MBA Nonmarket Strategy Concept Card Template

Nonmarket Strategy Concept Card: [Your name, course or issue, and date]

A concept card for the business, government and society part of a leading MBA programme: how a firm competes in the nonmarket environment of regulators, legislators, courts, activists, the media and the public, alongside its market strategy. It covers Baron's integrated strategy and the "four I's" (issues, interests, institutions, information), the issue life cycle, the economics of regulation and collective action (Stigler 1971, Peltzman 1976, Olson 1965, the Wilson matrix), corporate political activity (Hillman and Hitt 1999), private politics (Baron 2001 and 2003) and political risk in foreign investment (Kobrin 1979, Henisz 2000). Worked example A builds a complete nonmarket plan for a fictional robotics company facing a city rule on sidewalk delivery robots, with an expected value comparison of three strategies; Worked example B prices political risk in a plant investment; Exercise C is an activist campaign against a retailer. It is for MBA students preparing a case or exam and for managers who must brief an executive team on a regulatory or political issue. Source basis: the original works cited below, written up in original words. Corvane Robotics, Northfield Outdoor Co., Harrowmere and every person and number are fictional and were computed in Python. Replace every [bracketed] value and every row marked Example. Dated facts on lobbying disclosure are examples from the EU and the US, checked on 2026-10-30. This is a learning aid, not legal, political or investment advice.

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Contents

• When to use it
• The idea in plain language
• Formulas and notation
• The frameworks in more depth
• Lobbying disclosure: dated examples
• Assumptions and limits
• How managers use it
• Worked example A (fully solved): Corvane Robotics and the sidewalk robot rule
• Worked example B (half solved): political risk in a plant investment
• Exercise C (unsolved): an activist campaign at Northfield Outdoor Co.
• Connections to other cards
• Common mistakes and misconceptions
• Self-test questions
• My notes and next steps
• Sources and further reading
• Answer key

When to use it

One-sentence rule: use this card when a decision by someone outside the market (a legislature, a regulator, a court, an activist group, the media) can change the value of your strategy by more than your competitors can.

The idea in plain language

Every firm operates in two environments. The market environment is made of customers, suppliers and competitors, and interactions there are mostly voluntary exchanges governed by prices and contracts. The nonmarket environment is made of the social, political and legal arrangements that shape those interactions: legislatures, regulators, courts, interest groups, activists, the media and public opinion. Baron (1995) argued that a firm's performance depends on both, and that the best strategy is an integrated strategy in which the market and nonmarket parts are designed together. A ride-hailing company that grows fast in cities without a plan for licensing rules has a market strategy, not an integrated one; when the rule arrives, it may destroy the market position the company paid for.

The four I's. Baron describes the nonmarket environment through four components. Issues are what the firm and others care about, such as a proposed safety rule. Interests are the individuals and groups with a stake in an issue and their preferences. Institutions are the arenas in which issues are decided: a legislature, an agency, a court, a standards body, and also the arena of public opinion. Information is what the participants know or believe about the consequences of the issue and about one another. A good analysis names all four for each issue. Most poor analyses name the issue and the opponents, then stop.

The issue life cycle. Issues move through stages: identification (an event, a study or a campaign puts the issue on the agenda), interest group formation, legislation or rule-making, and administration and enforcement. A firm has the most room to shape an issue early, when the framing is still open and few positions are public, and the least after a rule has been written and agencies are enforcing it. Firms that wait until the legislation stage usually find that the problem has already been defined by others.

Why regulation exists and who shapes it. The public interest view says regulation corrects market failures: externalities, information asymmetries, natural monopolies. The economic theory of regulation (Stigler 1971) adds that regulation is also a good supplied by the political system and demanded by groups that benefit, and that small, well-organised industries often obtain rules that serve them ("capture"). Peltzman (1976) generalised the model: a regulator balances the support of producers and of consumers, so regulation rarely serves one group completely. Olson (1965) explained why: a small group with large stakes per member organises easily, while a large group with small stakes per member suffers from free riding. Wilson (1980) turned this into a two by two matrix of concentrated or diffuse costs and benefits, which predicts the kind of politics an issue will produce.

