.Nevertheless,shortlyafterthedeclarationofGerman–RussianChamberofForeign

Trade,GermanForeignMinisterFrank-WalterSteinmeier’smaderemarksthatcooperation

shouldbepreferredratherthanconfrontationwithRussia“[Germany]mustavoidfallinginto

anautomatic[sanctions]mode,whichleadsonlytoadeadendandleavesnomorepolicy

options” demonstrating how foreign policy-makers take into account the interests and

demandsbusinessactors.5

Similar events demonstrate the interrelatedness between firms’ commercial interests

and relations between governments. This observed phenomenon begs theoretical

explanation.Noticingthisgap,somescholarspointedouttheneedtodevelopatheoryto

specifically study the business influence on foreign policy. Stopford, Strange and Henley

suggested the concept of ‘triangular diplomacy’ in 1991 to expand diplomacy beyond its

traditionalgovernment-to-governmentframework(Stopfordetal.,1991).Fuchsarguesthat

“Internationalrelationsurgentlyneedstheoreticaldevelopmentthattakesintotheaccount

the power of non-state actors, in particular, business (2005).” Bell suggests that it is not

possibletounderstandtherelationsbetweenbusinessandgovernmentthrougheitheron

the argument that capital mobility has reduced policy discretion of governments, or

governmentsstillhaveconsiderablecontrolovertheenvironmentinwhichbusinessoperate

(2013).Hearguesthatbusinessenjoys“structuralpower”intheinternationalsystem,driven

bytheinteractionbetweenthetwo.

Similar to theacademic interest, the firstdiscussionsabout the impactofbusiness in

internationalpoliticsemergedintheearly1990s.JeffreyGarten,thenUSundersecretaryof

commerce for international trade (1993 -1995), suggested that theUS foreignpolicyand

Americanbusinessesabroadarebecominghighlyinterdependentandthat“businessdrivesa

gooddealofUSforeignpolicy(Garten,1997).”Policymakersdependonfirmsforeconomic

growth,drivenbytradeandinvestment.Businessesneedthepoliticalendorsementtodeal

withcomplexpolitical,social,economicandsecurityissues,especiallywhenoperatingin‘high

4GermanLobbyistswarnagainstharshersanctions,MoscowTimes,18May2014,http://www.themoscowtimes.com/article/500340.html5'It’sadeadend':GermanFMjoinschorusofdiscontentoverRussiasanctionsrhetoric,RT,18May2014,http://rt.com/news/159716-germany-sanctions-russia-criticism/

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risk - high return’ emerging markets (Cavusgil, Ghauri, & Akcal, 2012). This increasing

interdependency requires an evolution of institutional structures and decision-making

procedures.Hockingdescribesthistransformationasthereplacementofnationaldiplomatic

systemsbypolicynetworks(Hocking,2004).Publicandprivateactorsexchangeinformation

androlesaccordingtoissueareas,anddiplomatsmostlyfacilitatetheflowofinformation.

One-to-onediplomatic communicationbetweenpolicymakers is replacedby thecomplex

networkofinteractionsbetweenpublicandprivatesectoractors.

The changes in foreign-policy making processes affect policy outcomes in several

countries.ResearchontheUSforeignpolicyshowsthatitis“mostheavilyandconsistently

influenced by internationally oriented business leaders (Jacobs & Page, 2005, p. 107).”

Therefore,individualsactingonbehalfoftheirfirms’businessinterestsarebecomingforeign

policyactorsintheUSforeignpolicynetwork.Respondingtothisneed,mostfirms“create

internal ‘foreignpolicy’unitswhichdevelopdiplomaticstrategies,analyzeemergingglobal

issues that affect the company’s interests, and manage relationships with external

stakeholders (Muldoon,2005,p.354).”Notonly theAmerican firmsthataimto influence

Americanforeignpolicyconductnonmarketactivities.Foreigncompaniesthatdobusinessin

theUSalsoneedto takevariouspoliticaldynamics intoaccount.Rotsteinargues that the

CanadianbusinessishypersensitivetoCanadiangovernment’srelationswiththeUSbecause

theCanadianfirmsrelyheavilyontheAmericanmarketaswellastheopinionofAmerican

investors(Rotstein,1984).Tothisend,firmsactivelyparticipateinCanadianforeignpolicy

makingtoensurethatAmerican–Canadianpoliticalrelationsremain inawaythat favors

theirbusinessinterests.

Whenitcomestofirms’ influenceonforeignpolicy,similarpatternsexist incountries

withdifferentpoliticalregimes.Russianbusinessleadersholdtremendouspoweroverforeign

policyasaresultofthecountry’spoliticalsystem(Stowe,2001).Theoligarchicsystemallows

individualscommitthemselvestoaparticularsectorandactastheforeignpolicyactorinthat

area. The oil and gas industries have powerful lobbies inMoscow and influence Russia’s

relations with various countries, including the European Union (Pleines, 2005). Thus, the

argumentthatRussianbusinessleadersinfluenceRussia’sforeignpolicytowardsmembersof

Commonwealthof IndependentStates,but fall short inotherareas is inaccurate.Pleine’s

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research demonstrates that among several sectors that depend on EU’s trade regime

includingsteel,car,andagriculture;oilandgasaretheonlyoneswithameaningfulimpact

onRussianforeignpolicy.

What explains Russian businesses’ influence in foreign policy? Russia’s rent-seeking

economicandpoliticalsystemmayhaveincentivizedfirmstobecomeapartofthecountry’s

internationalpoliticalrelations.However,thecaseofAustraliashowsthatthecharacteristics

ofthepoliticalregimeonlycannotbetheexplanatoryvariable.Australia’srelationswithEast

TimorhadaprofoundchangewhentheAustralianfirmWoodsideEnergyaskedforconcrete

policychangesfromtheEastTimorgovernment,includinggivinguponsomeofitsmaritime

rights,tosecureastableregulatoryframework(Hunter&Storey,2008).Hereaprivatefirm

got directly involved in a bilateral political issue that has significant consequenceson the

sectoritoperatesin.Therefore,eventhoughdifferencesinpoliticalregimesmightmakea

differenceinsomecases,whatappearstobecommoninbothRussianandAustraliancases

isthestrategicimpactofthefirmsoperatingintheenergysector.

Firmscanalsoexerttheirinfluenceonaparticularforeignpolicyarea,leveragedbythe

significance of their sector to the overall economic development or national security.Oh

arguesthatAmericanandChinesefirmsplayacriticalroleinbilateralandmultilateralclimate

politicsasaresultoftheirabilitytoforcestricterrulesongreenenergy(2012).Theirinfluence

comesfromthefactthatalternativeenergyresourcescreateemployment.Thereseemsto

beacorrelationbetweenthesocio-economicimpactofabusinessanditsinfluenceinforeign

policymaking.Thesameprocessshowsdifferingcharacteristicsinsomeemergingmarkets.

AsaresultofRepublicofKorea’sdemocratizationprocesssince1986,Koreanbusinesshas

beguntoenter intotheoncestrictlyclosedKorean foreignpolicymakingprocess (C.Kim,

2010). The outcomewas “strengthening domestic support” for the free trade agreement

betweenKoreaandtheUS(KORUSFTA)bybuildingadvocacynetworks(E.M.Kim,2011).

