Tariffs, Geopolitical Risks, and Location Choices of Multinational Enterprises

Recent geopolitical tensions and conflicts have escalated, introducing a heightened level of complexity and uncertainty for multinational enterprises (MNEs) operating in the global context. This study probes how MNEs can strategically deploy their host country subsidiaries to counterbalance the repercussions of geopolitical risk emanating from their home country. Drawing from the social geography literature, the study perceives the home and host countries as distinct “places”, each possessing unique attributes that can either aid or hinder the operations of MNEs. When the geopolitical risk in the home country influences MNEs’ place bonding with the home country, host country subsidiaries can serve as both functional and emotional sanctuaries to mitigate the impacts of home-country geopolitical risk. The study uncovers that the geopolitical risk in the home country is negatively related to the foreign divestment of MNEs in the host country. However, not all subsidiaries confer the same benefits to MNEs. The role of geographical “space”, defined by the interconnections and relationships between MNEs and the host country, also bears significance. The study proposes that MNEs’ geo-strategies to alleviate the geopolitical risk from their home country should incorporate both geo-ideological and geo-political alignment with the host country for stronger place bonding. Geo-ideological alignment, characterized by the low psychic distance between the home and host countries, and geo-political alignment, achieved through the participation of the local state equity in the host country subsidiary, can augment the subsidiary’s functional and emotional bonding, thereby serving as a bulwark against home-country geopolitical uncertainties.

In pursuit of green, low-carbon, and sustainable development, Belt and Road Initiative (BRI) countries urgently require overseas investment in green projects. However, these investments face significant geopolitical risk (GPR) challenges. This study thoroughly investigates how GPR influences the foreign ownership decisions of Chinese enterprises investing in green projects in BRI countries. It further examines the dual moderating effects of corporate green technology capability and host green governance on this relationship. Empirical analysis was conducted using the fractional logit model, analyzing green overseas investment data from Chinese listed companies spanning from 2013 to 2022. The findings revealed the following: (1) high GPR leads Chinese enterprises to opt for low-ownership entry modes in their BRI green investments; (2) the negative impact of GPR on foreign ownership decisions can be offset by improving enterprises’ green technology capability; and (3) in BRI countries with advanced green governance, the negative impact of GPR on the foreign ownership-level decisions of Chinese enterprises is mitigated, and the moderating effect of corporate green technology capability is magnified. This study offers vital insights for multinational enterprises (MNEs) formulating their foreign entry ownership strategies for green overseas investments based on enterprise characteristics and host country conditions to effectively mitigate the impacts of GPR. Similarly, it offers important implications for host countries on attracting more green investments by enhancing their green governance levels to counteract GPR.

This study examines how multinational enterprises (MNEs) strategically respond to dual legitimacy challenges arising from geopolitical conflicts between their home and host countries. MNEs might encounter legitimacy issues in both host countries, where they may be seen as adversarial economic entities, and home countries, where their operations in hostile nations might be perceived as conflicting with national interests. Using a resource dependence perspective, we develop a two-by-two matrix typology of MNEs' strategic responses based on the level of economic stakes—high and low—in both the host and home countries. Additionally, we consider how MNE salience and the intensity of geopolitical conflict influence their strategic choices. Our study advances international business studies by offering a theoretical framework for understanding how MNEs navigate complex geopolitical tensions.

Connectedness between geopolitical risk, financial instability indices and precious metals markets: Novel findings from Russia Ukraine conflict perspective