How firms act. Hillman and Hitt (1999) describe three decisions in corporate political strategy: the approach (transactional, issue by issue, or relational, building long-term relationships), the level of participation (acting alone or collectively through associations and coalitions) and the generic strategy (information, such as research, testimony and expert evidence; financial incentive, such as political contributions where lawful; and constituency building, such as mobilising employees, customers and suppliers). Information strategies are the cheapest, the most defensible in public and, for a firm with real expertise, often the most effective.

Private politics. Not every nonmarket contest happens in a public institution. Baron (2001, 2003) described private politics: activists target a firm directly with boycotts, campaigns and shareholder pressure, without asking a government to act. The firm's choice is then between resisting, bargaining or changing its practice, and the economics depend on how much the campaign can hurt the brand and how credible the activist's threat is.

Political risk. For foreign investment, Kobrin (1979) defined political risk as the chance that political events change the expected value of an investment, and stressed that the risk is firm and project specific, not a country score. Henisz (2000) measured how constrained a government is by veto players (the POLCON index): where few actors can block a policy change, policy is less stable, and investors face more risk of adverse changes after they have sunk capital (the obsolescing bargain: bargaining power shifts to the host government once the plant is built).

Formulas and notation

Expected value of a nonmarket strategy $s$ across regulatory outcomes $k$, net of its cost $C_s$:

Value added by a strategy compared with no action ($s = 0$):

Issue priority, with $p$ the probability the issue becomes binding within the planning horizon, $I$ the value at stake and $f$ the firm's ability to influence the outcome on a 1 to 5 scale:

Olson stakes per member, with total benefit $B$ shared by $n_B$ members and total cost $K$ spread over $n_K$ members:

Expected cash flow under a constant annual hazard $h$ of an adverse political event that cuts cash flow by a fraction $L$ from the year it happens:

The frameworks in more depth

The Wilson matrix

Wilson's typology predicts the kind of politics from the distribution of costs and benefits of a proposed policy.

Read it from the firm's position. If your firm bears a concentrated cost and the benefits are diffuse, expect entrepreneurial politics: you may win in quiet periods but lose fast after a visible accident. If your firm enjoys a concentrated benefit at a diffuse cost (a tariff, a licence limit), expect client politics but also reputational risk once a policy entrepreneur publicises the cost.

Corporate political strategy options (after Hillman and Hitt 1999)

Market actions as nonmarket tools

The strongest nonmarket move is often a change in the market strategy itself: a voluntary safety standard, a product design that removes the harm, a pilot with data shared with the regulator, a pricing commitment. Funk and Hirschman (2017) describe market actions taken partly for their political effect. A firm that removes the harm also removes the policy entrepreneur's best argument.

Private politics: the activist's calculation

An activist chooses a target where a campaign can impose a cost larger than the cost of the change asked for, and where success sets a precedent for the industry. Firms with valuable consumer brands are more exposed than suppliers with no brand. The firm's options are to resist (and bear the campaign cost), to bargain (agree a change, often with a timetable and verification) or to pre-empt (change before the campaign, or join a credible standard). Baron (2003) models the activist and the firm as bargaining over the change and the campaign intensity.

Political risk in foreign investment

Price political risk in the cash flows (expected losses), not by adding an arbitrary premium to the discount rate. A constant premium assumes the risk grows geometrically over time, which is rarely what the analyst believes, and it hides the assumption. Worked example B shows the two side by side.

Ethics and legitimacy

Corporate political activity is lawful and often useful, because firms hold information policymakers need. It becomes a problem when it hides who is speaking, misrepresents evidence, buys access in ways that bypass democratic accountability, or seeks rules that protect the firm from competition at the public's expense. Use three tests: is the activity lawful and disclosed where disclosure is required, would we defend the argument in public, and does the outcome we seek serve a purpose beyond our own rent? See mba/mba-ethics-guide.

Lobbying disclosure: dated examples

US states, Canadian provinces, EU member states and many cities run their own registers with different thresholds. This table is not legal advice; check the current official text and a qualified professional.

