Competition is important in business because it drives innovation, efficiency, and customer value while ensuring that firms continuously adapt to survive and grow. But what happens when an individual moves between business and political spheres (also called a ‘revolving door’ effect)? Could there be unintentional consequences for the business, and how can these be mitigated? 

In business research, the “Red Queen” effect is a well-known metaphor. Just as in Alice in Wonderland, where the Queen tells Alice she must keep running just to stay in the same place, firms in competitive markets must constantly adapt simply to survive. Rivalry both raises the risk of failure and pushes companies to become more efficient. But what happens when political ties enter the picture? 

That is the question that UNSW Business School's Associate Professor Weiting Zheng, Postgraduate Research Coordinator at the School of Management and Governance, aimed to explore in her recently published paper: When competition meets connections: The asymmetric effects of political ties on firm survival and efficiency. 

“Our study asks a simple question with big implications: when competition intensifies, do corporate political connections help or hurt firms?” A/Prof. Zheng says. “We find a clear trade-off: political ties shield firms from competitive threats and reduce their risks of failure, but they simultaneously blunt the efficiency gains normally forced by competition.” 

Studying a natural experiment in China 

The paper defines corporate political ties as interlocking connections formed when current or former political actors hold senior leadership roles in companies (e.g., corporate executives or board members). A familiar example is former Australian Prime Minister Tony Abbott's appointment to the Fox Corporation board in 2023. 

To investigate the research question, A/Prof. Zheng and her colleagues focused on China’s television manufacturing industry. Between 1993 and 2003, the industry experienced a dramatic deregulation shock that flooded the market with new entrants. The result was an unusually sharp increase in both local and national competition – a natural laboratory to observe how political ties interact with rivalry. 

Learn more: The wrong influence: the risks of mixing business with politics

“We examine how corporate political ties interact with competition to shape two distinct outcomes: a firm’s survival versus its efficiency – that is, how well inputs are converted into outputs,” A/Prof. Zheng explains. 

The team built a large, hand-collected panel of TV manufacturers across this period. Using hazard models, they measured which firms survived year by year. To capture efficiency, they turned to stochastic frontier estimation, a standard benchmarking technique in economics that calculates how far a firm is from the “best practice” frontier. 

“This design lets us see both the protective side of ties and their hidden efficiency cost,” A/Prof. Zheng says. “It also allows us to test whether jurisdictional alignment between ties and the source of competition – local or national – changes those effects.” 

For A/Prof. Zheng, the research was inspired by revisiting a classic idea in competition research. “I was inspired by the classic ‘Red Queen effect,’ which says that in business – much like in Alice in Wonderland – you have to keep running just to stay in place,” she recalls. “I began to wonder: does this Red Queen logic also apply to political connections? Do political ties make firms ‘run faster’ in competition, or do they give firms a way to step off the treadmill by relying on protection instead?” 

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This curiosity was also shaped by her team’s prior research. “Our earlier work showed that political ties often help survival but don’t always boost performance,” she says. “That led us to examine how political ties reshape the survival versus efficiency trade-off under competitive pressure.” 

Survival versus efficiency 

The findings reveal a paradox. Political ties act as protection, but that protection also comes at a cost. “The Red Queen lens helped us see something surprising: political ties let firms escape the treadmill of competition,” A/Prof. Zheng notes. 

“Firms survive more easily because ties shield them from harsh rivalry. But that same protection means they stop running as hard – they lose the drive to become more efficient.” 

Even more striking was the precision of the effect. “Local ties protected firms from local rivals, but dulled their efficiency gains in local competition; central ties did the same at the national level,” A/Prof. Zheng says. “In other words, the closer the tie fits the competitive threat, the more it acts like a safety net – but also like an anchor slowing down efficiency improvements.” 

Lessons for managers 

For business leaders, the study offers a timely reminder that survival and competitiveness are not the same thing. “Managers need to recognise the trade-offs,” says A/Prof. Zheng “Political connections can buy breathing space, but protection is not performance. Survival insurance does not automatically translate into competitiveness.” 

She warns against thinking of political engagement as a replacement for strategy. “Non-market strategy does not equal anti-market strategy,” she says. “Connections can support bold strategic actions – alliances, acquisitions, international expansion – though the performance pay-off can differ. But they cannot substitute for disciplined investment in efficiency and innovation.”