Sincethefreetradeagreementisanessentialcomponentofbilateralrelationsbetweenthe

twocountries,ithasplayedasignificantroleintransformingtheoverallKorean–American

alliance.TurkeyexperiencedalessremarkabletransitionsincetheliberalizationoftheTurkish

economyinthe1980s,whichcreatedawindowofopportunityforbusinessestotakeactive

rolesinpolicymaking(Atli,2011).BystudyingTurkishbusinessorganizations’involvementin

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foreignpolicymaking,however,AtliconcludesthattheTurkishbusinessesstilldonotassume

an“autonomous”role inshapingforeignpolicy,andarerather inasupportivepositionof

government’sinternationalstrategy.

The empirical cases reviewed above demonstrate that firms can have considerable

impact inshapingforeignpoliciesofgovernments,eitheras legalentitiesorthroughtheir

managers.However,therestillseemstobeaneedfortheoreticaldevelopmentregardingthe

causes,means, and implications of business involvement in international relations. Jarvis

supportsthisviewbyassertingthatthefieldofinternationalrelationsdoesnotfullycapture

thegrowingroleoffirmsininternationalpolitics:

“[…]theconstructionofboundariesseparatingthestudyofinternationalrelations

frominternationalbusinessisdetrimentaltothelong-termevolutionofideas,the

bettermentofknowledge,andanunderstandingofthetechnicalmeansbywhich

states,markets,andcommercialactorsreflexivelyinteract.(…)[Thispaper]argues

thatasaconsequenceofthedeepeningcomplexityofthemodernglobalpolitical

economy,thestudyofstatesandmarkets,theprocessesendemictothemandthe

actorswhooperateinthem,requiresaconjoiningofinternationalrelationswith

international business in ways that comprise a fundamentally new and more

inclusiveparadigmaticapproach(Jarvis,2005,p.202).”

Thenextchapterwillsuggestatheoreticalframeworktofillthisgap.

2.THEORETICALFRAMEWORK

Developing a theoretical framework that conjoins international relations with

internationalbusinessisprimarilyanattempttoexplainrealworldphenomena-inthiscase,

firms’influenceonforeignpolicy-thatdonotfitwithintheestablishedresearchtraditions

due to its complexity. I aim to complement the existing knowledge in various fields by

integratingconceptsandelementsfrommultipleresearchtraditions.Therefore,thefirstpart

ofthischapterwillbrieflyexplaintheresearchapproachandwillsystematicallyexaminethe

conceptsandtheoriestosuggestnewanalyticalconstructsforstudyingthetopic.

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Thefirstcharacteristicoftheresearchisitsinterdisciplinarywork,drivenbytheboundary-

spanning role of the question. Such interdisciplinary explorations in similar disciplines

formerly led to the emergence of the international political economy field. Before 1970,

economicsandpoliticalscienceweretreatedastwounrelatedfields,“eachwithitsviewof

international affairs (Cohen,2008,p. 1).” Strangehadunderlined that themutualneglect

betweeninternationalrelationsandinternationaleconomicsseriouslyhamperedthewhole

studyof international relationsandsuggested tobuilda theoryof internationaleconomic

relations(1970).Sincethepurposeofthisstudyistoachieveasimilaroutcomebyintegrating

withinternationalbusiness,itcanbeconceivedasasub-setofinternationalpoliticaleconomy

andaslayingthegroundworkforthefieldof“internationalpoliticalbusiness”.

The second characteristic of the research is analytical eclecticism.Hirschman suggests

thatscholarsshouldnotpursuea‘paradigm-focused’approachandruntheriskofignoring

certainfactorsthatmightbevaluabletoanalyzethecomplexproblems(Funk&Hirschman,

2017).Analyticaleclecticism,therefore,seemsanappropriateapproachforthisstudy,since

it selectively utilizes theoretical constructs (Sil & Katzenstein, 2010). However, different

theoriesarebasedondifferentparadigms,andtheresearcherhastheresponsibilitytoavoid

‘incoherence’acrossdisciplinesthatmightbecausedbyincommensurability.Therefore,the

theoreticalframeworksuggestedinthispapershouldmeetthecriteriaofbeingconsistent

whileansweringaquestionofwiderscope.

Inlinewiththedeductiveresearchstrategy,Iwillcategorizetheregularitiesobservedin

the previous chapter, make an interdisciplinary examination to suggest a theoretical

explanation,anddeducehypothesesforeachregularitytobetestedinsubsequentchapters.

Thecategorizationwill followthe twomainquestionsembedded in the topic,namely the

reasonsforfirms’involvementinforeignpolicyandthedeterminantsoftheirinfluence.In

otherwords,thefirsttwohypothesesaredirectedtothe“why”question,whiletheothertwo

to“what.”

Dependence on international relations. The first reason that firms conduct nonmarket

activitiestoinfluenceforeignpolicyisrelatedtoitsdirectimpactontheirbusinessresults.As

the empirical studies have shown, in every casewhere a firm is involved in international

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politicsthereisacommercialinterestatstake.Therefore,firms’dependenceoninternational

political relations is a central driver. The resource dependency theory suggests that

organizationsarenotself-sufficientandarenormallydependentonthecontingenciesintheir

external environment (Pfeffer& Salancik, 1978). Even though it has emergedas an intra-

organizationalconcept,“thetheoryisfoundtobereadilyapplicabletorelationshipsbetween

firms and government institutions (Frynas, Mellahi, & Pigman, 2006, p. 325).” Business

executivesareresponsibleformanagingthedependenciesinawaythattheybenefittheir

organizations (Griffin & Dunn, 2004). The primary goal of firms is not to reduce their

dependenceongovernments,ratheritistodecreaseuncertaintiescausedbygovernmental

policies(Getz,2002).Themosteffectivewaytodoitistoadoptaproactiveapproachandto

try to shape them. Frynas and Mellahi argue that international business scholars

conceptualizethebusinessenvironmentasgiven,andhavelittleunderstandingofhowitcan

beshapedviapoliticalmeans(Frynas&Mellahi,2003).However,PfefferandSalanciknote

“theorganization,throughpoliticalmechanisms,attemptstocreateforitselfanenvironment

that isbetter for its interest”andthat“organizationsmayusepoliticalmeanstoalterthe

conditionof theexternaleconomicenvironment (Pfeffer&Salancik,1978,pp.189–190).”

Thus,thefirsthypothesisisdeducedfromthe‘resourcedependency’theory:

H1:Themoreafirm’sbusinessinterestsaredependentonpoliticalrelationsbetween

governments,themoreitwilltrytoinfluencetheirforeignpolicies.

TheInstitutionalStructuresofForeignPolicy.Firmsundertakenonmarketactivitieswithin

certain institutional structures. According to institutional theory, organizations act in

response or in compliancewith their institutional environment (Getz, 2002; Zhilong Tian,

Hafsi,&WeiWu,2009).Thetheoryassertsthattherules,laws,andregulationsdetermine

firm’sbehaviormore than competitive factors in themarket. Policymakers’ incentives to

respond to business interests are also shaped by the institutional structures (Weymouth,

2012).Despitethesignificanceofinstitutionalcharacteristicstononmarketstrategies,Henisz

and Swaminathan claim that we have limited knowledge on the causal link between

institutional structure and firm performance, and argue that the way senior managers

respondtotheexistinginternationalinstitutionalenvironmentisakeydeterminantoftheir

success(Henisz&Swaminathan,2008).Therefore,firmbehaviorsinnonmarketenvironment

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varyaccordingtotheinstitutionalsettings.Asinstitutionsevolvewiththechangingeconomic

conditions, firms co-evolve with them to be responsive at local and international level

(Cantwell, Dunning, & Lundan, 2010). Since foreign policy is an institutional output, this

generaltheorycanalsobeappliedtotheinvolvementoffirmsinforeignpolicymaking.Thus,

thefollowinghypothesisisdeducedfromtheinstitutionaltheory:

H2:Firms’involvementinforeignpolicymakingisdeterminedbytheinstitutional

structures.