<p>This Master‘s thesis seeks to consider the impacts of institutional distance regarding IPR protection on Foreign direct investment’s (FDI) internationalization strategies. Estimated at approximately US$ 1.8 trillion in 2015 and sitting at its highest level since the global economic and financial crisis in 2008 (UNCTAD, 2016), FDI flows are fast becoming a focal issue of global business. Developing Asia, for example, has emerged as the world’s largest FDI recipient region in the world, which has attracted a wide and public attention. China, in particular, is the largest recipient of FDI among the emerging economies. In 2014, it overtook the US as the most popular destination for multinational enterprises (MNEs). To date, most academic interest has focused on how the institutional environment of the host country affects both the overall volumes of FDI (e.g., Lee & Mansfield, 1996; Smarzynska Javorcik, 2004), and the modes of entry strategy (e.g., McCalman, 2004; Dikova & Witteloostuijn, 2007). However, other areas of research also consider institutional distance, and the magnitudes and asymmetric effects of institutional distance (e.g., Cuervo-Cazurra & Genc, 2011; Phillips, Tracey, & Karra, 2009; Zaheer et al., 2012). In this context, this thesis, uses China as a sample of FDI recipient to seek to understand how the directions of institutional distance affect FDI’s flows and MNEs’ choice of entry mode into the host country. In particular, the research questions being addressed in this study are: (1) How does the bidirectional distance between home and host country regarding IPR protection affect FDI’s inflows to China? and (2) How does this bidirectional distance regarding IPR protection influence MNEs’ choice of entry mode? Using a quantitative research design, two dependent variables are examined in this study: FDI inflows and entry mode (wholly-owned subsidiaries (WOS) versus joint ventures (JVs)). Using the institutional theory as its theoretical underpinning, this study hypothesizes that IPR distance between home and host countries negatively affects FDI inflows to the host market. It also hypothesizes that IPR distance is positively related to MNEs’ choice of WOS as an entry mode as opposed to JVs. Both hypotheses build on the new notion regarding the directions of institutional distance that MNEs’ strategies and behaviours are divided into positive and negative directions. This consideration of directions of institutional distance differs to that of the general institutional approach, which typically clusters all regulative, normative and cognitive pillars within the institutional distance. However, this research focuses on the single regulative distance of IPR protection. Using the 691 collected observations of FDI flows to China from 2006 to 2012, hypothesis 1 was tested by employing the estimation techniques of panel linear regression. To further assess hypothesis 2, 801 instances of foreign market entry of FDI in China between 2008 and 2012 were analysed by logistic regression. From the panel linear regression model, the empirical results show that the larger the distance of IPR protection between home and host countries, the fewer the flows of FDI that entered into China. Such results are consistent with previous mainstream literature suggesting that greater institutional distance significantly diminishes the MNEs’ intentions to invest (e.g., Du, 2009; Berry et al., 2010). Moreover, logistic regression for hypothesis 2 reveals that IPR distance appears to be significantly and positively associated with the choice of WOS. This means that the tendency of MNEs from countries with a higher distance of IPR protection to enter China’s market by means of WOS (as opposed to JVs) will decrease. This result is in line with previous studies that note that larger institutional distance is associated with a lower level of equity ownership mode, such as JVs over WOS (e.g., Xu et al., 2004; Xu & Shenkar, 2002; Estrin et al., 2009). The greatest takeaway from this study is that it advances knowledge about the impact of the directions of IPR distance and provides new opinions on the debate around the asymmetric effect of institutional distance on internationalization decisions. This study also offers practical implications for both firm managers and public policy makers.</p>

Whereas conventional wisdom holds that multinational enterprises (MNEs) invest less in host countries that pose greater policy risk—the risk that a government will opportunistically alter policies to expropriate an investing firm's profits or assets—we argue that MNEs vary in their response to host‐country policy risk as a result of differences in organizational capabilities for assessing such risk and managing the policy‐making process. We hypothesize that firms from home countries characterized by weaker institutional constraints on policy makers or greater redistributive pressures associated with political rent seeking will be less sensitive to host‐country policy risk in their international expansion strategies. Moreover, firms from home countries characterized by sufficiently weak institutional constraints or sufficiently strong redistributive pressures will seek out riskier host countries for their international investments to leverage their political capabilities, which permit them to attain and defend attractive positions or industry structures. We find support for our hypotheses in a statistical analysis of the foreign direct investment location choices of MNEs in the electric power generation industry during the period 1990–1999, the industry's first decade of internationalization. Copyright © 2010 John Wiley & Sons, Ltd.

