Journal of International Business Studies (2019) 50, 1487–1512

ª 2019 The Author(s) All rights reserved 0047-2506/19

www.jibs.net

PERSPECTIVE

The structural reshaping of globalization:

Implications for strategic sectors, profiting
from innovation, and the multinational
enterprise

Olga Petricevic1 and Abstract

The rapid reshaping of the global economic order requires fundamental shifts in
David J Teece2 international business scholarship and management practice. New forms of
1
protectionist policies, new types of internationalization motives, and new tools
Strategy and Global Management Area and
of techno-nationalism may lead to what we call ‘‘bifurcated governance’’ at the
Entrepreneurship and Innovation Area, Haskayne
School of Business, University of Calgary, Calgary,
macro-level and ‘‘value chain decoupling’’ at the micro-level. As a result,
AB T2N 1N4, Canada; 2 Institute for Business innovation networks will require novel reconfigurations. We examine the
Innovation, Haas School of Business, University of emerging constraints on multinational enterprises, imposed by a bifurcated
California, Berkeley, Berkeley, CA 94720-1930, world order. We also discuss how the dynamic capabilities framework can guide
USA scholars and managers alike to achieve new forms of evolutionary fitness.
Journal of International Business Studies (2019) 50, 1487–1512.
Correspondence:
https://doi.org/10.1057/s41267-019-00269-x
O Petricevic, Strategy and Global
Management Area and Entrepreneurship
and Innovation Area, Haskayne School of Keywords: shaping globalization trajectories; MNE–host country relations; profiting
Business, University of Calgary, Calgary, from innovation; dynamic capabilities
AB T2N 1N4, Canada
e-mail: [email protected]
The online version of this article is available Open Access

INTRODUCTION
The global economic system created in the post-World War II (WWII)
era is now being disrupted and undergoing significant structural
reshaping. While in need of improvement, the post-WWII system led
to an extended epoch of peace and an unprecedented rise in
prosperity. It lifted up, albeit unevenly, the welfare of much of the
world’s population as it encouraged enterprise formation and
growth, brought investment, and, importantly, transferred
advanced technology to many parts of the world. At the micro-level,
the transfer of managerial best practices in a variety of functional
areas, and in overall firm-level governance, may well have been the
greatest contribution of the post-WWII system—in a downward
Received: 14 January 2019 cascading motion—to the functioning of the world economy, and it
Revised: 15 August 2019 was brought about by multinational enterprise (MNE) investment
Accepted: 16 August 2019 and capability transfers (Dunning, 1958; Verbeke, Coeurderoy &
Online publication date: 28 October 2019
 The structural reshaping of globalization Olga Petricevic and David J Teece
1488

Matt, 2018). The unimpeded flow of best practice Hannigan, Mudambi, & Song, 2016) were natural
through micro-level governance transfers in turn corollaries of this liberal system.
contributed much to macro-level governance Notwithstanding this perspective, the IB schol-
improvements (e.g., in the realm of portable, arly community has been cognizant of long-stand-
accounting transparency, and disclosure standards) ing institutional and structural differences
in an upward cascading motion. throughout the global economy. In the 1950s,
However, some are now suggesting that we have 1960s, and 1970s, scholars and practitioners alike
entered a period of ‘de-globalization’ (Livesay, 2018) were quite aware of political and governance
undergirded by a technological ‘cold war’ (Ash, 2018; differences, and made a very strong distinction
Kaplan, 2019). These developments are signifi- between the state-planned (communist) and free-
cantly impacting the tapestry of the international market (capitalist)-based economies (e.g., Vernon &
business (IB) landscape. They are requiring novel Wells, 1986: 2). During this time, ‘‘[t]he idea of
MNE strategies and novel approaches for theorizing complex, cross-border configurations and the MNE
about MNEs, and IB more generally. The ongoing as an integral part of the socio-economic milieu
reshaping at the macro-level has prompted some to with a variety of dispersed activities was more
suggest that MNEs will likely become ‘‘a passing science fiction than fact’’ (Cuervo-Cazurra & Nar-
episode in business history’’ (The Economist, 2017: ula, 2015: 6).
22). While this may be interpreted as hyperbole, it Even with the end of the Cold War and the
is a symptomatic manifestation of a larger phe- establishment of the World Trade Organization
nomenon unfolding. As the world economy’s (WTO) in 1995, some IB scholars continued to
globalization trajectory becomes increasingly emphasize heterogeneity among market-based
uncertain, MNEs face pressures to re-examine their economies leading to useful distinctions amongst
own ‘global’ value chains (GVCs), re-evaluate their ‘varieties of capitalism’ (VoC) (e.g., Jackson & Deeg,
cross-border investments strategies, re-assess their 2008, 2019; Judge, Fainschmidt, & Lee Brown III,
innovation and technology flows, and re-consider 2014; Mariotti & Marzano, 2019). The VoC
their strategic partnerships from a new perspective. approach implies that institutional features and
Until recently, a popular (albeit flawed) view was complementarities along a particular spectrum
that cross-border activities had become so common either promote or constrain (and certainly affect
and growing so significantly that the world was the form of) MNEs’ strategies, governance, innova-
becoming ‘flat’ (Friedman, 2005; Rugman & Oh, tion, and dispersion of value chain activities. While
2008). As the process of increasing cross-border Amsden (2001: 2) noted that ‘‘[t]he rise of ‘the rest’
integration accelerated during the 1990s, it high- was one of the phenomenal changes in the last half
lighted the potential for ‘diminished national of the 20th century,’’ she explained this phe-
autonomy’ in the presence of growing techno- nomenon by suggesting that those countries1
globalism (Ostry & Nelson, 1995). It supposedly ascended ‘‘by devising an unorthodox, original
also created conditions for the emergence of meta- economic model’’ (Amsden, 2001: 8) that could
MNEs (Lessard, Teece, & Leih, 2016), neo-global not be easily accommodated using existing classi-
corporations (Mees-Buss, Welch, & Westney, 2019), fications. This led to several attempts to classify
and the view that the MNE could be a meta- ‘Asian varieties of capitalism’ in general (Storz,
integrator of knowledge and activities across mul- Amable, Casper, & Lechevalier, 2013) and to
tiple internal and external boundaries (Narula, understand better the opaque features of China’s
2017). This view assumed the continuation of an model of ‘state capitalism’ in particular (Hu, Cui, &
open or ‘liberal’ world economic order with low or Aulakh, 2019; Naughton & Tsai, 2015).
no tariffs and investment controls, and respect for Others suggested that the vexing challenges of
the rule-of-law in governance arrangements (Witt, interdependencies and reciprocities in the global
2019). Cooperation, mutual interdependence, and system could be better accommodated by the ‘core-
openness were hallmarks of the global system. periphery’2 classification of the world economic
Much of the scholarly work in IB has been built order (Benito & Narula, 2007). Specifically, Benito
on these assumptions. Open innovation (Ches- and Narula (2007: 3) noted that ‘‘membership of
brough, Vanhaverbeke, & West, 2006), cooperative the core (and of the periphery) changes over time’’
strategies (Beamish & Lupton, 2016), global value and that ‘core-periphery’ should be treated as a
chain orchestration (Gereffi, 2018), and global continuum facing a constant state of flux. All of the
markets for know-how (Cano-Kollmann, Cantwell, above perspectives are consistent with Ghemawat’s