Strategicsectorsandpoliticalmarketplace.Somesectorshavemoreweightineconomic

developmentandnationalsecuritythanothers.Suchsectorsareusuallyhighlyregulatedand

havecross-borderconsequences.Empiricalstudieshaveshownthatfirmsoperatinginsuch

sectors tend to have more influence in foreign policy making. The public choice theory

provides insight into this reasoning. The public choice concept is based on the economic

assumptionthatpolicy-makersaremotivatedbyself-interestandheedtothedemandsof

those who can give them the greater possibility to be re-elected. As Mueller puts it

“Bureaucraticmanpursuespower.Economicmanpursuesprofit.(Mueller,2003,p.362).In

thissense,economicdevelopmentandnationalsecurityarethetwomainissuesthatarguably

determine the chances of re-election. This iswhy governments are expected to take the

demands thatcomefromsuchsectors intoconsiderationwhendecidingon foreignpolicy

outcomes.Thepoliticalprocessislikeamarketplace,wheregovernmentsaresuppliersand

private actors “purchase” government intervention. Thus, the hypothesis deduced from

publicchoicetheoryappliesthisinteractionintothefieldofinternationalrelations:

H3:Firmsoperatinginsectorsthatarestrategictoeconomicdevelopmentandnational

securityhavegreaterleverageininfluencingforeignpolicy.

Firm-levelCharacteristics.Thelastdynamictobeexploredaboutthebusinessimpacton

internationalrelations isthecapacityoffirms.Somefirmshavegreaterpolitical influence,

causedbythestrengthofthemarketandnonmarketfactors(Weymouth,2012).Corporate

PoliticalActivity(CPA)theoryprovidesinsightintothetopicofresource-basedview.Bigfirms

are usually politically more active, but the causal link between firm size and political

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involvement isnotundisputed(Drope&Hansen,2006;Nownes&Aitalieva,2013).Dahan

suggests a detailed classification of firm capacity: firms’ business expertise and financial

resourcesareitsmainresources,whilerelational,organizational,recreationalandpolitical-

administrativecapabilityisamongsupportingresources(2005).Nonmarketcapabilitiessuch

asfirm’sorganizationalfunctionsandtheirassets(i.e.,relational)mightbemoredetermining

than Dahan argues (Lawton, Doh, & Rajwani, 2014). Firm-level attributes such as CEO

commitment,stakeholdermanagement,integrationofmarketandnonmarketstrategiesare

drivingfactors(Baron,1995).Moreover,ensuringinternalcoherenceofsuchcapabilitiesand

using them effectively are strategic management skills that determine firms’ political

influence(Oliver&Holzinger,2016;Shaffer&Hillman,2000).Thus,thefirm-levelhypothesis

deducedfromtheCPAliterature’sresource-basedviewconceptisasfollows:

H4:Firmswiththegreatermarketandnonmarketcapabilitieshavegreaterleveragein

influencingforeignpolicy.

Thischapterhassuggestedfourhypothesestodevelopatheoreticalframeworkonwhy

andtowhatextentfirmscaninfluenceforeignpolicymaking.Thenextchapterwillpropose

themethodologicalapproachtotestthem.

3.METHODOLOGY

This study has the ambition to develop a theoretical framework. I aim to suggest a

theoreticalconstructbydescribinganobservedphenomena,deducinghypothesesfromthe

existing theories and then testing them via empirical research. The deductive research

strategy is thus inaccordancewith thispurpose (Blaikie,2010). Ithelps limit thequestion

beingaskedandthereforeprovides theresearcher theability to focusondevelopingnew

theoreticalconstructs.Deductiveresearchisparticularlyusefulinestablishingwhetherornot

thereisacausallinkbetweenanindependentvariableandthedependentvariable,rather

thantryingtoexplain“allthevariationinthedependentvariable(Anckar,2008,p.392).”In

ourcase, the research is limited to findingout thecausal linkbetween“firms’nonmarket

activities”and“variationinforeignpolicyoutcomes.”

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Dozclaimsthatsocialsciencesandparticularlythefieldofinternationalbusinessarein

needoftheorybuilding,andthatqualitativeresearchisthemostappropriatemethodology

to this end (2011). Hypotheses development and theory building require rich empirical

descriptions. Qualitative methods are powerful in terms of data collection and analysis,

especiallywhenused fordevelopingnewor refiningnew theories (Shah&Corley, 2006).

Whenitcomestothedifferentmethodologieswithinthequalitativeresearch,casestudyis

consideredappropriatefortheorybuilding(George&Bennett,2005;King,Keohane,&Verba,

1994). According to Eisenhardt andGraebner, the relevanceof theory building from case

studiescomesfromthefactthat“itisoneofthebest(ifnotthebest)ofthebridgesfromrich

qualitativeevidencetomainstreamdeductiveresearch(Eisenhardt,1989,p.25).”Therefore,

thetheoreticalconstructthatthisstudysuggestswillbebuiltuponcomparativecases.

A major objective of theory building is to suggest generalizable conclusions. Most

differentcasesdesignisthusadoptedtomeetthiscriteria.SeawrightandGerringstate“most

differentcasesthatarebroadlyrepresentativeofthepopulationwillprovidethestrongest

basisforgeneralization(Seawright&Gerring,2008,p.298).”Therefore,forthepurposesof

thisstudy,acomparisonbetweenTurkeyandtheUK inenergyanddefensesectorsseem

appropriate. Turkey is an developing country whose institutional arrangements differ

significantlyfromthoseoftheUK(Cetin,Cicen,&Eryigit,2016).AccordingtoNorth,formal

and informal institutions structure the interactions between humans (North, 1990). The

idiosyncrasies of Turkey are particularly salient when it comes to the relations between

businessandgovernment(Keyder,1987).TheemergenceofTurkishbusinessclasshaslargely

beendependentonstatepoliciestocreateanationalbourgeoisie(Bugra,1994b).Butitalso

createdpolicy-induceduncertaintiesanderosionofsociallegitimacyonbehalfofthebusiness

class (Bugra, 1991, 1994a). The lack of state and business cohesiveness has resulted in

somewhatconfrontationalrelationbetweenbothsides,wherethebusinessclassconsiders

thestateasthemainsourceofwealth,whilethestateconsidersthebusinessclassasamere

toolofpolicyobjectives(Ozel,2015).TheBritishexamplehascleardistinctionswithTurkey.

TheBritishinstitutionalstructurecreatesadistancebetweenpublicandprivatesector,whose

interactionsarebasedonmutualinterestsratherthanideologicallines.Incontrastwiththe

determiningeffectsofTurkey’sinformalinstitutions,theUKhasformaleffectiveinstitutions

thatarrangetherelationsbetweenbothsides.

