Conflicts between indigenous communities and MNEs : the impacts of host country development level and indigenouw community isolation, MNE experience as a moderator

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Conflicts between Indigenous Communities and

MNEs: the Impacts of Host Country Development

Level and Indigenous Community Isolation, MNE

Experience as a Moderator

Master Thesis

MSc Business Administration

International Management Track

Name: Yunni Yang

Student number: 11652020

Date: 21-06-2018

Thesis supervisor: Dr. Ilir Haxhi

Second reader: Dr. Markus Paukku

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Statement of Originality

This document is written by Yunni Yang who declares to take full

responsibility for the contents of this document. I declare that the text

and the work presented in this document is original and that no

sources other than those mentioned in the text and its references have

been used in creating it. The Faculty of Economics and Business is

responsible solely for the supervision of completion of the work, not

for the contents.

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Abstract

Although investments in extractive industries have increased economic growth in many developing countries, the interaction between the multinational enterprises (MNEs) exploiting important natural resources and the local indigenous communities have often resulted in conflicting relationships. Previous studies on conflicts between the MNEs and indigenous communities have analyzed the dynamics of conflict resolution only from a single-case perspective by taking a qualitative research approach missing out on the big picture of country-, community- and firm-level effect on the resolution of these conflicts. We argue that the level of development of host country institutions and community isolation will impact the conflict resolution between MNEs and indigenous communities, as well as the MNE experience will moderate these relationships. We test our predictions for a sample of 297 conflict cases from 50 countries worldwide. Our results show two main findings: first, a higher developed host country, and second, a less isolated community lead to shorter and less violent conflicts between MNEs and indigenous communities. The contribution of this study is twofold: first, methodologically by applying a quantitative method it offers a broader perspective of country-, community- and firm-level effect; and second theoretically, it extends the current conflict literature and studies by examining the direct effects of host country development level and community isolation on conflict resolution, and the moderating effect of MNE experience on these relationships. This study also offers valuable insights for MNE managers on how to deal with conflict dynamics more effectively.

Keywords: indigenous communities; MNEs; resource conflict; conflict resolution; HDI; isolation; prior experience

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1. Introduction

Since the 1990s, the economic globalization has changed the world a lot. Many

multinational enterprises (MNEs) started their international business out of their

home countries. Aiming at profit maximization, MNEs, especially those in extractive

industries, usually enter less developed countries for cheaper raw materials and labor

force, and abundant natural resources. Territories which indigenous communities use

or live in become a continuous target of the developing extractive industries at a

global scale (Savino, 2016). Although FDI in extractive industries have brought

dramatic economic growth for many developing countries, extractive MNEs exploit

important natural resources from nearby local communities, leaving direct and

negative impacts on people’s livelihoods (Damonte & Glave, 2012). Opposition and

resistance from indigenous communities followed the economic development

(Paredes, 2016). These conflicts between MNEs and indigenous communities do

harm to interests of all the parties involved. Therefore, it is crucial to find out the

factors that can affect the MNE-indigenous conflict resolution.

These years, a lot of scholars have studied the influential factors in the

worldwide conflicts between MNEs and indigenous communities. Previous studies

on conflicts between the MNEs and indigenous communities have Although these

studies present some important insights, they analyze the dynamics of conflict

resolution only from a single-case perspective by taking a qualitative research

approach, missing out on the big picture of country-, community- and firm-level

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Olin, 2014). To complement the current literature, this study applies a quantitative

approach to analyze conflict resolution between MNEs and indigenous communities,

from a multilevel perspective.

The first important actor in this conflict resolution is the host country. Country is

where the indigenous communities are embedded, and some characteristics of these

communities are derived from their own country. Many researchers have proved that

host country plays a significant role in the dynamics of conflict resolution. Conde and

Le Billon (2017) examine the effects of several state-related factors – policies,

criminalization, inadequate planning, and corruption – on the degree of local

community resistance to mining projects. Hess and Orphanides (1995) explain the

potential reasons why economic growth can affect the occurrence of conflicts.

Helwege (2015) mentions that the unfair negotiations between poor governments and

extractive companies can lead to local conflicts. Although these studies have

considered certain country-level characteristics as potential factors in conflict

resolution, few of them discuss about this effect systematically. There is still much

space for us to discover. To fill up the gap, we present our first research question:

Research Question 1: What is the effect of host country development level on conflict resolution (i.e., length and violence) between the MNEs and Indigenous communities?

This question aims to study whether longer and more violent conflicts between

MNEs and indigenous communities will occur in a less developed host country. In

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which cannot constrain the behaviors of traders effectively (North, 1991). Moreover,

poor governments have limited bargaining power with extractive companies,

resulting in an unbalanced benefit distribution among citizens and companies. As a

result, local conflicts emerge more frequently in poor countries (Acuña, 2015).

Therefore, it can be supposed that host country development level has a significant

effect on conflict resolution.

The second important actor in conflict resolution is indigenous community.

Indigenous community refers to “any community of people who currently live within

the borders of the Republic, or who historically lived in the geographic area currently

located within the borders of the Republic” (Intellectual Property Law Amendment

Bill, 2010, in Geyer, 2010: 132). Conde and Le Billon (2017) investigate the effects

of some community-related factors – marginalization, mine dependency, territory,

alliances, and distrust – on the possibility of resistance to mining projects by local

communities. Most times, conflicts occur when the interest of indigenous

communities and MNEs collide in a specific geographic area (Calvano, 2008).

When the indigenous communities are located in a geographically isolated

region, or they are embedded with a totally different language or culture from that of

dominant societies, situations could be worse. Their rights and identifications may be

rarely recognized by local governments or MNEs, leading to difficult relationships

between the communities and those two parties (Ballard & Banks, 2003). In addition,

there could be a big gap in knowledge and culture between isolated indigenous

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likelihood of conflicts. Therefore, we believe that the isolation of indigenous

communities can have an impact on conflict resolution. Some current literature has

already studied the effects of the characteristics of indigenous communities on

conflict resolution (Arellano, 2011; Damonte & Glave, 2012), but few studied the

impacts of specific factors such as the community isolation. To fill up this research

gap, here comes our second research question:

Research Question 2: What is the effect of the isolation of indigenous communities on conflict resolution (i.e., length and violence) between the MNEs and Indigenous communities?