This study aims to examine how public investment in renewable energy research and development (R&D) interacts with geopolitical risks and economic uncertainty, particularly within the transportation subsector, by identifying the extent to which these global factors influence government decisions, fiscal priorities, and technological innovation in renewable energy policy. A systematic literature review (SLR) was conducted following the PRISMA protocol, with data gathered from Scopus, Web of Science, ScienceDirect, Emerald Insight, and IEEE Xplore, focusing on peer-reviewed publications from 2010–2025, where twenty-five qualified studies were synthesized through qualitative content and thematic analysis to extract patterns linking public R&D investment, geopolitical risk, and economic volatility. The review reveals that public investment in renewable energy R&D serves as both a stabilizing and strategic instrument under conditions of global uncertainty, as geopolitical tensions and economic fluctuations initially constrain but ultimately stimulate government-led innovation to enhance energy independence, while technological innovation—particularly in electric mobility, hydrogen fuels, and smart grids—emerges as the key mechanism translating public funding into environmental and socio-economic benefits. Conclusion: Sustained public R&D investment, supported by fiscal capacity, institutional coherence, and policy alignment, is crucial for achieving long-term renewable energy transition in the transportation sector. Limitations: The review is limited to qualitative synthesis and secondary sources, which may reduce generalizability to emerging economies such as Indonesia. Contribution: This study contributes an integrated understanding of how public R&D investment operates as both an economic and strategic policy tool for resilience and sustainability under geopolitical and fiscal uncertainty.

Prior international business research recognizes that networks can affect internationalization decisions, yet our understanding of how networks in the host country do so, especially with respect to establishment mode choices between greenfield and acquisition, remains nascent. Host-country networks become particularly salient after initial entry as the multinational enterprise (MNE) more directly engages with local actors and develops embeddedness in the host country. We draw from network theory to argue that establishment modes of post-entry foreign direct investments into a host country are shaped by the MNE’s position within local alliance networks. We posit that local network centrality increases the likelihood of choosing greenfield because it provides access to broad knowledge flows and higher social status that reduce the MNE’s need to pursue acquisitions of local firms. Conversely, local network brokerage increases opportunities for knowledge recombination, making greenfield a less likely choice vis-a-vis acquisition. Using data on automotive MNEs entering the U.S. over 22 years, we find support for our predictions. Demonstrating that distinct aspects of the MNE’s local network alliance position can operate in different ways to effectuate establishment mode choices, this study advances a more nuanced understanding of how networks shape internationalization into a host country.

Multinational enterprises (MNEs) venturing into emerging economies operate in relatively unfamiliar environments that, compared with their home countries, often display a high degree of administrative distance (i.e., differences in social rules, regulations, and governmental control and enforcement mechanisms). At the same time, many MNEs face the question of how intensely to commit to corporate social responsibility (CSR) in emerging economies, given the often relatively lower social standards in those countries. This research addresses the question of how administrative distance, MNE subsidiary size, and experience in the host country relate to the extent to which MNEs strategically commit to CSR in their emerging economy subsidiaries. We argue that the greater the administrative distance between MNEs’ home and host countries, the lesser the MNE subsidiaries strategically commit to CSR. At the same time, we predict that the larger the size of MNE subsidiaries (as a proxy for local subsidiaries’ available resources), and the longer their experience in the host country, the more the MNE subsidiaries strategically commit to CSR. To test our hypotheses, we use data from a large-scale, cross-industry survey of 213 subsidiaries of Western MNEs in Asia, Eastern Europe, and Latin America. We complement the survey data with country-level data from the World Bank Governance Indicators.

This study examines the determinants of the sales of .U.S. multinational firms' affiliates to alternative destinations, including sales to other affiliate firms in a host country and a source country markets as well as sales to other non-affiliate persons in each market. Sample host countries are drawn from developing economies where U.S. multinational firms had affiliate firms during the period 1983–1998. The results of the study reveal that affiliates of multinational firms manipulate sales to minimize international taxation. This is supported by the finding that foreign corporate income taxes: affect sales between affiliate firms favorably, unlike its impacts on sales of affiliates to non-affiliate persons in both a host country and source country markets. Considering all markets together, economic volatility and political instability have minimal impacts on sales of affiliates to other affiliate firms compared to their impacts on sales to non-affiliate persons. The results also confirm that host countries' economic policy reforms and membership in multinational investment guarantee agencies facilitate sales of affiliates to other affiliate firms.