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 The structural reshaping of globalization Olga Petricevic and David J Teece
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(2003) view that the world has only ever been semi- volatility, the proliferation of uncertainty, the rise of
globalized and that nation states continue to play a complexity and intensification of ambiguity (i.e.,
critical role in shaping and re-shaping the compet- VUCA conditions) that characterize the new IB
itive IB landscape. However, one weakness of the environment (van Tulder, Verbeke & Jankowska,
above frameworks and classifications is that they 2020). We discuss the differential impact on ‘strate-
rely on path dependencies in extant institutional gic’ sectors that are at the core of developing new
structures that cannot easily accommodate radical general-purpose and enabling technologies. Fur-
changes outside of the well-established continuum ther, we examine how amplification of VUCA
they focus on. conditions requires MNEs to develop and deploy
Today, we face a new milieu of structural reshap- DCs (i.e., sensing, seizing, and reconfiguring)
ing of the global economic system. The develop- (Teece, 2007, 2014) in order to continue profiting
ments we observe are challenging the existing from their innovations. We discuss how developing
norms and rules that have guided much of our new types of DCs will require MNEs to consider
scholarly work and have informed practice thus far. explicitly multilateral and multi-stakeholder
As a result, some perceive new ecologies of IB, as engagements, both to achieve evolutionary fitness
well as new classifications and mutations of firms with the new IB environment, and (potentially) to
operating in the new system (Mathews, 2006; help shape the new IB landscape. We conclude the
Narula, 2006). For example, the emergence of new paper by issuing a call for action to the IB scholarly
players on a global stage, such as ‘springboard’ community to be aware of the substance and
MNEs (Luo & Tung, 2018), new types of interna- texture of the issues and to re-assess and enhance
tionalization motives (Cuervo-Cazurra & Narula, its current toolbox for navigating the new IB
2015), and the resurgence of techno-nationalism by realities.
nation states (Cantwell, Dunning, & Lundan, 2010)
are revealing new boundary conditions for our
existing frameworks and classifications (Hernandez RESHAPING GLOBALIZATION: THE RISE OF
& Guillén, 2018; Witt, 2019). We will focus, in this A BIFURCATED WORLD ORDER
perspective article, on what we consider the single, Many anticipated greater convergence of norms
most critical driver of radical change in the global and values amongst nation states as globalization
economic order. Specifically, our main research ques- advanced. That expectation is no longer viable, and
tion is how one powerful force at the macro-level, divergence among nation states, as to how the
namely (neo) techno-nationalism, has been able to world economy should be shaped, is increasingly
rapidly reshape the structure of the global economic evident (Lundan, 2018; Ozawa, 2019; Witt, 2019).
order, and create cascading effects, requiring new Scholars, executives and government officials alike,
responses from rule-of-law countries and a rethinking have been slow to realize the impact of these new,
by MNEs on how to develop and deploy their diverging prescriptions on how the world economy
dynamic capabilities (DCs)? should be reshaped. At the micro-level, the ongoing
We begin this article by reviewing some of the reshaping is fundamentally altering the ability of
‘macro’ changes to the global economic system that MNEs to compete successfully in this new environ-
are both structural and qualitative in nature. They ment. Mainstream thinking on DCs implicitly
are driven by political economy dynamics that assumes positive, non-zero-sum interdependencies
cascade through all membranes of the IB ecosys- among nations’ and firms’ actions, at least as far as
tem. Specifically, we examine the instruments of innovation and novel resource combinations are
(neo) techno-nationalism that are at the root of new concerned (and apart from possible conflicts in the
challenges to the world economy’s globalization realm of well-understood distributional income
trajectory. Neo techno-nationalism is creating a effects and crowding-out impacts that may arise
new, bifurcated world order with some country from MNE activity). This thinking, however, may
regimes building innovation capacity on the basis no longer be valid.
of international intellectual property protection The view of a frictionless, homogeneous, rule-of-
(rule-of-law countries), and other country regimes law3 borderless world and a global, leveled playing
intentionally circumventing such protection and field, despite differences with respect to state
thriving on international technology acquisition involvement, and geographic, cultural, administra-
by any means possible (typically autocratic coun- tive, and economic distances (Friedman, 2005;
tries). We highlight the increased importance of Ghemawat, 2007) is now clearly an illusion. The

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creation and acceptance of WTO rules to guide 2015). Importantly, China is significantly shaping
global commerce, and thus foster globalization, was the ‘globalization of innovation’ trajectory of the
never fully triumphant. Verbeke et al. (2018: 1102) world economy (Kennedy, 2017; Zhou, Lazonick, &
suggest that ‘‘regionalization, as well as localized Sun, 2016). Based on the ‘‘Science and Engineering
clustering in narrow geographic space, is often Indicators 201800 5 issued by the National Science
more relevant than globalization.’’ It is increasingly Foundation (NSF) and National Science Board
apparent that the proposition that globalization (NSB), China has become a technical and scientific
has negated the power of nation states and that superpower, and may have eclipsed the U.S. in
‘‘state authority … seems even to have … just scientific research output in some key fields.
evaporated,’’ (Strange, 1996: 56), is a myth. Some have argued that there have been ongoing
Of course, the IB community was never of the changes in the balance of global powers in the last
view that ‘distance’ had disappeared and that two decades, and that the locus of economic power
national boundaries do not matter. Ghemawat may have shifted to a state where there is a power
(2003: 150) suggested more than 15 years ago: ‘‘it vacuum in which no single country (or constella-
seems unlikely that increases [in cross-border inte- tion of countries) is willing or able to provide global
gration] will any time soon yield a state in which leadership (Bremmer & Roubini, 2011; Casson &
the differences among countries can be ignored.’’ In Associates, 1986). These shifts are especially acute
fact, Verbeke et al. (2018: 1103) point out in their in the technological and innovation spheres
recent JIBS editorial that ‘‘the simple observation (Atkinson & Ezell, 2012).
still remains that most of even the world’s largest While it is beyond the scope of this paper to
firms are incapable of emulating the same level of predict in detail the contours of the new global
home region success … throughout the world, structure that might emerge from the existing
because ‘‘distance’’ does continue to matter.’’ While reshaping of the world economy, it is important
globalization has made geographic distance less to point out that the roles of nation states on the IB
significant, the economic, political, structural, and stage are in the process of not fading but strength-
especially technological, distances and boundaries ening. In short, sovereignty is not held ‘at bay’ by
between and amongst countries and regions are MNEs as Vernon (1971) had concluded almost half
complex and continue to persist (e.g., Filippaios, a century ago. Rather, the MNEs are held ‘at bay’ by
Annan-Diab, Theodoraki, & Hermidas, 2019; Jack- strategic interventions of nation states, coupled
son & Deeg, 2019; Peterson, Søndergaard, & Kara, with a decline in the rule-of-law and in what
2018). This is increasingly requiring development Jannace and Tiffany (2019) call a corresponding
and deployment of MNE capabilities that are advance in the ‘rule of rulers.’ We see the possibility
context-specific. of a ‘bifurcated world’ arising with an increase in
Not only are national boundaries still important, conscious decoupling of firms’ and nations’ objec-
the national identity of firms still matters. ‘Dragon’ tives as well as economic and innovation trajecto-
MNEs4 (Mathews, 2017) as well as ‘springboard’ ries. In this bifurcated world, the rule-of-law reflects
MNEs (Luo & Tung, 2018) are growing both in size a default predisposition toward transparent, arm’s
and importance on the global economic stage by length relationships between firms and their home-
developing and deploying non-traditional firm- country governments, even if political preferences
specific advantages (FSAs), including DCs (i.e., FSAs may be expressed in favor of domestically owned
reflecting more than extant resource bundles, to and controlled companies, domestic employment,
include the continuous and systemic recombining domestic value creation, domestic taxation income,
of these with new resources) that in turn enable and domestic firms voicing allegiance to their
them to better leverage their country-specific home base. In contrast, in autocratic regimes where
advantages (CSAs) during internationalization the rule-of-rulers prevails, the default predisposi-
(Bhaumik, Driffield, & Zhou, 2016). Indian, Brazil- tion is one of systematically discriminating against
ian, and Chinese companies are rapidly building up foreign firms, and championing domestic incum-
innovation capabilities and transitioning at bents. In a recent commentary, Ozawa calls for
unprecedented speed from a production-focus to research efforts in understanding how MNEs
an innovation-focus (Altenburg, Schmitz, & should re-adapt to the sudden changes in gover-
Stamm, 2008; Lema, Quadros, & Schmitz, 2015), nance of the global system, as ‘‘ecosystem gover-
altering our views of traditional innovation clusters nance has recently turned into an
and trajectories (Asheim & Coenen, 2005; Engel, unpredictable variable from a reliable constant for

