Toward a legitimacy-based view of political risk: The case of Google and Yahoo in China

Abstract

Copyright © 2015 John Wiley & Sons, Ltd. Copyright © 2015 John Wiley & Sons, Ltd.Traditional political risk theories often focus on a developing host country government's ability to intervene in the activities of foreign multinationals in the extractive or infrastructure sectors. This results in inadequate understanding of (1) how a government's motivation to intervene is influenced by the broader societal context, (2) the importance of multinationals' political risk at home, and (3) the increasing political risk faced by high-tech and service firms. We argue that there is a need to update the bargaining power and political institutions theories and further develop a legitimacy-based view of political risk. Then, we examine the political risk experienced by Google and Yahoo at home and abroad due to their activities in China to illustrate the benefits of a holistic approach to political risk.