Managing the Embedded Multinational: A Business Network View, Mats Forsgren, Ulf Holm, Jan Johansson, Edward Elgar, Cheltenham, 2005

This study examines the impact of geopolitical risk on bilateral trade flows of China with its major trading partners. It is generally perceived that geopolitical risk exerts a negative impact on bilateral trade flows. Especially, this paper pays particular attention to the moderating effect of the Belt and Road Initiative (BRI) for the negative association between geopolitical risk and economic relationship. In this regard, monthly bilateral flows of China with major BRI and non-BRI economies, respectively, are analysed for the period of 2001–2022. The results indicate that bilateral trade flows of China are negatively associated with the level of geopolitical risk for the whole period. However, there is distinction between the BRI and non-BRI economies during the post-BRI period (2014–2022). While the negative relationship generally holds for non-BRI economies, Chinese economic tie with BRI members rather gets closer in the rise of geopolitical risk. The findings in this study offer empirical evidence on the relationship between geopolitical risk and bilateral trade flows as well as the moderating effect of economic cooperation in uncertain times.

An important element of technology globalization is the rise of technology-based entrepreneurs in China, India, Mexico and other emerging economies. Increasingly, these techno-entrepreneurs are strategically important as part of the innovation value chain of multinational enterprises (MNEs). Some of these linkages began as MNEs sought to cut costs by outsourcing activities to offshore firms. More recently, however, MNEs are globally dispersing more and more of their engineering work, and increasingly the MNEs are having emerging economy techno-entrepreneurs do much of their higher-level engineering and technology development work.This has major potential consequences for the MNEs, their home countries, their host countries, and the on-going development of global technology value chains. Before assessing these potential consequences, however, we need a much clearer understanding of how these local entrepreneurial firms fit into the strategies of the MNEs and of the processes by which the entrepreneurial firms come into being and develop as key parts of global technology creation chains. We need to understand better the role the new entrepreneurial firms are playing in the development of technologies that the MNEs use to serve customers not just in the emerging economies, but around the world.The specific organizational form of Techno-entrepreneurship, the inter-firm linkages, the growth trajectories as well as the implications for national policies have been under conceptualized in the existing literature. Technology entrepreneurship that is linked to MNEs is, we hypothesize, different from the general category of entrepreneurship. Further, we consider the extent to which linkages with offshore techno-entrepreneurs are complements to, and the extent to which they are substitutes for, MNE linkages with techno-entrepreneurs in their home country. The implications for MNEs and national competitiveness are also examined.Based on field work carried out in the U.S., EU, Japan, China, India, and Mexico by the authors and their collaborators from these countries, this paper presents brief case descriptions of the processes by which technology entrepreneurs from the emerging economies are becoming part of worldwide technology value chains.

Although international business studies have examined the role of non-market factors in multinational enterprises’ (MNEs) foreign ownership, there is a limited focus on the role of host country human rights records on MNEs’ ownership decisions. Further, there is little understanding of the differences in ownership decisions between the developed country multinational enterprises (DMNEs) and emerging-market multinational enterprises (EMNEs) as influenced by the non-market context of their host countries. This study, therefore, explores the links between the host country’s human rights governance and MNEs’ ownership strategy in cross-border acquisitions. We argue that clarity in human rights governance in the host country will encourage MNEs to establish higher stakes in local targets and that this relationship will be stronger for DMNEs than for EMNEs. Our findings, which support these hypotheses, offer insights into the relationship between MNE investment strategy and human rights governance, and inform the debate on the differences between internationalization strategies of EMNEs and DMNEs.

The paper investigates the effect of geopolitical risks in the Russian Federation on foreign direct investment (FDI) from antagonizing countries in light of the Ukrainian crisis. Using the Geopolitical Risk Index (GPR), the empirical analysis works on panel data on inward FDI from 90 countries from 2007 to 2020. The estimation method of RWLS concluded that rising GPR deters flows and stocks of FDI coming from antagonizing countries, which confirms that interstate relations and geopolitical factors impact the location decision of transnational corporations. On a sectoral level, we found a negative effect in the secondary and tertiary sectors, with a greater effect in the secondary one, which indicates that vertical FDI is more sensitive to geopolitical risks than horizontal ones. However, the impact of GPR on inward FDI in the primary sector is positive, which indicates that antagonizing countries seek to control energy and mining sectors in the Russian federation during geopolitical tension.