The purpose of the second question is to investigate whether more isolated

indigenous communities will be involved in longer and severer conflicts. Isolation

hampers communities’ access to the important resources which grant them authority

and identity (Bebbington, 1999). Lack of contact and knowledge between an MNE

and an indigenous community can possibly cause mutual misunderstandings and

conflicts. Therefore, it is important to find out the potential effect of community

isolation on conflicts. Moreover, this result is valuable for MNEs to make FDI

strategies. If it is proved that shorter and less violent conflicts occur in less isolated

indigenous communities, MNE managers will know it is more beneficial to operate in

these regions.

Finally, the third important actor in conflict resolution is MNE. We choose one

of the company characteristics, MNE experience, to analyze its effect on conflict

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and the indigenous communities, and the previous conflict experience. It is

considered as a competitive advantage for MNEs in high-risk environments (Henisz

& Delios, 2004; Holburn, 2001; in Getz & Oetzel, 2009).

Studies on international issues often consider prior international experience as a

significant factor in MNEs’ success because it can facilitate new investment

(Andersson, Johanson, & Vahlne, 1997). Reade and McKenna (2013) argue that

foreign subsidiaries of MNEs can leverage indigenous knowledge to perfect their

conflict management system, and to create culturally relevant ways to deal with

conflicts between managers and local employees. Thus, it is important to take into

account the moderating effect of MNE experience on conflict resolution. To our

knowledge, however, existed literature mentions little about how MNE experience

acts in conflict resolution. This gap leads to our third research question:

Research Question 3: What is the moderating effect of MNE experience on the relationship between host country development level/community isolation and conflict resolution (i.e., length and violence) between the MNEs and Indigenous communities?

This question intends to explain whether experienced MNEs will encounter

shorter and less severe conflicts in more developed host countries and/or less isolated

indigenous communities. Experienced MNEs know better than the unexperienced

how to acquire legitimacy and survive in a less developed country that usually has

weak institutions. Also, they know more about indigenous communities so as to

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reduce the related costs. If the results prove the moderating effect, it will inspire

MNE managers that they can benefit more if they learn before they do business,

especially in underdeveloped host countries and isolated communities.

To answer the research questions and test the hypotheses, this study will apply

297 cases from 50 countries across the whole world to run the statistical analysis via

the software SPSS. We hypothesize that longer and more violent conflicts will occur

in less developed host countries and/or more isolated indigenous communities, and

that MNE experience will act positively in moderating these relationships.

This study contributes to current conflict literature in three ways. First, this

study contributes methodologically. Most studies on conflict resolution use a

qualitative method while this study applies a quantitative analysis. Second, from a

theoretical perspective, it complements the current conflict studies by investigating

the conflict resolution from a multilevel perspective. Specifically, this study extends

the existed literature by discovering the rarely-discussed effects of both the host

country development level and indigenous community isolation on conflict resolution,

as well as the unexplored moderating effect of MNE experience on these

relationships. Many previous articles focus on isolated-level factors in conflict

resolution while this study manages to combine three-level factors into one analytical

model. Lastly, from a practical perspective, our results will bring valuable insights to

MNE managers. This study provides them with a better understanding of conflict

dynamics, and thus helps them make better strategies, especially in less developed

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This study is structured in the following way: first, a literature review about

current research on related topics will be presented; second, based on our three

research questions, we will then develop a conceptual framework to show our

hypotheses and justify the relationships between these factors; third, the methodology

will be introduced, including the sample and data collection, dependent variables,

independent variables, the moderator, control variables, and the method; forth,

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2. Literature review

2.1 Indigenous communities

There is no consensus on the definition of community in the social sciences

(Calvano, 2008), but it is agreed by scholars that community includes dimensions of

geography, social interaction, and identity (Hillery, 1955; Lee and Newby, 1983; in

Calvano, 2008). Studies can define community according to where a group of people

live, what common background or shared interests a group of people have, or whether

the group is the public or society in general (Geyer, 2010). Dunham et al. (2006)

classify community into four subcategories: community of place, community of

interest, virtual advocacy groups, and community of practice. Among these four

subcategories, community of place refers to those communities in which people live

in physical proximity, and it is the most commonly used concept of community by

stakeholder theorists (Dunham et al., 2006; Calvano, 2008). Dunham et al. (2006)

also argue that many different, and often competing, communities of place can live

together within one geographic region, and it will be a big challenge for MNEs to

develop a good understanding of all those communities, and thus to interact with

them appropriately.

There are different standards to define indigenous people in the world (Sanders,

1999). In the field of law, the word “indigenous” is often used to describe the origin

of a legal object. According to the Intellectual Property Law Amendment Bill (2010,

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who currently live within the borders of the Republic, or who historically lived in the

geographic area currently located within the borders of the Republic.” Based on an

analysis of UN documents regarding indigenousness, Geyer (2010: 136) then

summarizes the characteristics of indigenous people: they have already lived in a

region before the region is colonized or conquered, or before the present national

boundaries are established; they have distinctiveness; they have their own customs

and/or traditions, laws, language, religion, etc; they are “determined to preserve their

own institutions, customs and so forth”; and they identify themselves as “being

distinct/tribal/indigenous”.

However, the meaning of indigenous community in Africa is not focused on the

originality and aboriginality, but includes some other features (Gilbert, 2011).

According to the report of Working Group1_{(n 33, chapter 4 89, in Gilbert, 2001: 251),}

groups in Africa who identify themselves as indigenous people have different culture

(some is under extinction) and way of life from those in the dominant society; they

survive by access to lands and natural resources; they suffer from discrimination that

their places are less developed than other dominant sectors of society; they often live

inaccessibly and are geographically isolated; and they “are subject to domination and

exploitation within national political and economic structures”.

1

There is an organization called African Commission, on Human and People’s Right. Working Group is this Commission’s own Working Group of Experts on Indigenous Population/Communities, for short.

