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• W3104170211 abstract "Modern research in international business strategy (IBS) builds upon a limited number of foundational concepts. Four elements stand out as the canvas for many contemporary research studies (Verbeke, 2013). First, firm-specific advantages (FSAs) that allow companies to overcome the additional costs of doing business abroad. Second, country-specific advantages (CSAs), with home-country factors operating as building blocks for developing corporate strengths, and with a limited number of critical host country characteristics determining location choices. Third, the idea that increased globalization at the macro-level holds the promise of at least some benefits of subsidiary network integration at the micro-level. Such benefits accrue especially to multinational enterprises (MNEs) commanding strong non-location bound FSAs. Fourth, the prediction that international diversification at the micro-level comes with corresponding needs for investments in contextual intelligence and novel resource combination, i.e., strategies of situational responsiveness. Such strategies in turn typically mean reduced product diversification, for the corporate head office to retain effective control over the MNE’s internal network. The intrinsic value of the above canvas does not change with the COVID-19 pandemic. But the ‘new normal’ created as the outcome of the pandemic does suggest that the four notions of FSAs, CSAs, benefits of subsidiary integration, and requisite trade-off between international and product diversification, as typically embedded in IBS research designs, may need to be revisited. Such rethinking of concepts will avoid ill-advised prescriptions, misaligned with the coming post-pandemic state of the world economy. During the past decades, much has been written on which types of FSAs can best be nurtured for MNEs to be successful in specific situational contexts. Mainstream IBS has often put forward the need for proprietary intermediate outputs, especially knowledge-based assets such as patented knowledge resulting from R&D and also brand names resulting from marketing efforts. Aharoni (1993) advocated a broader perspective that would focus on higher order FSAs, such as management quality. But what the pandemic has highlighted is that FSAs in governance should actually not be reduced to management quality (such as particular Chief Executive Officer - CEO and Top Management Team - TMT characteristics). Effective Boards of Directors can represent a powerful FSA, ultimately differentiating between successful and less successful corporate responses to major crises. Boards of Directors in MNEs typically vet and approve large-scale capital budgeting outlays, especially as they pertain to establishing new foreign operations. These Boards assess the soundness of pursuing international mergers and acquisitions and select countries for locating major facilities. Senior management teams formulate proposals and are responsible for strategy execution, but especially in crisis situations, the Board takes over. Mainstream IBS research has acknowledged to some extent the importance of higher-level governance dimensions, for example when studying the impact of state-ownership, family firm control, etc. but studies on Board characteristics and the impact thereof on international strategies are rare. The pandemic thus provides an opportunity for researchers to address the following research questions: How do MNE Boards react to the extraordinary demands from the pandemic, especially in terms of assessing possible resource re-allocations across domestic and foreign operations? How can IBS research reasonably include parameters related to Board quality that might constitute a key FSA? Which Board quality characteristics should be included as empirical proxies for a governance-related FSA? What is the impact of the quality of Board governance on the grand challenges of corporate social responsibility and sustainability? IBS scholars now routinely include in their studies country-level, institutional quality indicators, in addition to micro-level drivers of important decisions on location and operating mode selection. Mainstream research has long argued that low institutional quality deters foreign direct investment, though recent analyses have brought more nuance to this mainstream perspective. Sometimes, features other than supposedly intrinsic institutional quality matter more to MNEs, as shown in many cases where former colonial linkages, or historical animosity, or institutional similarity, or even corporate political ties affect major IBS decisions. However, the recent trade tensions across a variety of countries, amplified by the pandemic, have amply demonstrated that internationally operating firms in sensitive industries can simply be targeted by host nations because of their success, and if needed closed down for a wide range of reasons, including public safety or national security concerns. Locational risks are increasingly ‘value-chain-specific’, rather than a reflection of general, macro-level institutional parameters. As a result, readily available composite indices at the national level may fail to capture such risks for specific firms and industries. Among the many, potentially relevant institutional parameters, which ones – and at what levels of government – should be included as affecting (positively or negatively) location choices, irreversible resource commitments and novel resource combinations involving host country actors? Which institutional quality indicators can best be taken on board by IBS scholars for particular types of industries or firms, as proxies for measuring critical, location-related risks? What are the specific mechanisms at play for an institutional characteristic to affect a particular category of IBS decisions? Furthermore, the quality of institutional linkages between countries may now be much more important as to possible impacts on internationally operating firms, than the intrinsic institutional qualities associated with individual countries. In which situations will the quality of institutional linkages among countries and among the economic actors involved in cross-border business transactions matter more than stand-alone, country-level institutional quality characteristics? How do the evolving linkages between particular macro-level institutional features of host and home countries (with the relevant features obviously depending on the research question to be answered) influence the opportunities and risks associated with particular