Assumptions and limits

How managers use it

• Issue radar. A quarterly list of issues with stage, probability, value at stake, influence and priority. Owner: public affairs or strategy. See business/pestle-analysis for the wider scan.
• Four I's brief. One page per priority issue: the issue in one sentence, the interests and their positions, the institution and its procedure, and what each side knows or believes.
• Decision-maker map. For a legislature or agency: who decides, their position, salience and what information they need. The map stays internal and factual.
• Option and expected value table. Two to four strategies with outcome probabilities and costs, plus the front page test.
• Integrated plan. The nonmarket plan written into the market plan: product changes, launch timing, data sharing, pilot design.
• Disclosure and ethics check. Registration, reporting and internal approval before any contact with officials. See compliance/legal-register and compliance/code-of-business-conduct.

Worked example A (fully solved): Corvane Robotics and the sidewalk robot rule

Situation (fictional). Corvane Robotics, the warehouse-robotics company used across these cards, has adapted its navigation software for "Courier", a fleet of sidewalk delivery robots, in Harrowmere, a metropolitan area of about 2.1 million residents. Courier is in pilot with three grocery chains, and Corvane plans to scale it to 900 robots. Two rival robot firms operate smaller fleets. After a robot blocked a wheelchair user on a narrow pavement and a video circulated, a council member tabled a rule. The council's transport committee will decide within nine months between three outcomes: light-touch (registration only), permit (permits by zone, speed cap, insurance, data sharing on incidents) and ban (no robots on pavements). Corvane's strategy team valued Courier in each outcome.

Part 1. Issue scan and priority (horizon two years; influence scored 1 to 5 by the public affairs lead).

Excel (probability in C2, value in D2, influence in E2): expected impact =C2*D2, priority =C2*D2*E2/5. The value at stake for I1 is the gap between the best and worst outcomes, 48 - (-12) = 60.

Reading: I1 dominates. I3 has a large expected impact (12.0) but almost no influence, so it belongs in the market plan (dual sourcing), not in the public affairs budget. I5 and I4 are linked to I1: the union and privacy advocates will use the robot rule as their vehicle, so the I1 plan must answer them.

Part 2. The four I's for I1.

Part 3. Classify the politics (Olson and Wilson). The benefit of light-touch rules is concentrated: about USD 120 million of combined value for three robot firms, or USD 40 million each (=120/3). The costs of light-touch rules (congestion and access problems on pavements) are diffuse: if residents value them at USD 6.3 million a year in total, that is USD 3.00 per resident (=6.3/2.1), too little for most to organise around. This is the setting for client politics, which favours the firms, until a policy entrepreneur (here, the council member with the video, and disability groups) makes the diffuse cost visible. At that point the issue moves toward entrepreneurial politics, where the concentrated cost falls on the firms. A second front, the couriers' union, faces a concentrated cost (jobs), which adds interest-group politics. Fighting for the status quo against both is the weakest position.

Part 4. Committee map (positions from public statements and meetings, -2 strongly against Courier's preferred permit design to +2 strongly for; salience 1 to 5).

A permit needs four votes. Today C1 and C4 support it (two votes). C6 and C7 are open and need information; C2 can be moved if the accessibility problem is answered credibly. C3 is not winnable and should not be targeted.

Part 5. Strategy options and expected value (Courier NPV by outcome: light-touch USD 48.0 m, permit USD 31.0 m, ban USD -12.0 m; probabilities estimated by the team with an outside policy adviser).

Excel (probabilities in B:D, NPVs in a row named NPV): expected NPV =SUMPRODUCT(B2:D2,{48,31,-12}), net =E2-F2, standard deviation =SQRT(SUMPRODUCT(B2:D2,({48,31,-12}-E2)^2)).

S1 adds USD 5.25 million of expected value over doing nothing (=25.45-20.2) and lowers the spread, mainly by cutting the probability of a ban from 0.35 to 0.15. It accepts a lower probability of light-touch rules (0.20 against 0.25), which is the price of credibility. S2 raises the chance of light-touch rules but, in the team's estimate, also raises the probability of a ban to 0.40 through backlash, and costs more: it destroys USD 4.45 million of expected value (=15.75-20.2). The break-even question for S2: it would need a probability of light-touch rules far above any realistic estimate once backlash is included.