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According to existed literature, scholars usually divide isolation into two forms:

geographic isolation and cultural isolation (Van Cott, 2000; Pringle, 2014; Correa &

Pavez, 2016). Indigenous communities often choose strong geographic isolation

voluntarily, because people are worried that modernization will hamper their own

customs, traditions, and cultures (Tang & Tang, 2001). For example, many

indigenous populations in the region of Amazon choose to live far in the remote

Amazon headwaters and avoid all contacts with the outside society (Pringle, 2014).

This phenomenon is contradictory to the argument of Dahl and Jensen (2002) who

emphasize the urban embeddedness and close interaction of indigenous communities.

Some indigenous tribes will become vulnerable if they try to move and contact the

outside world (Pringle, 2014). Therefore, these indigenous people “remain isolated

out of fear”, not because they want to “avoid all other human societies” (Pringle,

2014: 126).

Isolation hampers communities’ access to the important resources which grant

them authority and identity (Bebbington, 1999). Commonly, the habitats of

indigenous people are not only geographically isolated, but also in great poverty

(Sanders, 1999; Correa & Pavez, 2016). These people possess few economic and

educational resources, leading to a big gap in knowledge and culture between

indigenous people and dominant societies (Correa & Pavez, 2016). Furthermore, to

some extent, geographic isolation will intensify cultural isolation. Alston and Kent

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hampers their social and psychological development and then worsens their social

exclusion. For example, the Mapuches-Huilliches community, one of the indigenous

communities, lacks technical assistance from the outside and lacks the ability to use

and manage the natural resources around them, because of their remote location

(Oltremari & Jackson, 2006). In Bolivia, indigenous communities lack continuous

governmental support and a judiciary which does well in legal pluralism or

multiculturalism, mostly because of their geographic and cultural isolation (Van Cott,

2000).

There is a significant cultural divide between urban, rural, and traditionally

remote-oriented indigenous communities (Brasche & Harrington, 2012). Different

indigenous communities in one region can bear different level of isolation. For

example, Shan-Mei residents in Taiwan Province have a tight social relationship with

outsiders and share common goals with each other, while Li-Chia people who also

live in Taiwan Province, strongly fight against any form of outside intrusion (Tang &

Tang, 2001).

2.3 Conflicts between MNEs and indigenous communities

The relationship between multinational enterprises (MNEs) and indigenous

communities has become tense these years (Calvano, 2008). Because of the economic

globalization, many MNEs transfer their resource and production centers to poorly

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2008). At the same time, these host countries open their gates to MNEs for better

development and residents’ better standards of living (Calvano, 2008). Territories

where indigenous communities live become a continuous target of the growing

extractive industries at a global scale (Savino, 2016). Extractive industries such as

mining put indigenous people into asymmetric conditions, and raise global

competition over natural resources as well as pressures on the natural environment of

these local people (Paredes, 2016). Indigenous people are not treated equally by their

governments and extractive MNEs, therefore, the main opposition to MNEs’

activities and business has shifted from host countries’ governments to the indigenous

communities living in these countries (Calvano, 2008). As a result, indigenous people

raise conflicts out of resistance to the extractive operations, raise their opposition by

“framing their struggle as a quest for self-determination, territorial autonomy, and

decoloniality” (Savino, 2016: 404), some of whom make chaos also to gain benefit

from the extractive companies (Penman, 2016).

In terms of influential factors in the conflicts, based on previous conflict

literature, Conde (2017) summarizes four reasons for mining conflicts: environmental

burden, lack of participation in mining projects and lack of rights to determine own

development path, insufficient monetary compensation for land or resource losses,

and distrust to mining companies and government. In addition, Pinkey (2005)

indicates that MNEs themselves play a significant role in the conflict situation. MNEs

in the extraction industries are supposed to have stronger conflicts with local

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(2008) examines the impacts of three components: stakeholder power inequality,

stakeholder perception gaps, and cultural context; he concludes that all of three

components intensify the conflicts between MNEs and indigenous communities.

Some researchers find that characteristics of indigenous communities can play a

significant role in the MNE-Indigenous conflict dynamics (Arellano, 2011; Damonte

& Glave, 2012), but they do not specify the factors. Acuña (2015) disagrees that the

conflict is simply a result of ill-designed policies, but he believes the conflict will

occur because of the historical colonial domination which denies the ontology of

indigenous people.

Since the conflict is a dynamic process and varies over time (Pondy, 1967),

Paredes (2016) indicates three factors that affect the dynamics of the contention of

indigenous communities to extractive industries: technological changes within the

industries, centrality of extractive industries in national economy, and new ways of

opposition of rural communities. A combination of these three factors leads to “the

glocalization of mining conflicts” (Paredes, 2016: 1047).

2.4 National development

It is commonly believed that most indigenous people live in rural and remote

areas, and they often suffer considerable social and economic disadvantage compared

to urban people (Fuller et al., 2007). For example, there is a huge gap in the living

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(Psacharopoulos, Patrinos and Oaxaca, 1995). Indigenous poverty is “deep-rooted,

widespread and persistent” (Kumar, 2009: 247), which hinders the improvement of

standards of living as well as the recognition of their identities and rights.

Development is necessary to improve the economic, human and social situation of

these indigenous people (Fuller et al., 2007).

In underdeveloped countries, the social and legal institutional frameworks are

weak, which cannot constrain traders’ behaviors effectively (North, 1991).

Developing countries often have poor ex ante negotiations with extractive companies

(Helwege, 2015). In the negotiations, these national governments give away resource

rights on behalf of their local communities, and often charge much less than they will

lose (Helwege, 2015), leading to an unfair benefit distribution between companies

and local people. As a result, local communities will raise conflicts with both

extractive companies and their national governments due to their poorly defined

rights and unfair internal distribution (Helwege, 2015).

In addition, when people cannot express their needs in institutionalized ways,

which often happens in poor countries, the only thing they can do is conflict and

protest (Conde, 2017). Polachek and Sevastianova (2012) conclude that poor

countries suffer from more wars than rich countries. Results of Pinstrup-Andersen

and Shimoawa (2008) also show that in countries whose people suffer income

poverty and poor health status, armed conflicts are more likely to happen. Collier et al.

