De-globalization and Decoupling: Game Changing Consequences?

Abstract

1. What are the most salient contextual forces driving the trend toward de-globalization and global decoupling (e.g., geopolitical conflicts, GVCs or global supply chains, reshoring and relocation of manufacturing hubs, software development, electronic payment, platformization, and ecosystems)? 2. How can multinational enterprises (MNEs) headquartered in liberal democracies or state capitalist systems best adapt and respond to these emerging dynamics?

The New Liability of Origin in Global Decoupling

“…In two recent editorials (Witt, 2019; Witt, Li, Välikangas, & Lewin, 2021), possible responses of Chinese MNEs to the decoupling of China and the West have been explored. Chinese outward foreign direct investment (FDI) in Western countries, especially that for acquiring critical technologies or strategic assets based on a springboard strategy, is likely to be deterred (Witt, 2019).…”

“…New organizational forms may emerge among Chinese MNEs continuing to operate in Western countries. Witt et al (2021: 8) outline two potential and seemingly contrasting organizational arrangements of MNEs in response, one featuring decentralization and localization, the other involving ‘stronger internalization of organizational activities’. Chinese MNEs may also engage with concealment strategies in hostile host countries through novel forms of ownership, such as compartmentalized business groups (Witt, 2019).…”

“…These preliminary findings suggest that the new LOR may have prompted some Chinese companies in Australia to adopt concealment tactics combined with tightened management control. This seems to be a hybrid approach drawing on both localization and internalization strategies as suggested by Witt et al (2021). The downplaying of connections with China may improve the image of companies as ‘local’ firms.…”

“…The appointment of more Chinese nationals in senior management positions may be designed to mitigate increased transaction costs associated with the new LOR. These measures are incremental; they require adjustments only within existing structures (Witt, et al 2021). Their effectiveness is yet to be determined.…”

An Outcome of Decoupling and De-globalization? The Weakened Impact of Internationalization on Innovation of Chinese Firms Since 2016

“…In contrast, Chinese OFDI has actually accelerated in the same period, indicating the continuous global expansion of Chinese enterprises against de-globalization, at least in its early years. The inauguration of the Trump administration in 2017, however, symbolized the start of an era when the notion of decoupling between the US and China was written into actual policies in the US (Hu, Tian, Wu, & Yang, 2021), followed by other countries such as India (Li, Lewin, Witt, & Välikangas, 2021) and possibly Western-style democracies more broadly (Witt, Li, Välikangas, & Lewin, 2021). Coincidently, Chinese OFDI dropped sharply after 2016.…”