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 The structural reshaping of globalization Olga Petricevic and David J Teece
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business decision making’’ (2019: 191, emphasis in Such activities are especially pronounced in those
original). sectors where technological prowess is considered
‘strategic.’ At unprecedented speed and scale
The Erosion of the Global Rule-of-Law Economic (Lewin, Kennedy, & Murmann, 2016), China has
Governance been upgrading its technological capabilities
Most concerning in the above-illustrated develop- through a variety of corporate governance and
ments is the noticeable defiance of the principles of investment policy experiments with the explicit
classical economic liberalism6 and the rule-of-law. goal of joining the ranks of top ‘innovation
For example, Russian President Vladimir Putin, in nations’ (Zhou et al., 2016). It is worth noting that
an interview with the Financial Times, declared that China has effectively created a new form of market
liberalism has ‘‘outlived its purpose’’ (Barber, Foy, & capitalism and adopted a panoply of explicit pro-
Barker, 2019). With respect to China, some argue business policies (Coase & Wang, 2012), some of
that ‘‘China’s system of governance treats law as an which have been highly effective. However, Chi-
instrument of the state,’’ and that ‘‘[t]he rule of law na’s policies also continue to enable the non-
as it is understood in the West … has simply failed respect of IPRs coupled with asymmetric regula-
to materialize … since China joined the WTO’’ tions for many foreign investors in China (Brander,
(Jannace & Tiffany, 2019: 1393). In the recent Cui, & Vertinsky, 2017; Pagnattaro, 2012).
World Justice Project 2019 report that measures the Even after joining the WTO, and despite recent
Rule of Law Index7 for 126 countries worldwide, changes China has made to the judicial enforce-
China is ranked 82nd (which is its lowest (worst) ment of IPRs (Prud’homme, 2019), the Chinese
ranking thus far). government continues to support the acquisition of
Given the importance we place conceptually on technology from abroad, either by purchase or by
the rule-of-law, we need to make clear that we are non-market means (Brander et al., 2017; Pillsbury,
not talking about any system of law. We are 2015; Wei & Davis, 2018). It has been suggested
referring to a system in which government deci- that China (and Russia) have been engaging in
sions require applying legal and moral principles in systemic cyber-enabled economic and industrial
a non-discriminatory way. Classical rule-of-law surveillance (Hannas, Mulvenon, & Puglisi, 2013).
prevents the arbitrary use of governmental power This is in addition to China requiring foreign
or misappropriation of intellectual property rights entities to transfer sensitive IPR and technological
(IPRs).8 In contrast, China’s alternative model of know-how through joint venture agreements
governance is deploying coordinated protectionist (Branstetter, 2018; Wernau, 2019), a practice that
trade and investment policies and government had been long studied by IB researchers in the
intervention aimed at accessing and acquiring context of technology-poor nations (Hennart,
foreign intellectual property, thereby influencing 1989). Furthermore, Wong and Dou (2017) have
the global economic and innovation system. argued that China is now affecting more forcefully
In a historical context, the Western approach to the workplace of foreign companies by requiring
the rule-of-law and the protection of IPR is deeply stronger presence and a more active role of Chinese
rooted in an individualist culture that emphasizes Communist Party (CCP) nuclei to monitor techno-
individual success and competition, and in the logical activities, among others.
western European heritage of protecting ownership While some equate China’s present behavior to
of copyrights and patents that goes back to the 14th the 19th-century violations of IPR by the United
and 16th century (Hart & Fazzani, 1997). In con- States (Peng, Ahlstrom, Carraher, & Shi, 2017), the
trast, China’s approach has deep roots both in the most critical voices have argued that the tools
Confucian heritage that knowledge should flow deployed reach further than mere protectionism.
freely (and that does not support the view that an As Jannace and Tiffany (2019: 1394) see it: ‘‘Chi-
individual can generate or own IPR), and in the nese law … is protean in nature and tends to
Legalist tradition ‘‘in which rulers established the conform not to deeply grounded and transparent
law’’ (Bosworth & Yang, 2000: 455). Thus, the law principles but rather to the exigencies of the
in China ‘‘is used to facilitate government indus- moment as understood and interpreted by the
trial policy goals and secure discrete economic CCP.’’ With respect to business conduct, some have
outcomes that might not otherwise emerge even raised the question as to whether coercion is
through purely market-driven transactions’’ (Jan- now a norm for Chinese economic statecraft
nace & Tiffany, 2019: 1393). (Feigenbaum, 2017). Of course, the realism school

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 The structural reshaping of globalization Olga Petricevic and David J Teece
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of thought suggests that exerting coercive power is … establishing its own political, economic, and
how hegemonic status is gained (and maintained), social model’’ (BDI, 2019b). The U.S. intelligence
perhaps irrespective of the hegemon involved agencies recently issued the warning that ‘‘China’s
(Witt, 2019). For example, Rugman and Verbeke economic aggression now threatens … the global
(1989) observed 30 years ago that various forces in economy as a whole’’ (White House Office of Trade
the United States were strongly advocating in favor and Manufacturing Policy, 2018: 1). Few scholars
of strategic trade policies, even though this coun- have joined the call to study these developments
try’s administrative heritage would have made more seriously as academic subject matter (e.g.,
effective implementation of such policies highly Ozawa, 2019; Witt, 2019).
unlikely. It could be argued that at present: ‘‘having The main reason for the lack of coordinated
formerly been a rule-taker, China is increasingly action to study (or respond to) these developments
becoming a rule-maker, or at least a rule-shaper’’ of is perhaps that not everyone agrees an erosion of
the new global order (De Graaff & Van Apeldoorn, the global governance system is occurring. It could
2018: 118, italics in the original), but its policy reasonably be argued that the One Belt-One Road
intent is going far beyond conventional strategic initiative (see infra), the establishment of the Asian
policy intervention. Here, we observe the begin- Infrastructure Investment Bank (AIIB) in 2016 to
ning of what some refer to as a ‘new cold war’ support economic and social outcomes in Asia,
(Kaplan, 2019) between the United States and China’s aggressive investment strategy in Africa,
China. Some have gone even further, suggesting and state-backed and government-imposed con-
that ‘‘the defining question about global order is trols and mechanisms are in fact China’s way of
whether China and the US can escape Thucydides’s ‘shaping the rules’ by creating parallel institutions
Trap’’9 (Allison, 2017: xvii). to the existing ones.10 In fact, many individuals
China’s rapid growth, its hybrid economic struc- and nations seem to welcome the new global
ture, and its arguably opportunistic approach to realities and changing posture of international
norms and rules that guide international com- commerce and influence. For example, Etzioni
merce, have created both tensions among existing highlighted 15 years ago that:
power constellations and revealed an alternative Both the end-of-history and the clash-of-civilizations argu-
model. The model that China has developed may ments approach the non-Western parts of the world as if
not be fully replicable, but it does offer an alterna- they have little, if anything, to offer to the conception of a
tive lens on how to spur growth in developing good society—at least to its political and economic design—
or to the evolving new global architecture (Etzioni, 2004:
nations (especially those of the autocratic type),
26).
and perhaps offers a credible path towards becom-
ing a hegemon. Amsden (2001: 292) argues that This sentiment is echoed by Kaplinsky (2013) who
developing countries have ‘‘the advantage of being has suggested that China’s growing presence in
able to choose among ‘the rest’ for a mentor.’’ In sub-Saharan Africa can facilitate Africa’s transition
fact, many agree that the Washington Consensus to a more sustainable and more inclusive and
model (Williamson, 1993) is ebbing, while the equalized growth path. He attributes this to China’s
model China has developed is advancing (McKin- role in becoming a source of low-cost consumer
non, 2010). Dirlik (2007: 20) goes even further, and capital goods (appropriate for conditions of
noting that ‘‘[a] century of revolutionary socialist low-income economies) as well as creating new
search for autonomy, bolstered by recent economic market opportunities and GVCs for small-scale
success, qualifies the P.R.C. eminently to provide producers in those economies. The recent work by
leadership in the formation of an alternative global Herrero and Xu (2019) examined media sources to
order.’’ By examining China’s influence in Africa, assess public perceptions of China’s Belt and Road
McKinnon (2010) concluded that developing coun- initiative in different countries and regions around
tries are more likely to emulate China’s economic the world, and found that Central Asia and sub-
regime than follow the Washington Consensus. Saharan Africa exhibit very positive coverage and
The reaction of the IB scholarly community and attitudes towards this initiative. Furthermore,
policy makers is barely perceptible at present, with China enjoys the support of much of Southern
some exceptions. For example, the President of the Africa in many international forums (Taylor, 2007).
Federation of German Industries, Dieter Kempf, has The findings of the 2014/2015 survey by
called for novel responses by the European Union AfroBarometer11 confirm China’s important
(EU) and Germany due to ‘‘[t]he People’s Republic