(2003, in Braithwaite, Dasandi & Hudson, 2016: 46) present the concept of “conflict

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development, which in turn increase the occurrence of future conflicts. Therefore,

conflicts often interrelate with national growth (Braithwaite et al., 2016).

2.5 MNE experience

MNE experience plays a significant role in MNEs’ foreign operations as well as

the resolutions in difficulties and barriers. For MNEs operating worldwide, one big

challenge is to understand economic conditions and diversified cultures of various

countries (Buller & Kohls, 1997). They need to make specific strategies based on

characteristics of different nations. Studies on international issues often consider prior

international experience as a significant factor in MNEs’ success because it can

facilitate new investment (Andersson, Johanson & Vahlne, 1997).

Some researchers believe that experience enables companies to learn and

perform better in similar operations in the future (Cyert & March, 1963; Levitt &

March, 1988; in Zeng et al., 2013). They consider experience as a competitive

advantage for MNEs in high-risk environments (Henisz & Delios, 2004; Holburn,

2001; in Getz & Oetzel, 2009). The capability of managing risks is a “valuable, rare

and costly-to-imitate resource” which an MNE can leverage in its operations and

competition with other companies (Getz & Oetzel, 2009: 378).

In addition, experience allows companies to better adapt to local environment, to

overcome liabilities of foreignness and newness, and thus to reduce the cultural and

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Kaufmann, 2015). Reade and McKenna (2013) indicate that foreign subsidiaries of

MNEs can leverage indigenous knowledge to perfect their conflict management

system, and to create culturally relevant ways to deal with conflicts between

managers and local employees. Even if MNEs do not have previous experience about

the local context, they can cooperate with NGOs that are knowledgeable and

experienced to understand the local communities (Kolk & Lenfant, 2013). This

enables MNEs to innovate and improve their conflict resolutions in foreign regions

(Lertzman & Vredenburg, 2005).

Some other researchers, however, argue that previous experience may not

always be helpful since companies may make a wrong decision based on a wrong

inference from experience (Feldman, 1986; Huber, 1991; in Zeng et al., 2013). Up to

now, the actual effect of prior experience on future investments has not been clearly

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3. Theoretical framework

The first section of this part introduces the mechanisms that influence conflict

resolution between MNEs and indigenous communities. The following three sections

focus on the influential factors in MNE-Indigenous conflict resolution and put

forward related hypotheses. The second section explains how host country

development level can affect conflict resolution between MNEs and indigenous

communities while the third section explains the effect of community isolation on this

type of conflict resolution. The forth section discusses the moderating effect of MNE

experience on the relationship between host country development level and

MNE-Indigenous conflict resolution, and the relationship between community

isolation and MNE-Indigenous conflict resolution. The final section presents the

conceptual model of this study.

3.1 Mechanisms influencing conflict resolution

Resource extraction industries always have a direct negative impact on the

natural environment. Industrial development does harm to the lands and lives of

indigenous peoples (Lertzman & Vredenburg, 2005). To protect their territories and

rights, indigenous people often raise conflicts against those extractive companies,

which has become a great challenge for many companies. This phenomenon leads to

an increasing growth in literature about conflict resolution between MNEs and

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these conflicts (Calvano, 2008; Arellano, 2011; Damonte & Glave, 2012; Acuña,

2015; Savino, 2016; Paredes, 2016). However, most of these researches study with a

qualitative approach and focus on specific cases in certain geographical areas.

Literature on the dynamics of conflict resolution from a multi-level perspective is

limited. To fill up these gaps, therefore, this study tries to quantitatively investigate

influential factors in conflict resolution at multiple levels.

MNEs’ overseas operation can be influenced by both external and internal

environment. This study intends to analyze the factors of both sides in one construct.

Country characteristics and community characteristics constitute the external

environment of MNEs. Different external environment forces MNEs to make

different strategies and operations, which thus lead to different outcomes, sometimes

different degrees of conflicts. Therefore, this paper aims to find out the direct effects

of one of the characteristics of host countries, national development level, as well as

one of the characteristics of indigenous communities, community isolation, on the

MNE-indigenous conflict resolution.

On one hand, underdeveloped countries often have weak social and legal

institutions, which cannot constrain people’s behaviors effectively. When extractive

MNEs enter these countries, governments often have poor benefit-cost negotiations

with MNEs, ending up with an unfair outcome (Helwege, 2015). This will lead to an

imbalance in the benefit distribution between companies and local people. Local

communities, as a result, will raise conflicts with both extractive companies and their

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distribution (Helwege, 2015). Therefore, it is meaningful to examine the exact effect

of host country development level on conflict resolution.

On the other hand, it is proved in several current conflict studies that certain

aspects of indigenous communities will contribute to the conflicts between

indigenous communities and MNEs (Damonte & Glave, 2012; Acuña, 2015).

However, few of them study about the specific effects of community isolation.

Isolation hampers communities’ access to the important resources which grant them

authority and identity (Bebbington, 1999). Commonly, the habitats of indigenous

people are not only geographically isolated, but also in great poverty (Sanders, 1999;

Correa & Pavez, 2016). They possess few economic and educational resources,

leading to a big gap in knowledge and culture between indigenous people and

dominant societies (Correa & Pavez, 2016). MNEs from outside societies may have

difficulty in communication with culturally isolated communities. Therefore, it is

easy for foreign MNEs to encounter conflicts with isolated indigenous people who

are embedded with different cultures. Community isolation could be an effective

factor in MNE-indigenous conflict resolution.

Besides the effects of the external environment, it is significant to consider

together with the impact of the internal environment of MNEs, which is the

characteristics of MNEs. We will choose one of the company characteristics, MNE

experience, as the factor of the internal environment as well as the moderator.

Conflicts between MNEs and indigenous communities can vary in duration and

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leverage indigenous knowledge to perfect conflict resolution through culturally

relevant ways (Reade and McKenna, 2013). These subsidiaries will have a better

understanding of the host country environment as well as the features of indigenous

communities than other subsidiaries. Therefore, when conflicts occur, experienced

companies are able to handle these conflicts better than inexperienced companies. We

can thus believe that experience can moderate the effects from the external

environment and strengthen companies’ abilities to survive.