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Thecomparisonbetweenthetwodifferentcasesiscomplementedbythecross-sectorial

examination.Energyanddefensesectorsareselectedduetotheirpresumablerelationwith

foreign policy outcomes. This study assumes that the two sectors are themost relevant

becausetheyarehighlyinterconnectedwithinternationalpolitics.Businessperformancein

bothsectorsaredependentonforeignpolicyoutcomesbecauseofcross-borderregulations

andpoliticalconsiderations.Thisiswhyfirmsenergyanddefensefirmsarepresumedtobe

involved in international political relations by trying to cause variations in foreign policy

outcomes. Therefore, cross-country and cross-sector analysis provides the possibility of

broadestpossiblecomparisontostudythesubject.

Themain data collectionmethod of the study is conducting in-depth interviewswith

formerandcurrentbusinessexecutivesandgovernmentofficials.Thesampleofinterviewees

is representative of the two countries and sectors to make cross-case comparisons. The

secondarymethod is reviewing statearchives andpublicly available information. The two

methods are complementary. In-depth interviews provides the possibility of gathering

informationthatisnotaccessibletooutsideobservers,thoughitalsohaslimitationsinterms

of access to the right source of information, the power asymmetrywith the interviewee,

ensuring openness and receiving feedback (Welch, Marschan-Piekkari, Penttinen, &

Tahvanainen, 2002). Archival research, on the other hand, provides the ability to identify

whetherthereisasequenceofeventssubjecttothehypotheses.

Operationalizingthekeytermsisimportanttoclarifythecausallinksbetweenthe

independentanddependentvariablesduringtheempiricalresearch.Nonmarketactivities

refertothesetactionsthatafirmundertakestoshapeitspolitical,socialandcultural

environmentinfavorofitsbusinessinterests.Variationinforeignpolicyindicatesthe

differencethattakesplaceinforeignpolicyoutcomeasaresultofanoutsideintervention.

Therefore,theresearchfocusesonwhyandtowhatextentthenonmarketactivitiesoffirms

causevariationinforeignpolicy.

Thenextchapterwillstudythehypothesessuggestedinthetheoreticalframework

withinthemethodologicallimitsexplainedabove.

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4.EMPIRICALSTUDY

4.1.SectorialDependenceonInternationalPolitics

Thepurposeofthissectionistotestthefirsthypothesisbyanalyzingthedependenceof

the Turkish and British energy and defense sectors on the foreign policies of their

governments.Ouranalysisdemonstratesthatbothenergyanddefensearehighlydependent

ongovernmentpolicies,bothdomesticandexternal.Thefindingsindicatethatdependence

onforeignpolicyisamajordriverof“why”firmsattempttoinfluenceforeignpolicyoutcomes

vianonmarketactivities.

ThedependenceofTurkishenergysectoronforeignpolicyisbasedontwomainfactors.

The first one is the regulatory environment that makes the sector highly dependent on

governmentpolicies.TheMinistryofEnergyandNaturalResourceshastheultimateauthority

todeterminethemarketconditionsviaregulationsissuedbytheEnergyMarketRegulatory

Agency(Cetin&Yilmaz,2010).Despitetheinitialobjectivetoprovide“crediblecommitment”

tomarketplayers inearly2000s,EMRAasan independent regulatoryagencyhasbecome

subject to the increasing political discretion of the government (Cetin, Sobaci, &

Nargelecekenler,2016).Theoverwhelmingcontrolofthegovernmentthusurgesprivatefirms

to coordinate their commercial activitieswith the policy-makers via nonmarket strategies,

bothathomeorabroad.Thesecondfactoristhedecisiveroleofthegovernmentinshaping

the international political system in which firms operate. Turkey’s geopolitical position

between theenergy suppliersandconsumermarketsmakes itsenergypoliciesa strategic

leverageforpoliticalrelations(MertBilgin,2010;StrategicPlan2015-2019,2015).Moreover,

developmentofinternationalenergyprojectssuchasnaturalgaspipelines(e.g.,BlueStream,

TurkStream)andnuclearpowerplants(e.g.,AkkuyuNuclearPowerPlant)aremadepossible

via intergovernmentalagreements (IGA),due to thepolitical commitment requiredon the

governmentallevel(GokceMete,2017).Thisiswhymarketstrategiesofenergyfirmscannot

bedisconnectedfromgovernmentpolicies.OnecentralpolicyoftheTurkishgovernmentis

ensuringenergysecurity,thatistoensure“theuninterruptedavailabilityofenergysourcesat

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anaffordableprice” (IEAdefinition),viadiversificationofenergy resourcesanddecreasing

dependenceonexternalresources6.

Thedependenceofprivatefirms’interestsontheUKgovernment’spolicyoutcomesis

determined by the scope of their business. There appears to be a distinction between

domesticandinternationaldomains.UnlikeTurkey,energyfirmsarelessdependentonthe

politicalpreferencestodobusinessintheUK,drivenbythefactthattheUKenergymarketis

among themost liberalized ones as a result of themarket reforms that the government

introducedinthe1980s(Keay,2016).Thefreemarketcompetitionisconsideredasthemost

reliablewayensurethepriceforvaluefortheconsumers(EnergySecurityStrategy,2012).

Ofgem,theregulatorthatoverseesthemarkets“toensurelowpricesforconsumers,”hasthe

mandatetoprotectconsumers’7interestsviaregulatorycompetencies,inconsultationwith

industryplayers8. This doesnotmean that theenergy industry is independentof political

considerations,includingtheUKgovernment’sdrivetowardstransformingintoalow-carbon

economy.However,unlikeTurkey,government interventionsseemtodrive thecreationof

morecompetitivemarkets(Keay,2016).Ontheotherhand,thedependenceonforeignpolicy

becomesa critical component forprivate firms thatoperate internationally,mainlyBritish

PetroleumandRoyalDutchShell.

Turkey’s defense sector has an inherent dependence on government policies. The

developmenttrajectoryoftheindustrydemonstratesthatit’sdrivenbythecombinationof

thepreferencesineconomicpolicyandforeignpolicy.TheTurkishstatehasestablishedan

institution in charge the defense sector in 1985, which later evolved into the current

UndersecretariatforDefenseIndustry(SSM).ThedecisiontoestablishSSMwasmotivatedby

twodynamics:economicdevelopmentandindependenceinforeignpolicy.Accordingtothe

law, SSM is responsible for the “development of a modern defense industry and

6PresentationbytheMinistryofEnergyandNaturalResourcesBeratAlbayraktotheParliamentaryCommissiononPlanningandBudget,8November2016.7Howwework.(2017,March28).RetrievedApril4,2017,fromhttps://www.ofgem.gov.uk/about-us/how-we-work8Ofgem’sRegulatoryStances.(2016,December19).RetrievedMay2,2017,fromhttps://www.ofgem.gov.uk/publications-and-updates/ofgems-regulatory-stances

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modernizationoftheTurkishArmedForces.9”Thedecisionmakingthebodyoftheindustryis

Defense Industry ExecutiveCommittee, composedof thePrimeMinister, Chief ofGeneral

Staff,MinisterofInteriorandMinisterofNationalDefense.AseparatefundcalledtheDefense

Industry Support Fund is fully controlled by the SSM and allocates financial resources for

productionandprocurement.Theprivatesectorhasbecomegraduallyinvolvedinthedefense

sectorandbuiltforeignpartnerships,asaresultoftheliberaleconomicpoliciesoftheOzal

governments in the1980s (Karaosmanoglu&Kibaroglu,2002).Thoughthispolicymarksa

changefrombeingaprocurertoaproducer,foreignpartnershipsalsoarguablymakedefense

autarkymuchhardertoachieve(Bağcı&Kurç,2017).Animportantplayerintheindustryis

TurkishArmedForcesFoundation(TSKGV),whichmakestheTurkishMilitaryashareholderin

thesectorthroughaffiliationswithcompaniessuchasAselsan(MilitaryElectronicIndustries),

Havelsan(SoftwareandDefenceCompany),Roketsan(RocketManufacturer)andTAI(Turkish

Aerospace Industries).However, theTurkishgovernment seems tobepursuingapolicy to

increasetheciviliancontrolandtheshareofprivatesectorincriticalfields.Inanycase,just

like the energy sector, the Turkish state is both themarket regulator and player. Its role,

however,exceedsthenationalborders.TheTurkishdefensesectorrepresentativesdemand

fromthegovernmenttolobbytheforeigngovernmentsandencourageoff-setagreementsto

stimulategovernment-to-governmenttrade(SavunmaveHavacılıkSanayiİhracatçılarıBirliği

AamaKonferansı, 2012).Moreover, theprivate sectoralsodemands tobe involved in the

coordinationofexportlicensestoensureforeignmarketpenetration.