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economic and political role in Africa and generally observe that the profit margins of many MNEs
portray its influence as beneficial. outside their home (core) markets are eroding (The
Despite, and perhaps because of, differing per- Economist, 2017) and that global trade and foreign
ceptions of China’s new role in shaping the world direct investment (FDI) levels exhibit pronounced
economy, it is of utmost importance for IB scholars downward trends (Witt, 2019). At the same time,
and practitioners to understand the implications of China is emerging as the major source of outward
China’s ability to not only move from the ‘periph- FDI flows among the countries from the emerging
ery’ to the ‘core,’ but to disrupt the existing norms, markets (or periphery) to such an extent that it has
values and the commonly understood rule-of-law. significantly narrowed the gap between the inward
This reshaping will alter the structure of the global and outward FDI flows (OECD, 2017).
economic system along the lines of China’s own Narula and Dunning (2000) specify two main
economic model and its own ‘rules of the game,’ categories of FDI motives for MNEs: (1) asset-
and may pave the way for other peripheral exploiting, which includes pursuit of natural
economies to emulate China’s behavior (or even resources and new markets, and restructuring of
invent their own models or path to hegemony). In existing foreign production, and (2) asset-augment-
our view, this presents one of the ‘‘grand chal- ing, which is primarily centered on seeking new
lenges’’ (Buckley, Doh, & Benischke, 2017) that strategic assets, whether for new knowledge, tech-
future IB scholarship should address. nological, or managerial capabilities (Meyer, 2015).
Indeed, China may not be the only country For example, Buckley, Munjal, Enderwick and
involved in reshaping of the future global land- Forsans (2016: 994) found that Indian MNEs aug-
scape. In 2014, India also launched its own ‘Make ment their marketing and technological capabili-
in India’12 plan that is part of larger nation- ties by acquiring companies abroad, and support
building initiative and is targeting 25 sectors of the view that some firms ‘‘develop bundling skills at
the economy with the goal of transforming India home that can enable them to exploit foreign-
into a global hub for manufacturing and design. In located assets by internalization and cooperation.’’
addition, Ozawa (2019: 190) has noted that ‘‘the However, China’s unique combination of market
progressive, multilateralism-ruled global ecosystem size and accelerated growth, particular emphasis on
has brought about harm to its parts unevenly, tapping into advanced innovation and technology
especially the working class of the advanced world development through outward FDI activities, and
in general and of the United States in particular.’’ the distinctive government’s role in systematically
Negative distributional effects in the country that drawing upon its bargaining power to support
has benefited most from the existing world eco- technological upgrading, depart from traditional
nomic order, are now giving rise to ‘‘America First’’ theoretical frameworks and empirical findings on
anti-globalism, protectionist policy by the current FDI motivations and the internationalization pro-
United States administration, adding additional cess more generally. China’s FDI policies provide
concerns about the future landscape of IB (Meyer, the platform that facilitates Chinese firms’ interna-
2017). tional expansion trajectories (Wei, Clegg, & Ma,
2015) with the goal of capturing the fruits of
New Forms of Strategic Trade and Investment innovation and knowledge from foreign entities to
The global financial crisis of 2007–2008 represented serve nation-state objectives. The pursuit of nation-
a profound climacteric, and has been a catalyst for state objectives is especially pronounced in the case
the erosion of the prevailing rule-based system of of state-owned enterprise (SOEs) that China is
international commerce. It encouraged the increas- increasingly mobilizing in its quest of technological
ing ‘‘pressure exercised by the Periphery on the upgrading (Du & Zhang, 2018; Feng, 2019).
Center’’ (Mathews, 2006: 6), challenging the role of China’s systematic and coordinated actions
institutions13 that have underpinned the global towards technological dominance are particularly
commerce system thus far and the competitive noticeable with the announcement of One Belt-One
advantage of companies that have relied on these Road14 (also known as Belt and Road, or OBOR)
institutions to support their modus operandi. It also initiative in 2013, followed by a launch of the Made
revealed some weaknesses of deploying traditionally in China 2025 (MIC 2025) plan in May 2015, and its
conceptualized FSAs and DCs within environments associated, state-led techno-nationalist15 industrial
that operate based on different sets of rules and policy that focuses on ‘winning at all costs’ to
unorthodox economic models. As a result, we facilitate China’s rise and dominance in key

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technological domains and enable its self-suffi- of the global ecosystem’s governance (Ozawa,
ciency.16 Relatedly, China’s Thousand Talents Plan17 2019) is a manifestation of this uncertainty.18
was designed to recruit global scientists and garner Complexity is different from instability (volatility)
the United States expertise in technology and and unpredictability (uncertainty), and also results
innovation, including military technology. in part from interdependencies due to multifaceted
The rise of China and the pressure China is webs of relations woven in the IB environment that
exerting should not be dismissed as déjà vu or are both vexing and hard to navigate. For example,
equated with the previous paths of Japan, Korea, the MNEs’ integration into both regional and
Singapore, or Taiwan. Of course, one can argue that global value chains (GVCs), which may now be
even the United States in the 19th century and moving towards decoupling (Rapoza, 2019), is an
Britain in the 17th century used predatory indus- example of this augmented complexity. In ambigu-
trial policies (Chang, 2002). In earlier times, Korea, ous environments with integrated complex link-
Taiwan, Singapore, and even Japan were playing by ages, cause and effect are not well understood. The
mercantilist rules too, thereby favoring domestic possible outcomes from the ongoing reshaping of
players and protecting infant industries. Yet, the the global economic order, and their impacts on
impacts on the global economic system were the cross-border activities and prospects for MNEs
absorbed with manageable disruption, because: (1) to continue to profit from their innovations (Teece,
their economies were relatively small, and (2) these 1986a) are highly ambiguous; so are the new forms
countries were themselves on a path evolving of strategic trade and investment policies that run
towards adopting a more liberal and open, rule-of- counter to the traditional conceptualizations.
law order. Neither condition applies to China, thus For example, the conventional theories of the
requiring IB scholars to think anew about the MNE typically suggest that firms undertaking FDI
future IB landscape and the capabilities that MNEs activities exploit ownership advantages and/or
need to develop for effectively navigating the new proprietary assets (Dunning, 2000; Hymer, 1976;
landscape. The Federation of German Industries Vernon, 1966), or bundles of CSAs and FSAs
has labeled the contemporary Chinese-like (Rugman & Verbeke, 2003) when pursuing expan-
approach to IB as a new form of ‘‘systemic compe- sion strategies in host locations. However, outward
tition,’’ which fuses firms and the state in ways that FDI by MNEs from emerging economies shows that
are uncommon (BDI, 2019a). in some industries, the focus is more often than not
on FSA acquisition (Wang, Hong, Kafouros, &
Wright, 2012), even if initial-stage entrepreneurial
THE ATTENDANT AMPLIFICATION OF ‘‘VUCA’’ capabilities or extensive financial resources may be
CONDITIONS IN IB critical to the success of such acquisitions (whether
Irrespective of one’s view of the role that China is in the form of assets or firms owning these assets).
playing on the global economic stage, or with While examples of FDI interventions are abun-
regards to the nature of the structural reshaping of dant (Krugman & Obstfeld, 2000), Pack and Saggi
the global governance system, it is clear that (2006) argue that policy interventions and subsi-
today’s IB environment is plagued with volatility, dies with respect to FDI are only justified if they
uncertainty, complexity, and ambiguity (VUCA) at create positive externalities. China has exhibited
an unprecedented scale (Bennett & Lemoine, 2014; polymorphism, as to both the nature and the
Schoemaker, Heaton, & Teece, 2018; van Tulder, extent of its reach in promoting the interests of
Verbeke & Jankowska, 2020). Volatile environ- Chinese companies, and by extension its national
ments are characterized by high frequency in change interests, which are resulting in negative external-
and high magnitude of change in the global system. ities for other players and nation states competing
The present reshaping of the world economic order in the global economic landscape (Berry, 2017;
in the form of de-globalization tendencies will have European Commission, 2018a). Given the FDI
a significant impact on the ability of MNEs to policy initiatives in China, Buckley et al. (2018:
adjust their resource portfolios and DCs to the new 14) point to the need for a concerted effort to
IB realities. This is especially significant in the research ‘‘the full extent of the role that the
global technological innovation domains. The ero- Chinese state plays in China’s OFDI, and how this
sion of the rule-of-law, with technological, geopo- might affect the downstream impact of OFDI
litical, and ideological shifts added, are multiplying within the host economy.’’
uncertainties in the environment. Unpredictability

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The ability of foreign MNEs to leverage their economic order, as described in Figure 1, will
traditional FSAs and DCs in such an environment is require new tools and new frameworks. Creating
rapidly diminishing. In some cases, disengagement and capturing value through the use of new
is being used as a possible strategic response. 19 technology lies at the heart of the wealth of nations
and, relatedly, military potential and national
Heightened Volatility, Augmented Uncertainty, security (Rosenberg & Birdzell, 1987). It has long
Increased Complexity, and Intensified Ambiguity been recognized that (efficient) international tech-
The reshaping of the global economic order has nology transfer is the symbol of an open interna-
cascading effects across several systems that are tional business regime, and helps provide the raison
central to the functioning of the MNE. The new IB d’être for the MNE (Teece, 1986b). It is commonly
environmental conditions are characterized by understood that, absent state support, innovators
amplified VUCA. This in turn is causing disruptions need to capture value from their innovations in
at the supra-national, national (both home and order to keep innovating. As Thomas Edison once
host countries), sub-national, and inter-firm/net- put it, the only reason to make a profit, is to be able
work levels (Ozawa, 2019). It also creates cascading to keep innovating (Teece, 2018a), with the goal of
disruptions, rippling through the institutional, sharing in the attendant prosperity.
market, and firm membranes (Lundan, 2018). The In early investigations of national policies for
ability of MNEs to insulate themselves and their technological innovation, development and adop-
technological capabilities under such conditions is tion, Ostry & Nelson (2000) suggested that the
increasingly being limited. world had reached the stage of techno-nationalism,
Figure 1 is a stylized representation of the depen- where states (in those days Japan and the United
dencies between different systems that will be States) wished to have their own enterprises as
impacted by the reshaping of global governance, market leaders in high-technology sectors. In
and that may limit MNEs’ ability to keep innovat- essence, techno-nationalism assumes that nations
ing (and profiting from innovation). are units that innovate, facilitate, and fund R&D
Creating and capturing value from innovation in and cultures of innovation, and that they use and
the presence of cascading effects from systemic diffuse those innovations and technologies to
erosion of the rule-of-law in the prevailing global further national goals (Edgerton, 2007). It further

Figure 1 Cascading impacts of global governance system reshaping.