In short, this study states that host country development level and isolation of

indigenous communities both have a significant effect on the conflict resolution. To

be more exact, we believe that longer and more violent conflicts will occur in less

developed host countries and/or more isolated indigenous communities. In addition,

we argue that MNE experience will act positively in moderating these relationships.

In other words, experienced MNEs can handle the conflicts with indigenous

communities better than inexperienced MNEs in less developed host countries and/or

more isolated indigenous community regions.

3.2 Host country development level

Scholars find two ways in which poverty affects conflicts, economically and

politically. Do and Iyer (2010: 736) find that poverty is one of the determinants of the

intensity of conflict, because the “opportunity cost of conflict is lower in poorer

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Laitin (2003), however, present that poverty increases the possibility of conflicts

because poverty is usually associated with a weaker state. This kind of state has weak

financial and military capabilities, increasing the likelihood of success of rebel people

(Braithwaite, Dasandi, & Hudson, 2016). Collier et al. (2003, in Braithwaite, Dasandi

& Hudson, 2016: 46) present the concept of “conflict trap”, indicating that a country

in conflicts will suffer a reversal of economic development, which in turn increase the

occurrence of future conflicts. Existed conflicts cannot be resolved properly, making

conflicts longer and severer.

Country is where the indigenous communities are embedded, and some

characteristics of these communities are derived from their own country. There are

two ways in which the host country development level can negatively affect the

conflict between MNEs and indigenous communities. First, less-developed countries

often depend more on foreign investments than on self-production, so that

governments in these countries provide MNEs with more privileges and benefits than

their own indigenous citizens. These local people cannot acquire their deserved rights

and identifications, so they make conflicts to express their resistance to their

governments and MNEs. Second, less-developed countries usually have weaker

institutions and governance. Laws in these countries cannot be implemented

effectively (North, 1991), which increases the possibility of collisions and conflicts.

When a conflict has occurred, even the government is not able to solve it well, not to

say the foreign MNEs, which will make the conflict longer and more violent. Based

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country has a significant effect on the length and violence of the conflicts between

MNEs and indigenous communities in this host country.

In underdeveloped countries, poverty constrains people’s access to education

and health care (Pehn, 2009). Insufficiently educated communities are likely to

misunderstand MNEs’ behaviors and owe their sufferings to MNEs. They struggle

and persist, but cannot organize and advocate against governments’ poor policies

effectively (Olson, 1971). As a result, the conflicts continue and become severer. In

relatively richer countries, indigenous communities can benefit from the sound and

forceful institutions and better education, which facilitate their interaction with MNEs.

Efficient communication can reduce conflicts’ occurrence, duration and severity.

Thereby the hypotheses are following:

H1a: The more the host country is developed, the shorter the conflict between the MNE and an indigenous community will persist.

H1b: The more the host country is developed, the less violent the conflict between the MNE and an indigenous community will be.

3.3 Indigenous community isolation

Conflict occurs when there is difference in values and interests, vagueness in

responsibility, poor mutual communication, and unwillingness to new changes

(Upreti, 2004). Calvano (2008) also states that conflict between MNEs and

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particular geographical area. There are two types of isolation, geographical isolation

and cultural isolation (Van Cott, 2000; Pringle, 2014; Correa & Pavez, 2016).

Geographically isolated communities live far from the broader societies and have no

contact with the outside world. They are usually poor and have few basic services in

their residence, including the conflict resolution services from governments (Upreti,

2004). Remote location hampers their access to the important living resources

(Bebbington, 1999). In addition, geographically isolated communities usually have a

low literacy rate (Upreti, 2004), which can lead to cultural isolation.

Geographically isolated indigenous communities rely heavily on their natural

environment for food and housing. As a result, extractive actions will do more harm

to the living environment of these isolated people than that of dominant communities.

When the extractive MNEs break in, companies exploit the abundant natural

resources for their own business, depriving and polluting the important living

resources of the local people without any compensation. To protect their rights, those

local people protest against MNEs. The more isolated communities will have more

opposition to the damage MNEs have done, thus leading to bigger and severer

conflicts. It is also harder to repair the loss for more isolated areas because of poor

infrastructure, so the conflicts between more isolated communities and MNEs will

last longer.

Culturally isolated communities have different customs, traditions, languages

and cultures from the broader mainstream societies. People from the two parties

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indigenous people cannot get sufficient education and training because of their

isolated geographical location (Alston and Kent, 2003). When MNEs operate with

this type of isolated indigenous communities, it is hard for companies to adapt to the

local social environment due to cultural distance. For example, it is hard to find

enough well-educated and skilled employees. Also, when a conflict occurs, it is hard

for MNEs to communicate with indigenous people, which thus worsens the conflict.

MNEs need more time to adapt to the indigenous environment and deal with an

indigenous community when the indigenous community is more isolated, either

geographically or culturally. When more time passes, longer conflicts will get more

violent and cause more damage.

There is an example about the community isolation. According to Tang and Tang

(2001), Shan-Mei and Li-Chia are two villages in Taiwan Province. Residents in

these two villages have different attitudes towards the outside world. Shan-Mei

people have a tight connect with the outsider society, and they implement a successful

fishing ban to their residents just as the dominant societies do. With the help of this

distinct ban, Shan-Mei people have few conflicts with other communities on fishing.

In contrast, Li-Chia villagers are more indigenous and they avoid building

relationship with the outside world. They don’t know what rules they should follow.

Once they break the rules, they refuse to pay the fine, which can lead to a bigger

conflict. It takes them a long time to resolve the conflict. This example shows that

community isolation does matter in influencing the conflict resolution. Therefore, we

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H2a: The more isolated an indigenous community is, the longer the conflict between an MNE and the indigenous community will persist.

H2b: The more isolated an indigenous community is, the more violent the conflict between an MNE and the indigenous community will be.