UK defense industrial base has gone through phases that gradually transformed its

relationshipwiththegovernmentandreorganizedthesectordynamics.Thetransformation

meant both change and continuity (Dunne & Macdonald, 2002). The UK government’s

strategy during the Cold War was to apply protectionism to help develop the domestic

industrythroughitsprocurementpolicies.Despitetheabsenceofacentrallyorganizedformal

defenseindustrypolicy,thegovernmentpursuedastrategytoretainkeydefensecapabilities

in theUKby formingsupportive relationshipswithcertaincontractors (Macdonald,1999).

WhilethisstrategyhelpedtheUKdefensecompaniestosharetheburdenofhighcostscaused

9SavunmaSanayiMüsteşarlığınınKurulmasınaDairKanun(1985,November7).RetrievedApril14,2017.http://www.ssm.gov.tr/anasayfa/kurumsal/Documents/SSM_3238_tam%20metin.pdf

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bythedevelopmentoftechnologicallysophisticatedproducts,italsohamperedcompetition

in thesector (Bishop,1999).Thepreferential trade termshadbegunchanging in themid-

1980swhentheconservativegovernmentintroducedtheprincipleofmarketcompetitionin

linewith Thatcher’s policies. Though big players such as BAE systems have retained their

dominantpositionthroughmergers,theperiodwasmarkedwiththeprivatizationoftheUK

defenseindustry,unlikeothercountriesinEuropewherestate-ownershipstillplayedamajor

role(Guay,2005;Hopkinson,2000).TheMoD,whichhasalwaysbeenthesinglebiggestbuyer

ofthedefenseindustry,adopteda“hands-off”approachthatforcedtherestructuringofthe

defense companies to remain competitive in the face of international competition. Even

though competition has become the cornerstone of the MoD, the UK defense industry

approachhasalsofosteredcloserconsultationwiththedefensefirms.Thedefenseindustry

partnership between theUK government and the private firms has thus transformed the

essenceofdependence.WhiletheindustrywasdependentontheMoD’sprocurementbefore

the1980s,itisnowdependentontheUKgovernmenttoencourageexports.Accordingtothe

main British defense lobbying group ADS, the ability of the British government to form

favorable political relationswith foreign governments is key to boostUKdefense exports,

especiallyinthefaceofcompetitionfrommorecorporatistgovernmentssuchasFrance.In

addition to government-to-government lobbying, the UK government’s export controls is

another source of dependency for the British defense firms. The process requires cross-

government teamsbetween variousUK governmental institutions such asMoD, FCO, and

DepartmentforBusiness,InnovationandSkills(UKStrategicExportControlsAnnualReport

2015).UKgovernment’spoliticalrelationsandprinciples(e.g.,humanrightsabuses,internal

repression) become an essential consideration for arms exporters, though there are

controversiesregardingtheapplicabilityofsuchrulesdueto“widercontextoftherelationship

betweenarmscompaniesandtheUKstate(Stavrianakis,2008,p.32).”

4.2.InstitutionalStructuresofForeignPolicyMaking

TurkishForeignPolicyMaking

Turkishforeignpolicyhasattractedagreatdealofattentionoverthepastdecade.Despite

theextensiveliteratureonthetopic,“theprocessofforeignpolicy-makingisoneoftheleast

well-studiedaspectsofTurkishforeignpolicy(Hale,2012,p.205).”Thegoalofthissectionis

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toanalyzetheinstitutionalstructuresofTurkishforeignpolicymakingandexplorewherethe

influenceoffirmscouldbesituated.Theanalysisdemonstratesthattheinfluenceofprivate

sectoronforeignpolicymakinginTurkeyisnotinstitutionalizedandremainsasaconjectural

factor.ItsinfluenceincreaseswhenTurkeyadoptsmoreintegrationistpoliciesanddecreases

whenprotectionismbecomesthedominantparadigm,inaccordancewiththeshiftsofpower

amongrelatedinstitutions.

Theimpactofpublicandprivateinstitutionshavebeenconstantlyreshufflingsincethe

foundationoftheRepublicofTurkey.Thoughthereisaformalstructureinwhichrolesand

responsibilities are distributed according to the law, each political and bureaucratic actor

constantly tries to increase its influence over the policy making process and thereby

determinethepolicyoutcome.Turkishforeignpolicysystemisrelativelyclosedbutpluralistic

(Efegil, 2001). By reviewing the contentof theofficial documentsof theNational Security

Council (NSC)10, I suggest two key factors to analyze Turkish foreign policy making: main

foreign policy issue and domestic political balance. I argue that key actors such as the

president, government, TurkishArmedForces, foreignministry,parliamentandbusinesses

carryinfluencetovaryingdegreesdependingonthecircumstancesdeterminedbythesetwo

factors. The NSC is also themain institution where energy and defensematters are also

discussedwithintheforeignpolicycontext.

AccordingtotheTurkishConstitution,presidencyandcouncilofministersarechargedwith

determiningthebasicprinciplesandgoalsofTurkishforeignpolicy.TheTurkishArmedForces

(TSK), however, has enjoyed an almost unchallenged prerogative to influence the Turkish

foreignpolicyformanydecades.ContentanalysisofpressreleasesbetweenJanuary1984and

March2016demonstratethatforeignpolicyhasalwaysbeenoneofthemaintopicsonNSC’s

agenda,whereTSKownedcritical topics suchasCyprus,Kurdish issue (and relationswith

KurdishfactionsinnorthernIraq)aswellasrelationswithIsrael(Aksu,2012).NSChasbecome

thekeyinstitutionthroughwhichTurkishmilitaryimposeditsforeignpolicychoicesandeven

10NSC’spressreleasessince2003weremadepubliconitswebsite.Theauthorobtainedthepress

releasessince1984uponofficialrequesttotheGeneralSecretariatofNSC.

