Marcelo Bucheli, a professor of business administration at Gies College of Business, recently won the Global Strategy Journal Best Paper Prize for his article “Political Connections, the Liability of Foreignness, and Legitimacy: A Business Historical Analysis of Multinationals’ Strategies in Chile.” The paper was published in 2017 and cowritten with Erica Salvaj of the Universidad del Desarrollo in Santiago, Chile. The award recognizes a paper published in the Global Strategy Journal five or more years prior to the recognition that has had significant influence on teaching, research, and/or practice.

“The Global Strategy Journal is one of the most important academic journals in the fields of international business and global strategy,” Bucheli said. “This is one of my biggest academic achievements after tenure. I see it as an important recognition of management research that takes into consideration historical and political aspects.”

Examining business history in Chile

The award-winning paper analyzed the history of multinational corporations in Chile and the companies’ efforts to maintain a strong position in the country by finding favor with the country’s elites. The companies wanted to neutralize potential challenges to their business operations. Bucheli’s examination of the history of one particular multinational company – ITT, which came into Chile in the 1920s to provide phone services – indicates that multinational companies can put too much emphasis on the support of one group and suffer consequences when the politics of the country changes.

In ITT’s case, the company put land-owning elites on their company board. Over time, the social fabric of Chile changed, becoming more urban, more industrialized. The company also became caught up in politics and a conspiracy to overthrow the Chilean government. “The fact that the conspiracy was discovered in 1972 was the last step in a long process by which ITT had been losing popularity and legitimacy in Chile throughout several decades,” Bucheli said. After the conspiracy was discovered, the government expropriated ITT. Later, in 1973, a new government took power after a coup.

Yet, other companies were able to maintain their independence, even after the coup. Other companies came in and – while also bringing societal elites onto their boards – were bringing in individuals from the industrial populations, not the land-owning group. The companies whose boards consisted of the urban, industrial elites were able to maintain their monopolies within the country, even after the coup.

Bucheli said that ITT did not pay attention to the changing demographics of the country, which could have had an impact on the company being expropriated. “If you don't assume that things can change, then you can generalize certain things and come to inaccurate conclusions,” Bucheli said. By continuing to focus on the land-owning elites, they ended up losing their position and eventually their company.

Use of historical material

For this research project, Bucheli and his coauthor consulted records of the Chilean parliament, annual reports from the companies located in Chile, and a large number of newspaper articles on companies. It was a project that took several years of slow, laborious work.

Bucheli explained how this project required a different research approach from the typical business research article. “It used qualitative methods and historical archival sources to understand a long-term process by which some companies lost legitimacy in the society in which they operated,” he said. “A lot of management research takes a much shorter window of time – mine went from the 1920s and 1970s – so it's not easy to capture political processes. Given that we're currently living in times of rapid political changes and uncertainty, I believe it is very useful for management scholars to look back in history and analyze how similar processes have unfolded in the past.”

Impact of political climate – what makes success

If there is one takeaway for multinational companies from this example of Chile, it would be the importance of knowing the historical framework of the country a company is entering. “I want to emphasize the importance that looking at historical trends can have – something as simple as reading the history of the country you're going to. By looking at historical trends, you can also have an idea of where things are moving towards. And for that, you need to consult with a historian or somebody.”