Defining And Understanding Nationalism & Its Effects On Firms And Countries

Caring deeply about one’s national identity could stem from a healthy sense of belonging and pride, from friendly jibes about the true origins of chicken rice, to the display of the national flag during celebratory events. This builds a sense of solidarity and celebrates the efforts by a community in nation-building. Patriotism and national pride have many societal advantages and it has allowed many countries to achieve economic prosperity and social progress that they would not have been able to achieve otherwise.

However, in many parts of the world we are currently witnessing a shift from patriotism to nationalism, of which the effects tend to be far less positive or constructive than those of patriotism. “Nationalism can be seen as ‘a perception of national superiority and an orientation toward national dominance’ (Kosterman & Feshbach, 1989: 271). So, contrary to patriotism, it infers a sense of superiority and clear downward comparison of people, products or firms that are perceived as being foreign”, says Dr Ilya Cuypers, Associate Professor of Strategic Management at Singapore Management University’s Lee Kong Chian School of Business.

“Nationalism can manifest itself in different ways. For example, there may be institutional mechanisms like legislation and government policy, but nationalism may also manifest itself through more social and psychological mechanisms,” explains Dr Cuypers, who recently hosted a webinar, The Effect of Nationalism on Firms’ Strategic Choices.

“Namely, in addition to affecting a country’s institutions, nationalism also changes people’s attitudes and behaviours. For example, it has been associated with people having a superiority bias, trust foreigners less and have a preference for interacting with people from their own country — which could also play out in many different business settings.”

During the webinar, Dr Cuypers discussed how firms might be affected by nationalism and proposed some strategies they could employ in tackling this rising trend in many countries.

UNDERSTANDING NATIONALISM

According to Dr Cuypers, management scholars and practitioners have paid little relatively little attention to the effects of nationalism, but political scientists, sociologists and psychologists have been investigating nationalism for decades. Insights derived from decades of research in these fields can help us determine how nationalism is likely to affect firms and their strategic choices.

To illustrate how nationalism can affect firms, Dr Cuypers uses cross-border mergers and acquisitions (M&A), a frequently-used strategy for firms to improve their competiveness, as an example “Without engaging in M&A deals and managing them well, firms might not have access to critical resources such as technology or they won’t have access to new growth markets in other countries across the world.”

To avoid the negative effects of nationalism in cross-border M&A, Dr Cuypers advises to separately look at how nationalism might influence the pre-deal phase (that encompasses identifying a partner, negotiation the deal terms, etc.) and the post-deal phase (that encompasses integrating and managing the target firm). “These two phases are distinct and come with different potential challenges. Looking at each of them separately in a merger and acquisition deal allows us to understand the impact of nationalism more systematically and comprehensively”, says Dr Cuypers.

In the pre-deal phase, nationalism can affect deals through government regulation and intervention. For example, more nationalistic governments might be more likely to block the acquisition of local firms by foreign firms.

However, nationalism can also affect the pre-deal phase is more subtle ways. For example, an acquiring firm from a more nationalistic country may be less trusting during negotiations and suffer from superiority bias. As a result, it might view a foreign target firm to be of a lower value. Conversely, a target company from a more nationalistic country may possess an elevated self-valuation due to its own bias and expected the acquirer to pay a higher premium. Hence, this highlights that nationalism might affect the likelihood a deal is completed and the premium the acquiring firm pays for the target.

And the problems may not dissipate once a deal is made. In the post-deal phase, in more nationalistic countries the employees of a target firm may feel a greater sense of hostility towards the authority of the foreign acquirer, and a lack of trust. This might hamper the integration of the target firm, and thereby the success of the deal.

In the webinar, Dr Cuypers discussed how nationalism affects other aspects of M&As and discussed how nationalism affects firms in other ways. To highlight the broad relevance of nationalism for managers, he touched upon how nationalism can also affect cross-country collaborations, foreign market entry, talent acquisition and gaining access to technology or knowledge.

LOOKING FOR SOLUTIONS

Dr Cuypers also highlighted that many of the issues caused by nationalism can be at least partially mitigated if one is aware of them, and if steps are taken to deal with them. Revisiting the M&A example, he suggested that turning to external parties such as investment bankers or consultants during the pre-deal phase might help “offset valuation bias and to identify valuable foreign targets which otherwise might be overlooked due to nationalism”.

He also adds: “If government approval is on the fence, lobbying with the government or working on other initiatives to create goodwill can help as well.” Putting in the extra effort in being transparent and building trust during negotiations is also a prudent strategy.

Additionally, Dr Cuypers also suggested that it might be important to pursue a different integration approach that involves more or different communication, and to focus on more on building trust when dealing with an acquisition target from a more nationalistic country.

While management scholars and practitioners have often overlooked the importance of nationalism, Dr Cuypers’s webinar raises awareness of the effects of nationalism and provides insights on how to deal with nationalism as a manager.

NATIONALISM IN THE TIME OF COVID

During the webinar, Dr Cuypers also briefly talked about nationalism in the time of Covid-19. The pandemic has resulted in the devastating loss of lives and livelihoods, but it also seems to be driving nationalistic sentiment in several countries.

There was already a surge in nationalism in many parts of the world before the Covid-19 outbreak, but he believes that throughout and after this pandemic, we will see “a substantial surge in nationalism”, which in turn may cause “a lot of firms and countries to be more inward looking.” He expects that in addition to all the other challenges firms are facing because of the pandemic, nationalism with be an important factor that will substantially affect firms after the crisis.

Furthermore, while we will only get a full understanding of this when we look back at the crisis in a few years, there is anecdotal evidence that countries respond very different to the crisis depending on how nationalistic they are. On one end of the spectrum, there are less nationalistic countries that are willing to lend their help where possible, working on cross-country solutions to combat this pandemic. Dr Cuypers cites Germany as an example which has taken in Covid-19 patients from different European countries. On the other end of the spectrum, “Some nationalistic countries have decided to handle things on their own and to prioritize their own interests at the expense of other countries,” notes Dr Cuypers. People have even started to talk about the threat of vaccine nationalism which might prevent the fair distribution of a vaccine when/if is discovered.

Dr Cuypers has been working on the effects of nationalism for a few years now with some of his colleagues at SMU, but he believes the next few years will be particularly interesting to see how nationalism will affect our daily lives, firms, and their strategies.