Part 6. Integrated plan.

Recommendation sentence. "Fund strategy S1 at USD 2.5 million. It adds about USD 5 million of expected value over doing nothing and cuts the probability of a ban from 35% to 15%, because it answers the accessibility problem that turned this into entrepreneurial politics. Do not fight for the status quo: on our estimates it destroys value through backlash. Reprice Courier on the permit case and adjust the rollout to wide-pavement districts now."

Worked example B (half solved): political risk in a plant investment

Corvane plans a motor assembly plant in a fictional country. Investment USD 80 m, after-tax cash flow USD 14 m a year for 10 years, cost of capital 10%. Analysts estimate a 4% annual hazard of an adverse policy change (a discriminatory tax or local content rule) that would cut the plant's cash flow by 50% permanently from the year it happens.

1. Complete the table. [ ]
2. Why is the expected cash flow approach more transparent than the premium? [ ]
3. Name two non-insurance ways to reduce the hazard or the loss. [ ]

Exercise C (unsolved): an activist campaign at Northfield Outdoor Co.

An environmental group launches a campaign against Northfield Outdoor Co. (24 stores, a well-known outdoor brand) over a fluorinated water-repellent coating used on its rain jackets. The group asks Northfield to phase the coating out within 18 months and publish a supplier list. No law yet requires this, but a regional legislature is discussing a broader restriction. Northfield's analysts estimate: if Northfield resists, a 60% chance the campaign escalates to a boycott costing USD 9 m in lost margin and a 40% chance it fades (cost USD 1 m); if Northfield agrees to the 18-month phase-out, the cost is USD 4 m in reformulation and higher input costs, and the campaign ends; if Northfield pre-empts by joining a credible industry standard with a 12-month phase-out, the cost is USD 5 m but the firm gains an estimated USD 2 m in brand value and a 50% chance to shape the regional law.

1. Write the four I's brief for this issue.
2. Classify the issue in the Wilson matrix for the activist campaign and for the regional law. Is it the same?
3. Compute the expected cost of resisting, agreeing and pre-empting (ignore the law first). Which is cheapest?
4. How does the possible regional law change the comparison?
5. Apply the front page test to each option and state one ethical risk in the communication plan (see mba/mba-ethics-guide).

Connections to other cards

Common mistakes and misconceptions

1. Treating nonmarket issues as a legal problem only. Lawyers interpret rules; strategy shapes which rules exist and how the firm competes under them.
2. Acting at the legislation stage. By then the issue is framed. Scan early and act at identification.
3. Naming opponents but not institutions. The arena and its procedure (who votes, who drafts, who can veto) decide the outcome as much as the interests do.
4. Fighting every rule. Opposing a rule with diffuse benefits after a visible harm invites backlash. Shape a workable rule instead.
5. Ignoring information as a strategy. A firm's data are often its most persuasive and most defensible asset.
6. Adding a political risk premium to the discount rate. Model expected losses in the cash flows and say what you assumed.
7. Using a country risk score as the project's risk. Political risk is project specific: a power plant and a software office in the same country face different risks.
8. Confusing private and public politics. An activist campaign does not need a government; the firm's brand is the arena.
9. Forgetting disclosure. Lobbying and political spending carry registration and reporting duties in many places.
10. Writing a plan that fails the front page test. If it cannot be published, it is a liability.

Self-test questions

1. Define the market and nonmarket environments and Baron's integrated strategy.
2. Name the four I's and give an example of each for a rule on ride-hailing.
3. What are the stages of the issue life cycle, and when does a firm have the most influence?
4. What does Stigler's economic theory of regulation predict, and how does Peltzman modify it?
5. Why does a small group with large stakes per member organise more easily than a large group (Olson)?
6. Draw the Wilson matrix and name the kind of politics in each cell.
7. Name Hillman and Hitt's three decisions and the three generic political strategies.
8. A strategy changes outcome probabilities to 0.30, 0.50, 0.20 for outcomes worth 50, 20, -10, and costs 3. Compute the net expected value and the Excel formula.
9. What is private politics, and what are a firm's three broad responses?
10. Why is political risk project specific (Kobrin 1979), and what does POLCON measure (Henisz 2000)?
11. Explain the obsolescing bargain.
12. Why is a discount rate premium a poor way to price a political risk that is a one-off event?