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implies that ‘‘the things a nation uses derive from European companies coming to China are forced to grant
its own innovations, or at the very least that ownership or usage rights of their technology to domestic
Chinese entities and are deprived of the ability to freely
innovating nations have early leads in the tech- negotiate market-based terms in technology transfer agree-
nologies they innovate’’ (Edgerton, 2007: 8). These ments. This is at odds with the basic rights that companies
assumptions do not hold in a global innovation should be enjoying under the WTO rules and disciplines, in
system, which reflects much more a non-zero-sum particular under the Agreement on Trade-Related Aspects of
situation, where one nation’s wealth increases that Intellectual Property Rights (TRIPS Agreement) (European
Commission, 2018b).
of others. However, China’s approach to capturing
foreign innovations to further hegemonic goals of International economists have recognized in for-
technological leadership is rapidly reintroducing mal models (e.g., Branstetter & Saggi, 2011) that
techno-nationalism, albeit with a new emphasis, as forced technology transfer could cause MNEs to
an initiating set of events, creating first-order alter their investment decisions and slow down
cascading effects, as illustrated in Figure 1. innovation in the global economy, even if such
The implicit assumption of techno-nationalism20 innovation is advanced in one country. The mag-
is that states protect the development of their nitude and the types of strategic trade (protection-
technological capacities. When, however, states ist) policies some countries are using are difficult to
intervene by leveraging the opportunities within justify and are mostly inconsistent with existing
the international economic system (e.g., by dishon- FDI frameworks and theories. In fact, Verbeke et al.
estly acquiring foreign intellectual property), to (2018: 1110) recently issued a warning to the IB
generate disproportionate gains from this system to community, stating that ‘‘national regimes thriving
serve their own economic and security interests, on the ‘‘forced sharing’’ of intellectual property by
this resembles what some call (neo) techno-national- foreign companies in return for market access, may
ism (Shim & Shin, 2016; Suttmeier, Yao, & Tan, well represent the single most important threat to
2004) and innovation mercantilism (Ezell, 2011; further corporate and macro-level globalization.’’
Nager, 2016). China has been developing a system- The effective limitation or even denial of access,
atic and coordinated approach of institutional, or threat of denial of market access to foreign
market, and bargaining strategies to shape its global companies, hardly makes technology transfer activ-
technological leadership (Higgins, 2015), and bring ity of MNEs in China a ‘voluntary undertaking.’
the benefits back home for its domestic players. This strategy was noted by Teece (1986a: 303): ‘‘In
Specifically, China has developed a state-directed regimes of weak appropriability, governments can
approach that leverages national resources and move to shift the distribution of the gains from
regulatory systems to gain access to foreign-devel- innovation away from foreign innovators and
oped technology in key strategic areas. By focusing towards domestic firms by denying innovators
primarily on state-led interventionist policies to ownership of specialized assets.’’ The implication
acquire technology advances that originate in other of weak appropriability regimes, such as those
countries, thereby supporting its national objec- observed in China, is that MNEs must try to
tives, China has moved beyond traditional concep- develop alternative mechanisms (i.e., firm-specific
tualizations of techno-nationalism. value appropriation capabilities) and enhanced DCs
In a recent policy brief, Branstetter (2018: 1) in order to profit from their innovations (Lampert,
suggests that: ‘‘a broad range of experts and market Kim, Hubbard, Roy, & Leckie, 2018; Teece, 1986a).
observers agree that China has repeatedly forced China’s approach emphasizes four distinct steps
foreign multinational corporations (MNCs) to in acquiring foreign technology: Introducing, Digest-
transfer technology to indigenous firms as a condi- ing, Absorbing, and Re-Innovating (IDAR).21 To foster
tion for market access and that China has persis- IDAR objectives, the access to and acquisition of
tently failed to protect the intellectual property of foreign technology for the benefit of Chinese firms
foreign firms doing business in China.’’ Branstetter (and Chinese national objectives) is explicitly
(2018: 1) further claims that the United States’ included.22 For example, the recent report illus-
complaints in this regard are now being joined by trates how technology transfer to Chinese competi-
‘‘traditional European and Asian allies and trading tors has enabled open access to critical knowledge
partners.’’ Support for his proposition comes from assets arising from the United States innovations
the Director-General for Trade of the European (Brown & Singh, 2018). Similarly, van der Putten
Commission, who noted on June 1st, 2018 that: (2017) has examined Chinese FDI in the Nether-
lands and found that the main objective of most

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Chinese FDI (made primarily by SOEs) was not to industry are rarely identified. It is important to
gain access to the Dutch or the EU market. Instead, define some dimensions of ‘strategic’ industries, as
the main goal was to access advanced technology these are particularly vulnerable in the face of the
and established global innovation networks. What ongoing reshaping of the world economic order
makes MIC 2025 a potential turning point in the and resulting VUCA conditions.
reshaping of global governance is that it does not
call for long-term cooperation, but for ‘‘self-suffi- What Are ‘Strategic’ Industries and Why Do They
ciency’’ through technology substitution and glo- Matter?
bal leadership in strategic, high-tech industries. A strategic industry provides social benefits beyond
A European Commission strategic outlook paper on the magnitude of its direct value-added contribu-
EU-China relations has indeed described China as tion. These social benefits include two classes of
an ‘‘economic competitor in pursuit of technolog- externalities—those due to spillovers from innova-
ical leadership, and a systemic rival’’ (European tion and those stemming from locational synergies,
Commission, 2019: 1). suggesting that ‘strategic’ industries can be defined
By playing by a different set of rules, China is according to whether: (1) they are technologically
affecting the viability of the existing global inno- progressive, and (2) they provide infrastructure to
vation ecosystem, requiring that other ecosystem other firms in the same industry or in related
partners change their strategy, i.e., leading to industries (Teece, 1991). These externalities are
second order cascading events as suggested in often regionally concentrated and are not usually
Figure 1. Because of China’s ambitions as a hege- concomitant with the borders of the nation state.
mon, this is not just an economic and business They can also be spread internationally through
issue. It is a national security issue too, as the dense networks of alliances (Engel, 2015). For
United States and the European Union are now example, the semiconductor industry in Califor-
starting to realize. In 2016, China established the nia’s Silicon Valley can be defined as a ‘strategic’
‘military-civilian fusion’ (MCF) fund to support and industry. The recent report suggests that China’s
fund overseas acquisitions and projects deemed key strength in semiconductors is still relatively weak
to national and military interests. The Chinese (compared to the United States) and that China is
People’s Liberation Army (PLA) international still highly dependent on foreign technology in
research collaborations are aimed at accessing what are now deemed foundational technologies
emerging and dual-use technologies. Foreign uni- (Zenglein & Holzmann, 2019). In order to remedy
versities are often (albeit unintentionally) allies in these weaknesses, China is mobilizing a variety of
China’s (neo) techno-nationalist strategies (Joske, novel techno-nationalist tools, which are directed
2018). Specifically, PLA’s activities and the objec- at acquiring foreign innovations and technology.
tives of its overseas research collaborations have This magnifies the appropriability challenges asso-
been described as ‘‘[p]icking flowers in foreign lands ciated with general-purpose technologies (GPTs)
to make honey in China’’ (quoted in Joske, 2018: and enabling technologies that are core pillars of
3). ‘strategic’ industries.

General-Purpose Technologies, Enabling

THE DIFFERENTIAL IMPACT ON STRATEGIC Technologies, and the Appropriability Challenge
AND NON-STRATEGIC INDUSTRIES As elaborated in Teece (2018a: 1369), general-
The reshaping of the world economic order, as purpose technologies (GPTs) ‘‘have economy-wide
described above, relates in particular to the ‘indus- effects, get even better over time, and spawn other
tries of the future’ or ‘strategic industries’ that are innovations because invention in one triggers
identified not just in China’s MIC 2025 plan, but discoveries and creates opportunities elsewhere.’’
also in Germany’s Industry 4.023 plan. In the late For example, lasers or the Internet are considered
20th century, the semiconductor, computer, GPTs. On the other hand, enabling technologies24
biotechnology, and civilian aircraft industries were (e.g., nanotechnology) may not meet all of the
commonly regarded as ‘strategic.’ Today, they are criteria for GPTs, but are often disruptive and can
likely to also include artificial intelligence, not only drive technological change across many
advanced manufacturing, quantum information industries but can also have large societal implica-
science, and 5G. However, in popular discussions tions (Wilson, Kannangara, Smith, Simmons, &
of the topic, the delineating aspects of a strategic Raguse, 2002). The key characteristic of enabling