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monitoredwhether those policies were properly executed.11 Its dominance has gradually

declined as a result of the reforms enacted during the EU process and shift in domestic

political balance in favor of the civilian12 government13.MoFA ismostly given the role of

execution in foreign policy issues. Additionally, theMinistry is also taskedwith doing the

preliminary work and suggestions to the government14.MoFA is also considered to have

informal influence over foreign policy making due to its expertise and control over

information,aswellasitsinstitutionalstrength(Uzgel,2009).Parliament’srole,ontheother

hand, isconfinedtodeclaringwarandallowingTurkishtroopstobedispatchedabroador

foreigntroopstobedeployedinTurkey15.ForeignRelationsCommitteeoftheParliamentis

taskedwithlegislatingtheapprovalofinternationalagreements,overseeingorganizationof

foreignministryinstitutionsandconductingdiplomacybetweenparliaments.16

WithinthisconstantlychanginginstitutionalstructuresofTurkishforeignpolicy,firmshave

gainedgreaterinfluenceduringtwomainperiods.ThefirstonewasTurgutOzal’sleadership

astheprimeministerandthepresidentbetween1983and1993.Thiswasthefirsttimewhen

thevoiceofbusinesswasheardinforeignpolicymaking.AsapartofTurkey’seconomicpolicy

toshiftintoexportorientedeconomy,businessmenhavestartedtakingpartinOzal’sforeign

tripsandevenactedasspecialenvoysforsomekeypolicyissues.ForeignEconomicRelations

Board (DEIK)was founded in 1986 as a sub-institution of TurkishUnion of Chambers and

CommodityExchanges(TOBB)tohelpbusinessmenbeinvolvedinforeignpolicyissues.This

period is seenas thebeginningof commercial interestsbecomingapartof foreignpolicy

making,whichcontinuedin1990stovaryingdegrees17.Thesecondconjuncturewherefirms

hadgreaterinvolvementinforeignpolicywasthefirstperiodoftheAKPrulebetween2002

and2007,whentheideaof“tradingstate”hasgainedimportance.Turkey’snationalinterests

11T.C:ResmiGazete,24July1981,

http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/arsiv/17410.pdf&main=http://www.resmigazete.gov.tr/arsiv/17410.pdf

12In2004,aformerambassadorwasappointedasthefirstciviliansecretarygeneraloftheCouncil.13In2001,thedecisionsofNSCwerere-describedas“recommendatory”andtheword“primarily”was

removed(http://www.adalet.gov.tr/duyurular/2011/eylul/anayasalar/1982ilkson.pdf)14“LawonFoundationandResponsibilitiesoftheMinistryofForeignAffairs(Nr:6004)”,15AccordingtotheConstitutionArt.9216ForeignRelationsCommitteeoftheGrandNationalAssemblyofTurkey,

https://komisyon.tbmm.gov.tr/komisyon_index.php?pKomKod=1117TurkishIndustryandBusinessAssociation(TUSIAD)publishedareportin1998titled“TowardsaNew

EconomicandCommercialDiplomacyinTurkey.”

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couldnotbenarroweddowntosecuritymattersanymore,theyalsoincludedmanyeconomic

andbusinessmatters(Kirisci,2009;Kirisci&Kaptanoglu,2011).Onisarguesthatthereisa

significant political economy factor behind Turkey’s multidimensional foreign policy and

business actors have become major actors of Turkish diplomacy (2011). Despite these

developments,however,thestructuresbywhichTurkishforeignpolicyismadehasnotledto

theemergenceofinstitutionsthatmadeprivatefirmsanintegralandindependentactorin

thedecision-making.

BritishForeignPolicyMaking

Beingthepioneeroftheindustrialrevolutionandpursuinginterestsgloballysincemany

centuries,theUKhasdevelopedinstitutionsthatmadeforeignpolicymakingacombination

ofanumberofpolitical,socialandeconomicfactors.TheBritishpoliticalsystemallowsthe

developmentofmultipleforeignpolicies,aswellasinvolvementofvariousstakeholdersinthe

policymakingprocessdependingontheissue(Williams,2004).JustlikeinTurkey,different

actors attempt to influence the foreignpolicy in theUKwith the goal of determining the

outcome in their favor. The theoretical debate shows that thepolicymakingprocess thus

swings between centralization and decentralization in response to such attempts (Bevir,

Daddow,&Schnapper,2013).Inotherwords,thoughthereisnocontroversyregardingthe

factthattheBritishforeignpolicyhasbecomemorediverseoverthepastseveraldecades,

thedebatestillcontinuesasregardstowhatbestexplainstheinstitutionalstructuresofits

making.

On the one hand, it can be argued that the British foreign policy gets increasingly

centralized as a result of the prime minister’s growing role in the process. According to

Ewelme, the relationship that determines the policy outcome is still between the prime

ministerandforeignsecretary(2008).Thepersonalityoftheprimeministerthusbecomesan

importantfactorofBritishForeignpolicy,asTonyBlair’sdecisiontoinvolvetheUKintheIraqi

warexemplifies (Dyson,2006).Blair’s leadershiphadadecisive impactontheoutcomeof

Britishforeignpolicydespitethefactthatotherfactorswerenotsupportiveofjoiningthewar.

Inadditiontothe leadershipstyle,UK’s“majoritarian institutionaldesign”alsomeansthat

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anynewgovernmentcanmakesubstantialchanges incountry’s foreignpolicy ideology,as

wellaswhetherajuniorcoalitionpartnercandeterminethepolicyoutcomes(Brommesson

&Ekengren, 2012;Oppermann&Brummer, 2014).On theotherhand, decentralization is

anotherforcethatpullsthedecision-makingofBritishforeignpolicy,drivenbythedesireof

secretariesto“retainautonomyfortheirowndepartments(Williams,2004,p.912).”Notably,

Ewelme was criticized for excluding the power of business groups and specifically arms

manufacturers on policy outcomes (Ewelme, 2008). Just like the domestic politics, British

foreign policy is also prone to be affected, to different degrees, by external influences,

includingpublicopinion,interestgroups,mediaandprivatefirms(Beviretal.,2013;Radcliffe,

2004).Thus,firmsoperateinsuchadiversedecision-makingenvironmenttoinfluenceforeign

policyoutcomes.

Indeed,theUnitedKingdomofGreatBritainandNorthernIreland(anditspredecessors)

hasalongtraditionofconjoiningthecommercialinterestswithitsforeignpolicy18.TheUK

hasbenefited from its diplomatic network andbusiness presence all around theworld to

achievethepoliticalandbusinessgoalssimultaneously.InthecaseswheretheForeignand

Commonwealth Office (FCO) and private firms have different views regarding a topic of

common interest, such as increasing British political influence in a country and grasping

businesspotentialsrespectively,thetwoinstitutionshavebeenabletofindacommonstance

through coordination (Suonpää, 2015). Williams argues that the British private firms,

alongside with diplomats, politicians and central bankers, play an important role in the

developmentandexecutionoftheforeignpolicy.Privatefirmshavethedouble-sidedroleof

contributingtothenationaleconomy,whichishighlydependentonforeigndirectinvestment,

andactingastheagentsofBritishforeignpolicyabroad.TheBritishdiplomaticinstitutions

18ThedialoguebetweenSirWalterdeFreceandNevilleChamberlainisagoodexample:MrFrece:askedthePrimeMinisterwhetherhecanassuretheHousethatinalldiplomatic

negotiationstendingtodefinetheinternationalpolicyofthiscountrythereistheclosestinter-workingandunderstandingbetween,ontheonehand,theForeignOfficeand,ontheother,theBoardofTrade,sothatnoseriousdiplomaticstepcanbetakenwithoutpriorconsiderationofitseffectonourcommercialwell-being;andwhetherthisappliesinparticulartotheAnglo-JapaneseAlliance?