My notes and next steps

Sources and further reading

• Baron, D. P. (1995). Integrated strategy: market and nonmarket components. California Management Review, 37(2), 47-65. https://doi.org/10.2307/41165788
• Baron, D. P. (2001). Private politics, corporate social responsibility, and integrated strategy. Journal of Economics and Management Strategy, 10(1), 7-45. https://doi.org/10.1162/105864001300122548
• Baron, D. P. (2003). Private politics. Journal of Economics and Management Strategy, 12(1), 31-66. https://doi.org/10.1111/j.1430-9134.2003.00031.x
• Stigler, G. J. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, 2(1), 3-21. https://doi.org/10.2307/3003160
• Peltzman, S. (1976). Toward a more general theory of regulation. Journal of Law and Economics, 19(2), 211-240. https://doi.org/10.1086/466865
• Olson, M. (1965). The Logic of Collective Action. Harvard University Press.
• Wilson, J. Q. (Ed.) (1980). The Politics of Regulation. Basic Books.
• Hillman, A. J., and Hitt, M. A. (1999). Corporate political strategy formulation: a model of approach, participation, and strategy decisions. Academy of Management Review, 24(4), 825-842. https://doi.org/10.2307/259357
• Hillman, A. J., Keim, G. D., and Schuler, D. (2004). Corporate political activity: a review and research agenda. Journal of Management, 30(6), 837-857. https://doi.org/10.1016/j.jm.2004.06.003
• Lux, S., Crook, T. R., and Woehr, D. J. (2011). Mixing business with politics: a meta-analysis of the antecedents and outcomes of corporate political activity. Journal of Management, 37(1), 223-247. https://doi.org/10.1177/0149206310392233
• Bonardi, J.-P., Hillman, A. J., and Keim, G. D. (2005). The attractiveness of political markets: implications for firm strategy. Academy of Management Review, 30(2), 397-413. https://doi.org/10.5465/amr.2005.16387895
• Funk, R. J., and Hirschman, D. (2017). Beyond nonmarket strategy: market actions as corporate political activity. Academy of Management Review, 42(1), 32-52. https://doi.org/10.5465/amr.2013.0178
• Mellahi, K., Frynas, J. G., Sun, P., and Siegel, D. (2016). A review of the nonmarket strategy literature. Journal of Management, 42(1), 143-173. https://doi.org/10.1177/0149206315617241
• Doh, J. P., Lawton, T. C., and Rajwani, T. (2012). Advancing nonmarket strategy research: institutional perspectives in a changing world. Academy of Management Perspectives, 26(3), 22-39. https://doi.org/10.5465/amp.2012.0041
• Kobrin, S. J. (1979). Political risk: a review and reconsideration. Journal of International Business Studies, 10(1), 67-80. https://doi.org/10.1057/palgrave.jibs.8490631
• Henisz, W. J. (2000). The institutional environment for economic growth. Economics and Politics, 12(1), 1-31. https://doi.org/10.1111/1468-0343.00066
• Henisz, W. J., and Zelner, B. A. (2005). Legitimacy, interest group pressures, and change in emergent institutions: the case of foreign investors and host country governments. Academy of Management Review, 30(2), 361-382. https://doi.org/10.5465/amr.2005.16387892
• Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369-386. https://doi.org/10.1257/000282806776157704
• Textbook, by name only: Baron, D. P., Business and Its Environment (Pearson).
• Official pages (checked 2026-10-30): EU Transparency Register, https://transparency-register.europa.eu/index_en; US Lobbying Disclosure, https://lobbyingdisclosure.house.gov/.

Answer key

Worked example B.