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technologies and GPTs is that they have large order cascading effects, as they continuously
(positive) spillover effects, rendering profiting from recombine resources and adjust their micro-level
innovation difficult and complex even under open, governance to the exigencies of the first- and
liberal economic system (Teece, 2018a). second-order cascading processes. The notion of
Strategic industries that spawn enabling tech- evolutionary fitness is designed to capture the
nologies and GPTs invite and often require invest- essence of a world order in which the success and
ment incentives and/or subsidies from failure of firms cannot be explained by simple,
government. The key issue with China’s MIC straightforward profit-seeking, whether in the
2025 is therefore not so much that the Chinese short-term or long-term. This is not to say that
government is willing to subsidize and support financial performance does not matter. However,
such industries, but that the size and scope of such the theory of the MNE now requires anchoring in
activities goes far beyond the classical conceptual- framework(s) that recognize the importance of
izations of industry subsidies or protection (Zen- capability development and upgrading, as well as
glein & Holzmann, 2019). MIC 2025 foresees the deployment of capabilities in environments
massive subsidies, incentives, and mandates that where being attuned to the geopolitical process is
require Chinese firms participating in high-tech paramount (Lundan & Li, 2019; Luo, 2000; Teece,
sectors such as green energy, aerospace, pharma- 2014). These new theories and frameworks will also
ceuticals, autos, artificial intelligence, and their need to be cognizant of both capability protection
related and supporting industries, to gain a global (or buffering) and new types of home- and host-
market leadership position. Because ‘strategic’ country contingencies, as new first-order cascading
industries (or the industries of the future) often events arise. What can now be observed is that
underpin both economic and national security, the emerging economies beyond China foster knowl-
VUCA conditions will be dramatically amplified in edge reservoirs of their MNEs by using the power of
those sectors.25 MIC 2025 on its own can be the nation state and state-backed institutions.27
considered an initial trigger for the first-order
cascading effects, as described in Figure 1. Dynamic Capabilities for Managing New IB
Realities
The DC approach (Teece 2007, 2014) is a lens that
IMPLICATIONS OF VUCA FOR THEORIES OF provides a starting point for examining how MNEs
THE MNE can deal with VUCA conditions and achieve evo-
China’s approach to acquiring technological inno- lutionary fitness (Helfat et al., 2007; Schoemaker
vations so as to achieve global leadership in various et al., 2018). The DC framework seeks to outline the
strategic industries will be interpreted by some as structures, decision processes, and managerial
an admirable alternative to the Western-led global actions that can support evolutionary fitness in a
economic order, but it is not without consequences variety of contextual circumstances. As noted else-
for the world economy as a whole and for IB where (Teece, 2018b), DCs are the essence of a
theories and frameworks. One implication is that it workable ecosystem theory, and can provide
may no longer be possible to use cost minimizing insight into: (1) the likelihood of achieving evolu-
or profit maximizing, in a meaningful way, as the tionary fitness and (2) how to achieve it through
lynchpin of the theory of the MNE.26 co-evolution with stakeholders and environments
To conceptualize the likely evolution of MNEs (Pitelis & Teece, 2010).
under extreme VUCA conditions, IB frameworks The recent macro-level developments illustrated
will need to evolve from deep roots in cost mini- in the sections above are making it more difficult
mization/profit maximization traditions, to explic- for MNEs to achieve evolutionary (or ecological)
itly address capability building for evolutionary fitness because foundational and stabilizing com-
fitness. Such frameworks will allow for explicit ponents of the global economic order are being
consideration of political and industrial policy challenged to their core. It could be argued that
actions and changes in institutional environments (neo) techno-nationalist strategies as adopted by
throughout the value-creating and -capturing pro- China, possibly to be emulated by several other
cess. More specifically, firms will be engaged sys- countries, are ultimately not very different in
tematically in anticipating and responding to first- impact on MNEs from past world wars and major
and second-order cascading effects, as shown in commercial conflicts among nations, but the dif-
Figure 1, and they will be key actors in the third- ference lies in the nature of the innovations

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involved. Many of these innovations result from change, changes in consumer preferences and
multi-billion dollar investments in technological behaviors, or changes induced by government
development, and require large, geographically policies (Teece et al., 2016). As such, DCs enable
diverse markets to recoup these investments. Some MNEs to adapt to the changing conditions in their
scholars (Lessard et al., 2016; Luo, 2000; Teece, external environments by helping them ‘‘create
2014) have made a strong case for the value of DCs new markets and expand old ones’’ (Teece 2014:
in MNEs in general, and in the presence of deep 12). Accordingly, the DCs approach is a relevant
uncertainties in particular (Teece, Peteraf, & Leih, framework to study how MNEs address extreme
2016). However, these earlier treatments did not VUCA conditions in their international environ-
consider how MNEs can profit from their own, ment. Specifically, the framework:
large-scale investments in innovation, in an envi- Provides the tissue and the logic to link disparate economic,
ronment with deep market distortions because of organizational, managerial, and psychological studies of
government policies systematically eroding rule-of- human capital, entrepreneurship, and cognition. It can do
law governance. Thus, DCs alone at the enterprise so because of its heterodox and interdisciplinary founda-
tions. It embraces the core business disciplines, such as
level may not be sufficient to achieve evolutionary
organizational behavior, corporate strategy, and the
fitness, aligned with the macro-level. Coordinated, resource-based view of the firm, but also draws on numerous
multi-stakeholder (or innovation ecosystem) other sources, including sociology and behavioral psychol-
responses may be required, as suggested in Figure 1. ogy. It also draws on sub-disciplines of economics; the
The DC approach emphasizes ‘‘the firm’s ability economics of innovation, evolutionary economics, transac-
tion cost economics, and behavioral economics are all
to integrate, build, and reconfigure internal and
within its ambit. This eclecticism makes dynamic capabili-
external competencies to address rapidly changing ties an overarching framework within which studies of firm
environments’’ (Teece, Pisano, & Shuen, 1997; behavior from a variety of perspectives can coexist under the
516). Furthermore, the DC framework (Teece, broad umbrella of inquiry into how firms manage internal
2007) emphasizes three clusters of entrepreneurial and external resources to build sustainable competitive
advantages under deep uncertainty. (Teece 2016: 213)
activities: (1) sensing opportunities (and threats), (2)
seizing (and neutralizing) them, and (3) transforming The main goal of the DC framework is not cost
the internal systems, culture, and business models efficiency or profit maximization per se, but evolu-
to address the external changes. These three clus- tionary fitness, which is precisely what the reshap-
ters of capacities provide both the starting point ing of the global economic order, with its three
and the infrastructure for developing novel levels of cascading, as shown in Figure 1, requires
responses to VUCA characteristics of the new global from MNEs. Here, DC thinking provides a starting
economic order. To the extent that they are non- point to examine success factors that undergird
location bound, such capabilities are dynamic in MNEs’ trajectories when operating in structurally
nature and can indeed support evolutionary fitness different host locations, including those dominated
(Narula & Verbeke, 2015). In fact, Narula and by technology-seeking state actors.
Verbeke (2015) explain how contemporary inter- The ‘acid test’ for MNEs’ evolutionary fitness in
nalization theory both implies and anticipates the strategic sectors is whether they can protect their IP
entrepreneurial orchestration of resources and and other core proprietary assets, or at least min-
capabilities embedded in the DC approach. Build- imize the leakage of such, in the new IB landscape
ing on these insights, Matysiak, Rugman, & Bausch (Teece, 2014; Verbeke, 2013). Obviously, the mag-
(2018: 244) highlight that: ‘‘the purpose of MNEs’ nitude of the problem depends on how ‘strategic’
sensing, seizing, and transforming is to achieve the industry that the MNE operates in, is to the
(ever new) resource–capability recombinations that national interests of its home country, and to the
confer competitive advantages in the form of non- aspirations of host countries such as China aiming
location-bound FSAs, CSAs, and location-bound to upgrade their technological capacities without
FSAs in dynamic industry and country reliance on conventional norms and rules in the
environments.’’ realm of IPR protection.
The DC framework was originally developed to Some have suggested as a potential solution, the
help understand the requisite upgrading of FSAs in ‘zooming in and out’ across subnational and
regimes of rapid technological change (Teece et al., supranational boundaries to organize global value
1997). More generally, DCs thinking helps firms chain activities in the presence of VUCA conditions
respond to volatility, uncertainties, complexities, (Mudambi, Li, Ma, Makino, Qian, & Boschma,
and ambiguities stemming from technological 2018). In practical terms, this may imply spreading

