International business is influenced by local political climate, study finds

A new study by Tang Yinuo, an associate professor at Peking University HSBC Business School, finds that conservative communities in the United States are more likely to oppose mergers and acquisitions (M&As) by Chinese companies. Published in the Journal of International Business Studies, the research examines 267 acquisition deals by 173 publicly listed Chinese firms between 2002 and 2021.

The study, titled "Global meets local: Community political ideology and Chinese cross-border M&As in the U.S.," analyzes how local political ideology, particularly on the liberal-conservative spectrum, impacts Chinese acquisition completion rates in U.S. counties.

Using the percentage of Republican presidential votes as an indicator of local conservatism, the researchers discovered that a one-standard-deviation increase in community conservatism reduces the likelihood of acquisition completion by about 20 percentage points, from roughly 62% to 42%. This indicates a significant connection between local political attitudes and acquisition outcomes.

The negative impact was particularly pronounced in industries subjected to greater scrutiny by the Committee on Foreign Investment in the United States (CFIUS), where national security concerns may exacerbate community resistance.

Furthermore, communities with higher unemployment rates exhibited a stronger inverse relationship between conservatism and acquisition completion, suggesting that local economic insecurity could amplify concerns about foreign investment. The findings underscore how political and economic disparities within a host country can shape international business outcomes.

The study provides companies with valuable insights into the political factors that can affect cross-border acquisitions, especially during the initial stages of investment planning. By understanding local attitudes, economic concerns, and industry sensitivity, companies can better anticipate potential obstacles and devise more effective strategies for engaging with communities.

The researchers also stress the importance of fostering trust with local communities. Companies should transparently communicate the benefits of their investments, such as job creation and economic development, while maintaining open operations and collaborating with local institutions. Demonstrating meaningful contributions to the local community may help alleviate resistance and foster stronger relationships with stakeholders.