1. Discount rate premium 2.12 percentage points (Goal Seek: the rate at which =-80+PV(r,10,-14) equals -1.29 is 12.12%). NPV at h = 8%: -7.20 (probability of the event within 10 years 56.56%, =1-(1-8%)^10). NPV with insurance: 2.34 (=-80+PV(10%,10,-(14-0.6))): insurance turns the project positive, because the premium (PV 3.69, =PV(10%,10,-0.6)) is below the present value of expected losses (7.32, =6.02-(-1.29)). Check that the policy actually covers a discriminatory tax: many policies cover expropriation and currency transfer, not every adverse rule.
2. The expected cash flow approach shows what is assumed (a 4% hazard and a 50% loss) and how the loss grows over time. A constant premium of 2.12 points matches this NPV only for these exact cash flows; with a different timing or a different loss it gives a different answer, and nobody can see why.
3. Any two: a local partner with political standing; staged investment (a smaller first phase with an option to expand); an investment agreement with stabilisation and arbitration clauses; sourcing and sales that make the plant valuable to the host country (exports, local suppliers, training), which keeps the bargain from obsolescing.

Exercise C. (3) Resist: expected cost 0.6 x 9 + 0.4 x 1 = 5.80 (=0.6*9+0.4*1); agree: 4.00; pre-empt: 5 - 2 = 3.00 net of the brand gain. Pre-empting is cheapest on these estimates, and agreeing beats resisting. (2) The campaign is private politics; the regional law has diffuse benefits (environment, health) and costs concentrated on producers, so entrepreneurial politics, with the activist as the policy entrepreneur. (4) The possible law makes the phase-out likely anyway, so resisting buys little time; pre-empting adds a 50% chance to shape the rule's timetable and definitions, which raises its value further. (1) and (5) answers vary; check that the brief names the legislature and its procedure, and that the communication plan does not overstate the safety or environmental benefit of the new coating (a greenwashing risk).

Self-test.

1. Market: voluntary exchanges with customers, suppliers and rivals. Nonmarket: social, political and legal arrangements (governments, courts, activists, media, public). Integrated strategy designs both together.
2. Issue (licensing and safety rules for ride-hailing), interests (drivers, taxi owners, platforms, riders, city), institutions (city council, licensing authority, courts), information (data on safety, congestion, earnings).
3. Identification, interest group formation, legislation, administration and enforcement. Most influence at identification, when the problem is still being framed.
4. Regulation is supplied to groups that demand it, and small organised industries often capture it. Peltzman: the regulator balances producer and consumer support, so outcomes are intermediate.
5. Each member's stake is large enough to pay the cost of organising, and free riding is easier to detect; in a large group each member's stake is small and each hopes others will act.
6. Concentrated benefits and costs: interest-group; diffuse benefits, concentrated costs: entrepreneurial; concentrated benefits, diffuse costs: client; diffuse benefits and costs: majoritarian.
7. Approach (transactional or relational), participation (individual or collective), generic strategy (information, financial incentive, constituency building).
8. 0.3 x 50 + 0.5 x 20 + 0.2 x (-10) = 23.00; net 20.00 (=SUMPRODUCT({0.3,0.5,0.2},{50,20,-10})-3).
9. Activists pressuring a firm directly (boycotts, campaigns, shareholder pressure) without government; resist, bargain, or pre-empt.
10. The same country event affects projects differently by sector, ownership and how much the host needs the project. POLCON measures how constrained policy change is by independent veto players.
11. Before investing, the firm has bargaining power; after it sinks capital, the host government gains power to change terms because the firm cannot leave cheaply.
12. A constant premium compounds over time, so it implies risk growing every year in a fixed pattern, and it hides the probability and size of the loss.

Revision history

Standard and licence note

Based on the business, government and society literature cited above (Baron 1995, 2001 and 2003; Stigler 1971; Peltzman 1976; Olson 1965; Wilson 1980; Hillman and Hitt 1999; Kobrin 1979; Henisz 2000) and on the official EU and US lobbying disclosure pages checked on 2026-10-30. The text, worked examples, exercises and questions are original; no textbook, published case or course material is copied or paraphrased. Corvane Robotics, Northfield Outdoor Co., Harrowmere and every person and number are fictional. This card is independent and not affiliated with or endorsed by any business school, publisher, government body or public affairs firm. It is not legal, political or investment advice: check the current official text of any rule and consult a qualified professional before you act. Template licence: MIT.