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value chain activities across several countries, each Teece, 2007, 2014; Pitelis & Teece, 2010). In fact, in
with only partial access to the firm’s overall tech- VUCA environments, this aspect of DCs, i.e., the
nological reservoir, much in line with Gooris & potential of shaping, rather than simply adapting to
Peeters (2016). Managing for knowledge buffering the reshaped external environment, may be critical
across fragmented institutional environments to creating and appropriating value, especially
places a great weight on the orchestration capabil- when facing (neo) techno-protectionist state actors.
ities and leadership skills of the MNE’s top man- While traditional views of DCs mainly emphasize
agers (Pitelis and Teece, 2018). The requirements adaptation to the external environment (Zollo &
for such capabilities increase exponentially with Winter, 2002) and firm-level evolutionary fitness
higher embeddedness in multiple locations and (Helfat et al., 2007), today’s realities require a much
institutional contexts. Each embeddedness layer is stronger emphasis on capability building and shap-
associated with a different set of actors and corre- ing of the environment through co-evolution with
sponding knowledge buffering challenges that external actors (Parente, Rong, Geleilate, & Misate,
MNEs must address effectively in order to create 2019; Schreyögg & Kliesch-Eberl, 2007; Teece,
and appropriate value (Meyer, Mudambi, & Narula, 2018b).
2011). MNEs also need to manage different layers of Specifically, sensing (and sense-making) requires
internal embeddedness (Asakawa, Park, Song, & filtering mechanisms that transcend market intel-
Kim, 2018; Zollo, Bettinazzi, Neumann, & Snoeren, ligence in the IB context, and involve spanning
2016), whereby internalization per se may not multiple external and internal boundaries. Sensing
guarantee protection from (neo) techno-national- capabilities are particularly centered on the process
ism, since some employees may ultimately prove of identifying new opportunities and threats. Here,
more loyal to their nation state than to the firm. In the existing IB literature has mainly focused on
fact, the findings of the study conducted by Liu and identifying needs for co-locating activities to
colleagues (2010) suggest an important role for respond adequately to new market opportunities
human mobility in facilitating the international (Narula & Santangelo, 2009), but more attention
flows of knowledge and technology from techno- now needs to be paid, when sensing market
logically leading countries (i.e., developed nations) opportunities, to what is almost the mirror image
to followers (i.e., emerging economies). Thus, of co-location, namely contemplating the need to
MNEs increasingly need to operate as differentiated locate activities embodying narrow knowledge
networks, with the relevant differentiation at least bundles and narrow innovation-related activities
partly guided by the VUCA conditions resulting to avoid unwanted external appropriation by (neo)
from neo techno-protectionism, and the related techno-nationalism driven actors. Making proper
knowledge buffering requirements. MNEs need to trade-offs when sensing a business opportunity,
protect their IP in broader ecosystems with multi- between the need to co-locate value chain activities
ple linkages and boundary-spanning activities. This as a possible response to the opportunity, and the
will require specialized collaborative capabilities for imperative of IPR protection, will require stronger
managing complex constellations of boundary- consideration of managerial cognition and cogni-
spanning, inter-firm relationships (Petricevic & tive frames and attention in capability develop-
Verbeke, 2019). The DCs required for designing ment (Eggers & Kaplan, 2013).
and shaping networks of multiple stakeholder Seizing capacities require rapid and coordinated
relationships (Rowley, 1997) and across multiple responses, and they focus on mobilizing and
embeddedness dimensions (Ferraris, 2014) thus appropriately bundling CSAs and FSAs to respond
become especially hard to achieve with amplified to identified opportunities, or to neutralize threats.
VUCA (Helfat et al., 2007: 7), as suggested by the In this aspect too, the existing literature has tended
third-order cascading effects in Figure 1. to focus mainly on opportunities to be acted upon,
rather than on building or upgrading capacities to
Can Dynamic Capabilities Lead to Renaissance neutralize potential threats. In particular, seizing
of the MNE? must now focus on concrete buffering approaches
MNEs do not have the power of nation states to avoid unwanted dissipation of proprietary tech-
seeking to access and acquire their intellectual nologies, and the firm’s signature managerial prac-
property, but these firms’ DCs can individually tices. One key aspect here is the development of
and collectively shape the business environment strong relational capabilities, for example when
both at home and abroad (Cantwell et al., 2010; managing GVCs (Kano, 2018). This will be

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especially relevant when managing joint ventures networks and network orchestration (McDermott,
or R&D-based collaborative relationships. In fact, Mudambi, & Parente, 2013), and a more encom-
Adams (1980) early on suggested that protecting the passing and interdependent, i.e., ecosystems view
organization and buffering it from external threats of DC development and deployment (Teece,
and pressures is one of the critical foci of attention 2018b). However, this may not be enough. New
when firms engage in boundary-spanning activi- leadership skills will be necessary, with emphasis
ties. Ryu, McCann, & Reuer (2018) specifically on political astuteness, improvisation, and orches-
investigated risks of knowledge losses resulting tration abilities that simultaneously elevate both
from ‘partner-rival’ geographic co-location, and leader character and leader competences (Sturm,
found that effective, alliance governance design Vera, & Crossan, 2017) as well as creative search
choices were important, e.g., by narrowing the and strategic sense-making (Pandza & Thorpe,
scope and reducing the task interdependencies 2009). Careful calibration of knowledge protection
within the alliance. While the extant literature and disclosure (Contractor, 2019), and enhanced
has focused mainly on learning and on the transfer strategic intelligence (Levine, Bernard, & Nagel,
of knowledge and skills, the new IB realities will 2017) will underpin these leadership skills, so as to
require a stronger focus on developing mechanisms operate successfully in the amplified VUCA envi-
for buffering key technological capabilities, not ronment. Specifically, firms’ dynamic political
only as a function of micro-level frailties, but management capabilities that can influence insti-
especially to protect against the vagaries of (neo) tutional processes will become increasingly rele-
techno-nationalist policies. vant (Oliver & Holzinger, 2008). If an MNE’s
Transformational capacities of the firm in the partner is a state-owned enterprise (SOE), this is
traditional DC approach have again typically especially poignant (Haveman, Jia, Shi, & Wang,
addressed organizing for well-defined opportunities 2017).
to achieve novel resource combinations. However, As suggested by the third-order cascading pro-
the third-order cascading processes in Figure 1 cesses in Figure 1, MNEs will be required to harness
require the MNE to achieve novel resource align- the power of value-appropriation capabilities
ments, both internally and with other partners, through innovative supply chain deployment and
whereby the default assumption must be that in design of innovation activities, which will be both
some host-country contexts proprietary knowledge disaggregated and dispersed in such a way that
will be at high risk of unwanted dissipation. As a makes it difficult for any one participant in the
result, ‘global’ organizational approaches to chain to replicate the technology or firm-specific
exploiting, recombining, and augmenting technol- capabilities. Very early on, Casson and associates
ogy are now a non-starter, and must be replaced by (1986: 1) drew particular attention to the global-
a ‘bifurcated world’ approach. The balancing act ization of supply chains, noting that ‘‘[w]ithin
between operating simultaneously in rule-of-law many industries, production processes have
environments, and in a possibly increasing number become split into a larger number of separate
of locations where the rule-of-rulers prevails, activities, and this has, in turn, increased the
because of (neo) techno-nationalism, as far as number and variety of intermediate products
respect for IPRs is concerned, reflects extreme within the production system.’’ When technology
VUCA challenges, with the firm ‘teetering on the misappropriation is a concern, Schotter and Tea-
edge of chaos’ (Mycek, 1999). At the same time, garden (2014: 45) suggest, ‘‘physically separating
success at such a balancing act means that the MNE manufacturing and R&D processes, disaggregating
will at least partly be able to fight off unreasonable proprietary components and compartmentalizing
demands for access to its technology and can shape critical know-how are essential for effective IP
the contexts where it operates.28 protection.’’ Thus, careful attention should be
given to global value chain governance (Gereffi,
Individual Firm Actions 2018; Gereffi, Humphrey, & Sturgeon, 2005), and
With rule-of-law international commerce in retreat, to segmenting geographically the activities
sustained innovation, growth, and profitability is included in parallel, supposed ‘global’ information
likely to require much stronger reliance on rela- transfer systems and ‘global’ innovation networks
tional capabilities (Lorenzoni & Lipparini, 1999), (GINs), thereby achieving requisite ‘isolation levels’
co-evolution with institutional environments of critical information and innovation. For exam-
(Cantwell et al., 2010), harnessing the power of ple, Lampert et al. (2018) discuss how in some cases

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 The structural reshaping of globalization Olga Petricevic and David J Teece
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IP components can be geographically distributed to innovation-related activities will place pressure on