3.4 MNE experience

Unfamiliarity with host country environment makes MNEs’ foreign operations

difficult in the host country (Alcantara & Hoshino, 2014). Foreign subsidiaries have

to face more difficulties and barriers than head office at home. And things get more

challenging when foreign subsidiaries are operating in a less developed country.

However, experience can mitigate the risks. Through host country experience,

companies can acquire the knowledge about business system, institutional structure

and also the culture of the host country (Alcantara & Hoshino, 2014). MNEs can

improve their knowledge base, capabilities and competitiveness through experiential

learning in the host country (Chen, 2017). Experience allows foreign companies to

better adapt to local environment, to overcome liabilities of foreignness and newness,

and thus to reduce the cultural and administrative distances (Henisz & Williamson,

1999, in Reimann, Rauer & Kaufmann, 2015). Thus these companies are able to

organize and manage themselves better in the host country.

As mentioned before, a less-developed host country usually has a weak and

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behaviors effectively (North, 1991). If an MNE enters a less-developed host country

without either experience dealing with the indigenous communities in that country or

knowledge about the laws and rules of the host country, it will be easy for the MNE

to encounter conflicts with the local communities, even at a disadvantage, thus

causing huge economic loss.

In contrast, if an MNE has had business in a less-developed host country before,

and has dealt with one of the indigenous communities in that country, the MNE will

better survive and gain legitimacy in this imperfectly instituted country and

understand the reason and purpose of the conflicts created by the indigenous

community. Equipped with previous experience, MNEs can handle future conflicts

with this indigenous community more smoothly and effectively, and even avoid

potential conflicts through some positive and legal firm behaviors such as CSR.

Experienced MNEs will need less time to adapt to national and indigenous

environment and to come up with good conflict resolutions, and will minimize the

loss and damage that conflicts could cause. Therefore, MNE experience can moderate

the effect of the host country development level on the length and violence of the

conflicts between MNEs and indigenous communities. Thus, we address our

hypotheses:

H3a: The more an MNE has prior experience dealing with an indigenous community, the more positively it will moderate the effect of host country development level on the length of conflict between the MNE and the indigenous community (i.e. the conflict will be shorter).

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H3b: The more an MNE has prior experience dealing with an indigenous community, the more positively it will moderate the effect of host country development level on the violence of conflict between the MNE and the indigenous community (i.e. the conflict will be less violent).

Conflict is a result of human behavior, so it is important to take into account

effective interaction, mutual learning and understanding, and cooperation with

humans when dealing with a conflict (Upreti, 2004). Collective learning is significant

in conflict resolution (Walker & Daniels, 1997). To build a good relationship with

local communities, companies need to investigate local needs, interests and social

conditions, and integrate their knowledge and skills into the conflict resolution

(Upreti, 2004). Hence they can have harmonious relationships with local people,

which reduces the likelihood as well as the duration and violence of conflicts.

Isolated indigenous communities have little contact with the outside world.

Their languages, traditions and cultures may be very different from those in the

mainstream societies. If an MNE begins to operate in an isolated region where the

MNE has never been before, the MNE will not have any experience and knowledge

about the indigenous communities in this region. Without experience and knowledge,

the MNE knows nothing about the culture, traditions, demand, preferences,

consumption habits and social condition of the indigenous community, and thus it

will be very likely for the MNE to make wrong strategies and sell wrong products,

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handle these conflicts without knowing anything, which will lead to longer and more

violent conflicts.

In contrast, if an MNE has equipped with sufficient knowledge and previous

experience about an indigenous community before it enters the community, and has

transferred these knowledge and experience among its staff, the whole company will

learn from the previous experience how to better deal with indigenous community

people as well as possible conflicts. Reade and McKenna (2013) indicate that MNEs’

foreign subsidiaries can leverage indigenous knowledge to improve their conflict

management system, and to create culturally relevant ways to deal with conflicts. For

example, by hiring bi-culturally trained employees, and learning about the culture,

demand and preferences of the indigenous community, MNEs can serve and

communicate with the community more efficiently, making conflicts shorter and less

severe. Collective learning also helps MNEs to know local communities better and

look at conflicts from a local-person perspective (Upreti, 2004). In this way, these

MNEs are able to handle the conflicts with the indigenous community with more skill

and ease, and to avoid useless action for conflict resolution, thus moderating the

negative effect of indigenous community isolation on the length and violence of the

MNE-indigenous conflicts. Therefore, our hypotheses are:

H4a: The more an MNE has prior experience dealing with an indigenous community, the more positively it will moderate the effect of indigenous community isolation on the length of conflict between the MNE and the indigenous community (i.e. the conflict will be shorter).

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H4b: The more an MNE has prior experience dealing with an indigenous community, the more positively it will moderate the effect of indigenous community isolation on the violence of conflict between the MNE and the indigenous community (i.e. the conflict will be less violent).

3.5 Conceptual model

Figure 1 shows the conceptual model of this paper, including the relationships

between all the chosen variables in our study. It illustrates clearly the hypothesized

direct effects of host country development level and indigenous community isolation

on the length and violence of an MNE-Indigenous conflict, and the moderating effect

of MNE experience on these relationships.

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4. Methodology

4.1 Sample and data collection

This study examines the potential effects of host country development and

indigenous community isolation on the MNE-Indigenous conflicts, as well as the

moderating effect of MNEs’ experience on these relationships. The sample consists of

297 cases, covering 50 countries across the world: Argentina, Australia, Bolivia,

Botswana, Brazil, Cambodia, Cameroon, Canada, Chile, China, Colombia, Congo,

Costa Rica, Dominican Republic, DRC, Ecuador, El Salvador, Ethiopia, Finland,

Guatemala, Honduras, Indonesia, Kenya, Laos, Lesotho, Liberia, Madagascar,

Malaysia, Mali, Mexico, Myanmar, New Zealand, Nigeria, Panama, Papua New

Guinea, Paraguay, Peru, Philippines, Senegal, Sierra Leone, Somalia, South Africa,

South Sudan, Sudan, Suriname, Sweden, Tanzania, Thailand, Uganda, USA,

Venezuela, Vietnam, and Zimbabwe. These countries are from North America

(26.3%), Asia (26.3%), South America (23.6%), Africa (21.9%), Oceania (1.3%), and

Europe (0.7%).

