How do multinational enterprises respond to geopolitics? A review and research agenda

Abstract

International business research emphasizes the importance of geopolitics to multinational enterprise (MNE) strategic decision‐making. Yet, insights and evidence are dispersed across levels of analysis and disciplinary perspectives, making it difficult to determine how exactly MNEs respond to geopolitics. Leveraging a sample of 97 papers from journals in strategy, international business and management, we clarify the impact of geopolitics on home and host country relations and the interplay with MNE strategic decision‐making. In advancing existing knowledge boundaries, we make sense of MNE responses to geopolitically induced uncertainty by accounting for MNEs’ heterogeneous political capabilities and investment real options. We show that when MNEs have strong political capabilities, they often opt for a shaping engagement response to influence home–host country relations. However, weak political capabilities limit investments with flexible real options and restrict investments with committed real options, leading to adaptive engagement, non‐engagement and exit responses. Finally, we outline an agenda for future studies on the topic.