Mr.CHAMBERLAIN:Myhon.FriendmayrestassuredthatinallmattersaffectingthemboththereiscloseconsultationbetweenthetwoDepartmentsreferredto.Inaquestionofsuchimportanceasthatofwhichmyhon.FriendmakesspecialmentionthereneedbenofearthattheviewsofanyDepartmentwillbeignoredoroverlooked.

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haveevolvedtowardsgreaterintegrationofthecommercialandpoliticalinterests,especially

sincetheLabourgovernment’scomingintopowerin1997(Lee,2004).

TheBritishparadigmtointegratepoliticalandbusinessinterestwithintheforeignpolicy

hasinstitutionalimplications.TheUKgovernmenthasfoundedajointdepartmentbetween

the FCO and the Department of Trade and Industry (which was later replaced by other

departments),calledUKTradeandInvestment(Williams,2004).Formedin2003,UKTIhad

beentaskedwithpromotingBritishexportstoothercountries,aswellasattractingforeign

directinvestmentintotheUK.UKTIcoordinateditsstrategyandactivitieswiththeFCO,having

permanentemployeesandadvisors inembassiesandconsulatesworldwide.TheUKTIwas

replacedbytheDepartmentofInternationalTrade(DIT)inJuly2016.ThewillingnessofDIT

toinfluencetheBritishforeignpolicyhassurfacedwhenaleakedmessagebyitsdirectorto

theForeignSecretarydemonstratedthathisdepartmenthadrequestedaformalrestructuring

betweenthetwoinstitutionstoallowtheDITsettheagendaoftheforeignpolicyregarding

businessmatters19,whichwasreportedlyrefusedbythePrimeMinister.TheBritishapproach

toforeignpolicymakingshowsthatithasamoreestablishedinstitutionalstructuretoallow

theprivatefirmsinfluencethepolicyoutcomes.

4.3.TheStrategicSignificanceofSectors

Thepurposeofthissectionistotestthethirdhypothesisaboutthestrategicimportance

TurkishandBritishenergyanddefensesectorstotheeconomicdevelopmentandnational

securityofthesecountries. Iarguethatthelevelof importancewilldeterminethelevelof

influenceofthefirmsoperatinginthesesectors.Theanalysisdemonstratesthatinfluenceof

private firms over foreign policy making is positively associated with the level strategic

significance of the sector that they operate in. The findings indicate that themarket and

nonmarketcharacteristicsofthesectorsisamajordriverof“what”determinestheirinfluence

oninternationalrelations.Thereisapositiveassociationbetweenthestrategicimportanceof

thesectorsandthelevelofinfluencefirmsoperatinginthesesectorshaveonforeignpolicy

outcomes.

19“LiamFoxtriedtowrestcontrolofForeignOfficedutiesfromBorisJohnson,”TheGuardian,14August2016,https://www.theguardian.com/politics/2016/aug/14/liam-fox-attempt-wrest-control-foreign-office-duties-boris-johnson

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EnergyisastrategicsectorforTurkeyduetothreemainfactors.Thefirstoneisthecrucial

roleitplaysinthecountry’sgeopoliticalpower.Someoftheenergyprojectsareevendeemed

tobegeopoliticalassets,puttingtheirroleinenergyrelationsinsecondaryplace(Hoffmann,

2014).AkeypriorityoftheTurkishgovernmentistobecomeanenergyhub,providing“the

politicalinfluenceinEuropeandintheregionduetotheownershipofakeyinfrastructure

route.(Coskun & Carlson, 2010, p. 214).” Thus, energy policy is not only a concern for a

commodity,butalsoatooltoconfigurethegeopoliticalbalanceofpowerandturnTurkeyinto

a regional hegemon (Aribogan & Bilgin, 2009; Triantaphyllou & Fotiou, 2010). Therefore,

energypolicyisanintegralelementofcountry’snationalsecurity.Thesecondreasonisthe

correlationbetweenenergy security and economic growth. There are several studies that

provethecorrelationbetweenenergyconsumptionandGDPgrowth(Erdal,Erdal,&Esengün,

2008;Lise&VanMontfort,2007;Sari&Soytas,2004).Thiscorrelationobviouslytranslates

intoeconomicdevelopment.AccordingtotheofficialfiguresoftheMENR,Turkey’seconomy

has grown annually by 4.8% on average between 2003 and 2014, while primary energy

demandhasgrownannuallyby4.12%onaverageduringthesameperiod.20Thethirdreason

istheperceptionofTurkishvotersonenergy.TheresearchdemonstratesthatTurkishvoters

arehighlysensitivetoenergyprices,whichisdeterminedbythegovernment,and15%ofthe

votersindicatethatenergypoliciesplayacrucialroleindeterminingtheirelectoralchoices21.

Thus,energyisastrategicmatterfortheelectoralsuccessofpolicy-makers.

TheUK’senergystrategydemonstratesthatthesignificanceoftheindustrytothecountry

has different characteristics than those of Turkey. Themain objectives of theUK’s energy

policy, namely economic effectiveness, energy security and environmental protection, are

pursuedbythegovernmentviaincentivizingtheprivatesectorforfurtherinvestments(Royal

Academy2015).Therefore,themarket-drivenenergysectorintheUKdoesnothaveamajor

strategic importance as far as the its international relations are concerned. However, big

energy companieshave strategic importance22 to theUK’seconomyandnational security.

20TheofficialtranscriptofthepresentationbyministerBeratAlbayraktotheGeneralAssemblyoftheTurkishParliamentonthe2016budgetofMENR.21PublicOpinionSurveyconductedbyKadirHasUniversity22BP’sImpactontheUKEconomy:https://www.bp.com/content/dam/bp-country/en_gb/uk/documents/bp-economic-impact-report-uk.pdf

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Even thoughunlike Turkey (where energy is still a political commodity partly because the

energypricesaredependentonTurkey’s international relations) it hasbecomea tradable

commodityintheUKasaresultofthepro-marketenergypolicyparadigm,theUKgovernment

considers such firms as national assets (Kern, Kuzemko, & Mitchell, 2014). The strategic

importanceoftheenergysectormanifestsitselfinthegovernanceofpublicinstitutionsand

privatefirms.TheDepartmentofInternationalTradehasastrategicrelationsdepartmentthat

identifystrategicfirmsandtheircounterpartsinthecivilservice23.Appointmentofatrade

expertasthechiefofFCOwasseenastheLaborParty’sapproachtoallowbusinessdrivethe

British Foreign Policy24. The exceptional consultations between the FCO and BP also

demonstratesthewillingnessoftheUKgovernmenttoalignthecountry’sforeignpolicywith

thecompany’sbusinessinterests25.AsimilarstrategyispursuedbytheBPbyimplementing

the‘revolvingdoor’tacticsbybringingformerhighlevelcivilservantsonboard26.The“special

relationship” between the UK’s global energy firms and the government means political

interventioninstrategicbusinessmatters27,suchaspreventingforeigntakeoverofnational

champion brands28 and lobbying to foreign governments on behalf of them to ensure

favorableconditions29.