The data collection is conducted by a group of fellow students, each responsible

for collecting 117 cases. The data is collected from the databases and reports on

indigenous peoples and conflicts, including Environmental Justice Organizations,

Liabilities, and Trade (EJOLT); Intercontinental Cry; Minewatch; Business & Human

Rights resource Center; International Work Group for Indigenous Affairs; Indigenous

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coded based on a coding manual, completing the information on each variable.

4.2 Dependent variables

In order to assess the impacts of above factors on the resolution of conflicts

between MNEs and Indigenous communities, we operationalize conflict resolution

through two different variables, the length and the violence of the conflict.

The first dependent variable, the length of conflict, refers to the duration of the

conflict between MNEs and an indigenous community. “Timing” of a conflict is the

point when the conflict between an MNE and a community occurs (Calvano, 2008).

To measure the length of conflict, we will assign each casea binary value of 0 or 1

based on whether the conflict is short or long. The criterion is determined by the

median of the conflict duration in the sample. According to the frequency analysis,

the median of this sample is 89. Therefore, when the duration of a conflict is less than

89 months, the conflict is short and coded as “0”; when the duration is more than 89

months, the conflict is long and coded as “1”. For the ongoing conflict whose

duration is shorter than 89 months, we remove it from our sample, because we have

no idea about its end date and hence whether it will be short or long. For the ongoing

conflict whose duration is longer than 89 months, we keep it in the sample and code it

as long, or say “1”.

The second dependent variable, the violence of conflict, refers to the degree of

disputes and damages that conflict causes. According to Davis and Franks (2014), the

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are peaceful and involve no violence, while others can result in damage in property,

injuries and even deaths (Calvano, 2008). To measure the violence of conflict, we

will rate the degree of violence by one of five points. The codes and standards are as

follows: 1 refers to no violence; 2 refers to low level of violence (i.e. peaceful protest

and court negotiations); 3 refers to medium level of violence (i.e. threat and

barricade); 4 means high level of violence (i.e. physical damage and injury); 5 means

extreme violence (i.e. all above and death). For example, the Ok Tedi Mine in Papua

New Guinea is the valuable natural resource of this oceanian country. However, in the

1990s, the mine was extracted from international mining companies indiscriminately,

which has done a great damage on the living environment of local people. Finally, the

indigenous peoples living in the Ok Tedi area accused the major extractive mining

company BHP, and received an out-of-court compensation settlement at 28.6 million

dollars (NRI and World Bank, 2002; in Ghazi, 2003).

4.3 Independent variables

To assess the potential impacts of development level of host country and the

degree of indigenous community isolation on MNE-Indigenous conflict, we will use

these two factors as our independent variables. The first independent variable, the

level of development in host country, will be measured by the Human Development

Index (HDI), which is introduced by the United Nations Development Program

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achievement in key dimensions of human development, including life expectancy,

knowledge and education, and standard of living. The three dimensions are calculated

respectively by life expectancy index, education index, and GNI index. A country

with a higher HDI means that citizens have higher lifespan, higher education level

and higher income level.

The second independent variable is the degree of isolation of indigenous

communities. Isolation hampers communities’ access to the important resources

which grant them authority and identity (Bebbington, 1999). As mentioned before,

the isolation can be divided into geographic isolation and cultural isolation, both of

which have a significant impact on the interactions among indigenous people’s

organizations, the judiciary department, and national institutions (Van Cott, 2000).

In this study, the two types of isolation will be analyzed separately. Geographic

isolation is measured by the assignment of one of two digits (i.e. 1 or 2). The criterion

is: 1 is low-isolated, which means that indigenous people in this type are willing to

contact the broader societies and live with bigger population and more mixed

environment; 2 is high-isolated that means this type of indigenous people prefer to

live in communities which have almost no contact with the outside world. Similarly,

cultural isolation is measured by the assignment of one of three digits (i.e. 1 or 2 or 3).

The criterion is: 1 refers to weak isolation, meaning that the community is not only

connected to but even embedded within a broader mainstream ethnic group; 2 refers

to moderate isolation, meaning that the community is connected to a broader ethnic

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community has an isolated culture with a different language and is not connected to

or influenced by the outside society.

4.4 Moderator

To assess the moderating effect of MNEs’ prior experience dealing with conflict

or indigenous communities, we make MNE experience as our moderator. Experience

enables companies to learn and perform better in similar operations in the future

(Cyert & March, 1963; Levitt & March, 1988; in Zeng et al., 2013). Moreover,

experience allows companies to better adapt to local environment, to overcome

liabilities of foreignness and newness, and thus to reduce the cultural and

administrative distances (Henisz & Williamson, 1999, in Reimann, Rauer &

Kaufmann, 2015). Experienced MNEs are able to build good relationship with

indigenous communities so as to avoid potential conflict in the future. It is supposed

to positively moderate both the relationship between host country development level

and MNE-Indigenous conflict, and the relationship between indigenous community

isolation and MNE-indigenous conflict.

This study will measure MNE experience in two indicators. The first indicator is

the number of previous projects which an MNE has had with indigenous

communities since the beginning of its operations. The second indicator is the

number of years that have passed since the first encounter of an MNE with an

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Control analysis should include all the major players within the relationship

(Berkes, 2009). In this study, we discuss the effects of characteristics of host

countries, indigenous communities, and MNEs on the conflict resolution. Therefore,

the control variables in this study will be respectively at country-, community- and

firm-level. The country-level control variable is the political stability of the host

country, which is measured by political stability and lack of violence, one of the six

dimensions of the Worldwide Governance Indicators (WGI). The WGI is based on a

long-standing research program of the World Bank and covers six dimensions of

governance starting in 1996 (Kaufmann, Kraay & Mastruzzi, 2011). The dimension

of political stability and absence of violence/terrorism (PV) indicates the possibility

that a government will be destabilized or overturned by violence including

politically-motivated violence and terrorism (Kaufmann, Kraay & Mastruzzi, 2011).

The community-level control variable is the size of the community, which is

measured by the population of community. According to Black (1974), community

size can affect the characters of the conflicts a lot.