locations? MNE networks exist because it is more efficient to operate a large number of foreign subsidiaries under common governance than it would be for these entities to operate independently (the latter situation would materialize, for example, when a domestic firm, acting as licensor, would sign licensing agreements with foreign licensees). MNEs that command non-location bound FSAs such as superior routines and other managerial practices can more easily operate a large internal subsidiary network, especially in the context of strong macro-level globalization (Verbeke et al., 2018). Building upon this starting point, IBS scholars have developed a large body of literature addressing subsidiary roles in particular situational contexts, with one type of trade-off being particularly salient, namely the trade-off between benefits of integration (such as economies of scope from shared managerial practices and economies of international arbitrage from centralized coordination) and benefits of national responsiveness. Alarmingly, however, a critical challenge amplified and accelerated by the pandemic has been the trend towards ‘macro-level decoupling’. Scholarly research has outlined a number of variations on this theme, inter alia Petricevic and Teece’s (2019) provocative analysis predicting a bifurcated world economy, with ‘rule-of-law’ countries pitted against ‘rule-of-rulers’ ones, whereby the former will increasingly repatriate economic activities presently conducted in the latter. The Economist (2020) recently observed the emerging trend of firms shifting or planning to shift some manufacturing capacity away from China. Macro-level decoupling poses challenging questions for IBS research on subsidiary integration. First, which types of industries and firms are sensitive to macro-level decoupling movements that may go far beyond US-China decoupling? Which industries and firms will still be able to capture benefits of integration in this fractured, global institutional environment? Second, to what extent will conventional proxies to predict the potential for subsidiary integration in MNEs (such as manufacturing versus services, or high versus low technological intensity) still be relevant as compared to parameters measuring the impact of macro-level decoupling between nations? Will region-based organizational structures in MNEs, with high intra-regional integration but few interactions among units located in different regions, become more prevalent than conventional MNE structures with standardized routines that are shared across all units? Decoupling also calls for new methods to conduct research on MNE subsidiary networks. MNE subsidiaries within each region (e.g., EU versus Asia) will likely be organized and managed very differently, depending upon the level of intra-regional integration at the macro-level. Quantitative analysis of secondary data and simple frameworks on subsidiary roles according to their level of distinct knowledge and the strategic importance of the host country may not be sufficient to capture trajectories towards higher or lower subsidiary integration. Can more complex configurational approaches therefore be deployed in IBS research? Such approaches would meld micro-level and macro-level parameters working in concert to determine whether and how benefits of subsidiary integration can be achieved. Can high-quality information on actual decision-making processes about subsidiary integration be included in mixed methods studies on MNE networks? A substantial body of literature in IBS has focused on trade-offs between product diversification and international diversification, and their impacts on MNE performance. While there is no definitive answer on the exact relationship between both (given many situational complexities), the prevailing consensus is that complexity matters (Bowen and Sleuwaegen, 2017). Both types of diversification add to complexity and therefore difficulty of managing the MNE network, much in line with Penrosean thinking, which views simultaneous growth initiatives as competing for scarce firm-specific resources, both before and after investing. From an IBS research perspective, the question arises how a global crisis such as the pandemic will affect the perceived relationship between international and product diversification and related performance outcomes. This relationship is typically viewed more as substitutive than complementary, at least in well-functioning market contexts. However, MNEs with geographically dispersed operations are paradoxically more exposed to opportunities for product diversification, which can confer much needed flexibility. Reduced attempts at global integration of the MNE’s internal network and an increased focus on regional integration, if accompanied by sufficient autonomy given to host regions can help promote subsidiary entrepreneurial initiatives aimed at product diversification. Here, a new IBS research agenda may arise building upon work on subsidiary specific advantages (Verbeke and Yuan, 2013). In a post-pandemic world fraught with institutional fractures, will MNE subsidiaries become the conduits for much needed, risk-reducing product diversification? How can subsidiaries simultaneously do three things: secure access to advanced, technology-based FSAs such as digital platforms and other digital assets; develop downstream FSAs in marketing and branding; and deploy slack resources to gather, process and act upon contextual intelligence for new initiatives? How do large MNEs revisit the functioning of their corporate immune system to allow more subsidiary initiatives to flourish than before the pandemic, given the greater value attributed to geo-redundancy? The pandemic is not only changing the structure and functioning of the world economy, but it will also have lasting impacts on the international business strategies of large MNEs. We have identified new research questions in the realm of effective governance design, host country opportunities and risks, appropriate levels of subsidiary integration, and the desired involvement of foreign subsidiaries in expanding the firm’s activity domain. For scholars studying the strategies of the world’s largest firms, this is an opportunity to design better research studies, more closely aligned with managerial practice and therefore more likely to include sound managerial prescriptions." @default.
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• W3104170211 title "A Few Implications of the COVID‐19 Pandemic for International Business Strategy Research" @default.
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