Turkey’sdefenseindustryisahighlystrategicsectorforthesimilarreasonsthatarevalid

for the energy sector. First, achieving autarky in defense capabilities is considered as the

centralpillarof an independent foreignpolicy. Theprocessofdevelopment in theTurkish

defense industry demonstrates its relatedness with country’s foreign political relations,

especiallythosewiththeUnitedStates.Turkishdefenseindustryhasbeenlongdependenton

23StrategicRelations,https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/537412/SRM_List_for_GOV_UK__July_16.pdf.Retrieved5June2017.24BusinesstodriveforeignpolicyasPMannouncesdiplomaticreshuffle,TheGuardian,21July2010,https://www.theguardian.com/politics/2010/jul/21/business-foreign-policy-pm-diplomatic-reshuffle25InternationalEnergyUnity,ForeignandCommonwealthOfficehttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/467477/FOI_0505-15_FCO_high_level_dinners_with_BP.pdf.Retrivedon25May2016.26ProfileofSirJohnSawers,BPhttp://www.bp.com/en/global/corporate/about-bp/board-and-executive-management/the-board/sir-john-sawers.html.Retrived2February2017.27UKministersmakeGallicgesturetokeeptheBritishinBP,FinancialTimes,25April2015https://www.ft.com/content/68d541c4-e9c311e4-a687-00144feab7de28UKGovernmentwarnsBPoverpotentialtakeover,FinancialTimes,26April2015,https://www.ft.com/content/06a3207e-e901-11e4-87fe-00144feab7de29UKbacksBPinfederalcontractsdisputewithUSgovernment,FinancialTimes,3December2013,https://www.ft.com/content/f5332c16-5c2b-11e3-b4f3-00144feabdc0

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themilitaryaidsfromtheUSA,asadirectconsequenceofbecomingaNATOmemberin1952

(Bağcı & Kurç, 2017). This reliance, however, has begun changing as a result of another

significantforeignpolicyevent,whentheUSPresidentJohnsontoldtheTurkishgovernment

in1964thatNATO’ssecuritycannotbeassuredagainsttheSovietUnionandtheUSmilitary

equipmentcannotbeusedincaseTurkeyconductsamilitaryinterventioninCyprustoend

theongoingconflict.TheUSarmsembargothatlastedbetween1974and1979hasledTurkey

toadoptitsthepolicyofdevelopingofitsowndefenseindustrypolicyasof1985togainthe

abilityofpursuingan independentforeignpolicy(Mevlütoğlu,2016).Theseconddynamic,

namely the causal link between defense expenditure and economic growth, has become

subjecttoresearchintheliterature.Previousstudiesdemonstratethatthereisapositivelink

betweenTurkishmilitaryspendingandrealeconomicoutput(Halicioglu,2004).Thecausality

is explained by the amount of investment and exports that defense spending leads to

(Kalyoncu& Yucel, 2006). Strategic Planof theUndersecretariat forDefense Industry also

clearly indicatesthat itssectorialdevelopmentis inherentcomponentofthegovernment’s

macro-economic strategicobjectivesasdefined in theDevelopmentPlan (2014-2018)and

Middle Term Program (2016-2018) (Stratejık̇ Plan 2017-2021, 2017). According to the

declarations of theMinister of National Defense, the industry provides high added-value

exports,whichhasreachedto1,68billionUSDin2016(AANews).Regardingthethirdfactor

about the sector’s impact on electoral behavior, there is no research that shows the link.

However,anindirectcausalitycanbeestablished.TheTurkishpublichasastrongpreference

forTurkeytobeindependentandactaloneininternationalrelations(KHASResearch2015+

2016). The government thus turns this point into a political communications strategy by

emphasizing the link between the development of the defense industry and national

independence30(Çağlar&Özkır,2015,p.36).

Thedefense industrialbase isa strategic sector for theUKgovernmentand its foreign

policy, resulting in the balance of interdependence between the two. The importance of

government-industrycooperationismanifestedintheinstitutions,appointmentsandtheir

policies.TheNationalSecurityStrategyandStrategicDefenceandSecurityReviewpublished

in2015indicatesthatthedefenseindustryiskeytothethreemainstrategicobjectivesofthe

30TBMMBaşkanıYılmaz:“Seçmeninuyarısınıciddiyealacağız”,Miliyet,24Ekim2015http://www.milliyet.com.tr/tbmm-baskani-yilmaz-secmenin-uyarisini-sivas-yerelhaber-1030716/

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27

government:protectingtheBritishpeople,projectingUK’sglobalinfluenceandpromotingits

prosperity (National Security Strategy and Strategic Defence and Security Review 2015: A

SecureandProsperousUnitedKingdom,2015)Thecriticalrolethatdefenseindustryplaysin

theinnovativecapabilitiesoftheUKmanufacturingisalsounderlined(UKDefenceOutlook

2016,2016).Withmorethan142,000employees,£24billionturnoverand£7.7billionaverage

exports per year, the defense industry plays an important role in the growth of the UK

economy. As the manufacturing and services in the defense industry is becoming more

international via partnerships, subcontracting and co-production, the UK government

assumes a greater role in arranging international affairs in coordinationwith the industry

representatives(Taylor,1990).Inordertobenefitfromtherapidlygrowingindustrialbaseand

itsinternationalconnections,theUKgovernmenthasincreasedthecapabilitiesoftheexisting

institutions and formed new ones to foster public-private-partnership, with the goal of

“supporting the negotiation and delivery of government-to-government deals (National

SecurityStrategyandStrategicDefenceandSecurityReview2015:ASecureandProsperous

UnitedKingdom,2015,p.77)”Forinstance,UKDefenceSolutionsCentre,aninitiativebyof

the Defence Growth Partnership, a jointly funded platform by government and industry

increasecollaborationbetweentheindustrystakeholders31.(TheDSCadvocatesfortheUK

defenseindustryanddoesnotfavoranyparticularfirm.)Britishforeignpolicytowardsthe

GulfandespeciallySaudiArabiademonstrateshowthisstrategyisapplied(Michou,2012).

HopkinsonarguesthatthisisinpartanoutcomeoftheclosecooperationbetweenMoDand

FCO(Hopkinson,2000).DefenceSecurityOrganizationoftheDepartmentfor International

Trade (formerly UKTI) is specifically tasked with coordinating these policies32 in various

locationsoutsidetheUK.

31UKDefenceSolutionsCentre-http://www.ukdsc.org/about-ukdsc/32DepartmentforInternationalTrade,Defence&SecurityOrganisation,

https://www.gov.uk/government/organisations/uk-trade-and-investment-defence-and-security-organisation/about.Retrieved12May2017.

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28

Discussion

This paper includes the literature, theoretical framework and initial findings of the

empiricalstudyonbusinessinfluenceonforeignpolicymaking.Theempiricalstudywasbased

onin-depthinterviewsandarchivalresearchtotestthehypotheses.Thefourthhypothesisis

currentlyunderexamination.

Even though the analysis is currently incomplete, initial findings demonstrate the

possibilityofdevelopinganovelconceptualframework.Theresearchhassofardemonstrated

that there is a theoretical gap to explain the already existing impact of private sector on

internationalpoliticalrelations.

InterviewList

• CorporateRelationsandGovernmentRelationsManager,TurkishEnergyFirm

• AdvisortotheTurkishEnergyMinistry

• FormerUndersecretaryoftheTurkishDefenseIndustries

• FormerTurkishDiplomatinIraq

• DefenseAdvisortotheDepartmentforInternationalTrade(formerlyUKTI)

• BritishMilitaryAttacheinTurkey

• BusinessDevelopmentManageratTurkishDefenseFirm

• ChairmanofBritishEnergyAdvisoryGroup,formerindependentboardmemberofBG

• FormerTurkeycountrymanagerofAmericanenergyfirm

• ChiefeconomyeditorofTurkishmainstreamnewspaper

• FormersecretarygeneralofTurkishIndustryandBusinessAssociation

Draft

29

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