The firm-level control variable is MNEs’ ownership structure, which is measured

in three digits: 1, 2, and 3 refer to state-owned, publicly-owned, and privately-owned

respectively. Firms’ ownership structure is proved to play a significant role in their

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This study will carry out a quantitative research, and use cross-sectional data

which has been collected for a period of time. In addition, to test the hypotheses, the

software SPSS will be used to do the statistic calculation and regression analysis.

This study has two dependent variables, the length and violence of conflict, so

the analysis will be done in twofold. First, we will apply a logistic regression analysis

on the dependent variable length of conflict, because this kind of regression is used

for dummy variables. Second, we will use a linear regression analysis on the

dependent variable degree of conflict, which is often used when at least one

independent variable is proposed to affect one dependent variable. The regression

equation is described as follows:

Y = β0 + β1X1 + β2X2 + β3X3 + β4X1X3 + β5X2X3 + 𝜀,

where Y refers to the dependent variable conflict resolution, measured by the length or the violence degree of conflict. X1 refers to the first independent variable, host

country development level, measured by HDI. X2 refers to the second independent

variable, community isolation, measured in digits according to degrees. The moderator, MNE experience is denoted as X3. β0 is the intercept. β1, β2 and β3 are

the coefficients corresponding to each independent variable and moderator. β4 and β

5 are, respectively, the coefficients of the interaction terms of HDI scores and MNE

experience, and community isolation and MNE experience. The two values indicate

the moderating effect of our moderator variable. 𝜀 is the error term, used to explain

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To test our hypotheses, we created 12 models to analyze. These models include

different combinations of variables. Table 1 shows the models we will use in the

regression analysis.

Table 1: Models for Regression Analysis

Control Variables Dependent Variables

Independent Variables Moderator Political Stability Community Population Ownership Structure Length of Conflict Degree of Violence HDI scores Community Isolation MNE experience Model 1 X X X Model 2 X X X X Model 3 X X X X X Model 4 X X X X Model 5 X X X X X Model 6 X X X X X X Model 7 X X X Model 8 X X X X Model 9 X X X X X Model 10 X X X X Model 11 X X X X X Model 12 X X X X X X

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We will run regression analysis as indicated by model 1-6 which aim to test hypotheses H1a, H2a, H3a and H4a, and by model 7-12 which aim at hypotheses H1b, H2b, H3b and H4b.

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5. Results & Analysis

5.1 Descriptive Statistics

Table 2 shows an overall descriptive statistics of the variables of this study,

including the minimum, maximum, mean, and standard deviation. According to the

analysis of the descriptive statistics, we can find some information. The length of

conflict (M-0.64, SD=.480) has a mean higher than 0.5, which implies that there are

more long-conflict cases than short-conflict cases in our sample. Specifically, there

are 106 (35.7%) cases that have short conflict while 191 (64.3%) cases have long

conflicts. The second dependent variable, violence of conflicts (M=3.60, SD=1.332),

has a high standard deviation, which means that the variance between our cases is

large. Based on the frequency analysis, this conclusion is confirmed: there are 19

no-violence cases (6.4%), 56 low-level-violence cases (18.9%), 65

medium-level-violence cases (21.9%), 43 high-level-violence cases (14.5%), and 114

extreme-violence cases (38.4%). The distribution of this variable is irregular.

Our first independent variable, HDI scores (M=0.7034, SD=0.14354), has a quite

high mean. The HDI is ranged from 0 to 1, so this mean implies that most countries

in our sample are quite developed. The descriptive statistics of the second

independent variable, geographical isolation (M=1.39, SD=0.488), shows that there

are more cases where communities live low-isolated from the outside society than

those consisting of high-isolated communities. Specifically, there are 115 cases

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consist of low-geographical-isolated communities. Analyzing the third independent

variable cultural isolation (M=2.07, SD=0.677), we find that there is a normal

distribution, meaning that the medium category has the most observations. To be

specific, there are 79 (26.6%) cases that consist of strong-cultural-isolated

communities, 160 cases (53.9%) that consist of moderate-cultural-isolated

communities, and 58 cases (19.5%) consisting of weak-cultural-isolated

communities.

Finally, the moderator MNE experience is measured by two variables: number of

Table 2: Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Length of Conflict 297 0 1 .64 .480 Violence of Conflict 297 1 5 3.60 1.332 HDI Scores 297 .42 .94 .7034 .14354 Geographical Isolation 297 1 2 1.39 .488 Cultural Isolation 297 1 3 2.07 .677 Number of Previous Projects 297 1 150 30.96 38.994 Experience Years 297 1 170 27.07 26.095 Political Stability 297 1 6 2.92 1.275 Community Population 297 19 18000000 288563.80 1285909.447 Ownership Structure 297 1 3 2.07 .559

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previous projects (M=30.96, SD=38.994), and number of years (M=27.07,

SD=26.095). The standard deviations of these two variables are rather high, implying

that the experience dealing with conflicts spread widely among our cases. Based on

the frequency analysis, the majority of the companies are experienced in conflict

resolution, which can influence the results. Table 2 also shows the descriptive

statistics of our three control variables. The considerably large standard deviation of

community population indicates there is a great difference in this item between cases.

5.2 Correlation Analysis

After the above descriptive statistics, we run a correlation analysis to test the

preliminary relations between all our variables, i.e. the length of conflict, the degree

of violence, HDI scores, geographical isolation, cultural isolation, number of previous

projects, experience years, political stability, community population, and ownership

structure. Table 3 shows whether these variables are significantly correlated, and

whether these correlations are positive or negative.

First of all, there is a low correlation between the two dependent variables, the

length of conflict and the degree of violence (r=0.07, p=0.232), implying that these

two variables are different and not correlated. For the first independent variable, HDI

scores, we only find it significantly correlated with one of the dependent variables,

the length of conflict (r=-0.36, p<0.01). The negative correlation coefficient implies

that if a host country has a lower HDI score, MNEs will be likely to encounter longer

Conflicts between indigenous communities and MNEs : the impacts of host country development level and indigenouw community isolation, MNE experience as a moderator