make technology theft more difficult. Similarly, the available bandwidth and absorptive capacity,
Gooris and Peeters (2016) studied 581 foreign and may result in decreased innovation quality
service production units and found that fragmen- (Narula, 2014; Singh, 2008).
tation of business processes across different units An additional strategic prong to strengthen DCs
(organizationally and/or geographically dispersed) is to engage with an unexpected partner in re-
offers an information protection mechanism in shaping the competitive dynamics, for example in
host locations with high misappropriation hazards. China, where the MNE might choose a particular
While developed-country MNEs are still critical Chinese partner with the objective of creating
drivers of international innovation, the present role competitive tensions. Chinese firms are very com-
played by emerging economies in changing the petitive and this might provide a useful strategy in
global innovation landscape cannot be ignored. some circumstances. Prospects in China are prob-
China is seen as a new key locus for innovation. ably best for non-technology companies in non-
Some have argued that this new posture might also strategic sectors, such as agriculture, fashion, con-
present an opportunity from the reverse innovation sumer goods, and even insurance. For example,
perspective (von Zedtwitz, Corsi, Søberg, & Frega, Canada’s largest insurance company Manulife con-
2015). Given that each phase of innovation (from tinues to be optimistic about growth opportunities
ideation to commercialization) can occur in any in China (and the Asia region), after more than
geographic location, von Zedtwitz et al. (2015) 120 years of operations in China (Ligaya, 2019). For
introduced a new typology of global innovation. firms in any of the strategic sectors where China is
They identified 16 different types of innovation pursuing breakthroughs, the outlook is more chal-
flows between advanced and emerging countries, lenging. Firms in these sectors must be extremely
most of which are reverse innovation flows. This vigilant, if they enter the Chinese market at all.
approach suggests that MNEs will likely need to Engagement by individual firms with the Chinese
develop and upgrade their CSAs and FSAs for market, without adequate focus on the DCs related
managing and monitoring the portfolio of global to knowledge buffering as outlined above, might
(reverse) innovation flows and upgrading the ordi- bring short-term gains, but a long-term weakening
nary and dynamic capabilities needed to appropri- of capabilities. Uncertainty alone is reducing FDI
ate value from complex relationships and networks. flows and driving disengagement and decoupling.
The GINs perspective takes a non-linear approach
toward re-organizing global innovation activities Multi-Stakeholder Coordinated Actions
(Parrilli, Nadvi, & Yeung, 2013) as it specifically Scholars have identified strategic benefits of build-
addresses the ‘‘globally organized web of complex ing cooperative relationships between foreign
interactions between firms and non-firm organiza- entrants and a host-country’s political, economic,
tions engaged in knowledge production related to and social stakeholders (Dorobantu, Heinisz, &
and resulting in innovation’’ (Barnard & Chami- Nartey, 2017). Unfortunately, the fundamental
nade, 2011: 2). The GINs perspective aligns well problem faced by many MNEs (especially the U.S.
with the ecosystem view of DCs, as it considers ones) with respect to collective action against, e.g.,
diverse sets of actors, the complexity of their intra- the Chinese, state-led technology acquisition strat-
and inter-firm linkages, and the multiplicity of egy, is the presence of anti-trust and competition
geographical locations involved in innovation policies: these prevent and sanction coordinated
activities. Integrating the insights from the GVC actions that could block transfers of critical tech-
and GIN literatures on how to design, navigate, nology to China. More restrained collective action
monitor, and enforce IP protection within the that involves working with (international) industry
intersecting GVCs and GINs, might prove helpful associations to share intelligence and identify
as the starting point for specific actions MNEs can technology-buffering approaches remains a legal
take in re-tooling their competencies and upgrad- option. However, MNEs have found only limited
ing of their DCs. A critical capability for managing means of redress in world forums, although dis-
the ever-evolving MNE network under VUCA con- putes have now become sufficiently salient to move
ditions will be the firm-level regulation of the some MNE home countries to action.29 An effective
permeability of the collaborative membrane with policy response will require comprehensive efforts
respect to knowledge and IP flows. However, this and both unilateral and multilateral cooperation
will come at a cost. Greater dispersion of MNE between and among MNEs, their home

Journal of International Business Studies

 The structural reshaping of globalization Olga Petricevic and David J Teece
1503

governments, and other stakeholders, with MNEs (European Commission, 2013). As China is ‘‘poking
potentially responsible for triggering the first-order at Europe’s belly and finding it soft,’’ the EU
cascading effects in Figure 1. adopted a new China strategy in 2016, looking for
The combined power of the state and private more cooperation and coordination of positions
enterprise in rule-of-law environments might prove among member states (The Economist, 2018a).
very effective. Pack and Saggi (2006) find little The new IB realities will require leveraging the
evidence to support the role of industrial policies power of the nation states where the rule-of-law
in correcting market failures in a traditional sense, prevails, and that of other stakeholders the firm
but they do suggest that the time is ripe to consider engages with in its ecosystem, to develop and
a new type of industrial policy that focuses on implement industrial policies bolstering innova-
negotiations with multinational firms. In fact, Sojli tion. Specifically, ‘‘the demand on governments’
and Tham (2017) find that firms with shareholders abilities as moderators and catalyzers in the inno-
that are large, active, and have extensive foreign vation process will increase in order to release
political connections, benefit from these relations, boosters and make synergetic effects realizable’’
both by creating positive short-run performance (Weiss, 1997: 85). Such policies should support
effects and by increasing firm value in the long-run. emerging business enterprises in strategic industries
As documented in extant research outside of the and those developing enabling technologies. This
mainstream business and management literature will, perhaps paradoxically, also trigger the need to
(e.g., Chang, 2002; Weiss, 1997), the United States, widen the scope of non-market strategies that
many EU-member states, as well as Japan, have a MNEs will need to develop and mobilize (Doro-
long history of interventionist policies supporting bantu, Kaul, & Zelener, 2017). The first- and
the activities of their MNEs and infant (strategic) second-order cascading effects triggered by (neo)
industries through preferential access to markets, techno-nationalism would therefore not just lead
tariffs, and the cross-subsidization of R&D activi- to third-order, reactive cascading processes at the
ties, thereby distorting the competitive landscape MNE level, as suggested by Figure 1, but MNEs
in favor of their own domestic ‘champions.’ Some would themselves become the initiators of coun-
have argued that one important positive outcome terpunching, first- and second-order cascading
of such interventionist policies of the past was the processes, emanating in rule-of-law countries.
accelerated diffusion of technology (Weiss, 1997).
Others have suggested that developed countries are
now ‘‘kicking away the ladder’’ that they them- CONCLUSION
selves used in order to climb up to their current Globalization in the post-WW II era, in the sense
status and are only now exhibiting preferences for of increased economic exchange and the deepen-
less intervention (Chang, 2002). Overall, most ing of international economic linkages among
governments intervene to some extent to protect nations, has been greatly facilitated by transparent
their national interests (Krugman & Obstfeld, 2000; and non-discriminatory rules at the macro-level,
Ostry & Nelson, 2000), but the extent to which and the adherence to those rules by nation states
they do and the means they use have differed and MNEs. This downward cascading has been
significantly.30 As one example suggests: complemented with an upward cascading motion,
whereby the MNE has in turn been the main
Countries such as the US have hitherto attempted to deal
with root causes of market failures by attempting to make
governance structure at the micro-level responsi-
markets more efficient, but only directly intervening on a ble for fuelling macro-level globalization and
reactive, case-by-case basis (for instance, in sectors which economic growth in the post-WWII period. The
defence applications may exist). Countries such as France community of nations collectively established a
and Japan, on the other hand, have taken a more active, or reasonably open, transparent global economy with
direct role (see Nelson [ed.] 1993). Narula (2003: 264)
liberalized financial and information flows. Glob-
Here, the focus should be on changing what alization has created substantial flows of capital
constitutes ‘‘the desirable, the practical, and the and technology, and it has motivated many
permissible’’ selective state intervention (Lall, 2004: nation states once situated on the ‘periphery’ of
27) that might be appropriate for the new era of the global economic system to use this system as a
fragmented global governance. In 2013, the EU vehicle to guide their industrial development
identified China’s pressure for technology transfer process.
amongst the chief barriers to investment there

Journal of International Business Studies

 The structural reshaping of globalization Olga Petricevic and David J Teece
1504

This global economic order is now being acquire the most advanced IP of these foreign rivals
reshaped. The role of government interventions in by circumventing norms and rules on IP protec-
designing novel ‘latecomer’ institutions and in tion, and then to utilize this foreign-acquired
taking short cuts for catching-up with global knowledge to achieve global technological leader-
industrial development dynamics, has deep intel- ship. Such policies are eroding and fragmenting the
lectual roots (Chang, 2002; Mathews, 2005). Tradi- global economic order based on the rule-of-law,
tional mercantilist approaches have been practiced and creating extreme VUCA conditions for both
since the 17th century, and were first codified in MNEs and nation states. Despite commonly
the form of the United States ‘‘catch up’’ industrial accepted tendencies that ‘‘business abhors borders’’
policy by Alexander Hamilton in his ‘‘Report on the (Horsman & Marshall, 1994: 60), the MNE’s ability
Subject of Manufactures’’, presented to the United to immunize itself from the resulting cascading
States Congress in 1791. During the 19th century, effects, is a daunting challenge. New trade and
the United States also engaged in various forms of investment barriers imposed by nation states that
IPR violations (Peng et al., 2017). The evidence of rely on the rule-of-law, can help shield MNEs from
government interventions by developed nations unwanted knowledge dissipation.
can also be found in recent history (Ezell, 2011). The global market is not ‘‘losing its taste for
However, countries that are now prioritizing global business’’ as the editors of The Economist
industrial policies aimed at acquiring foreign tech- (2017: 18) have recently asserted. Rather, some
nology and innovation, by deliberately eroding the nation states have developed the proclivity for
rule-of-law, should not just receive a passive undermining the commonly accepted rule-of-law,
response. Nor should these countries governed by in unapologetic attempts to appropriate more of
the rule-of-rulers be viewed as the equivalent of the benefits from commerce and innovation for
historical precedents and be expected to engage in their own national champions and special interests.
self-correction over time, as some have suggested Many MNEs are uncomfortable operating in
(Peng et al., 2017). These countries are practicing higher VUCA environments, and will consider
novel, systematic, and systemic mercantilist divesting from nations imposing ‘innovation-shar-
approaches, thereby triggering massive VUCA con- ing’ (as many are already doing). A DC approach,
ditions for MNEs and large-scale cascading pro- however, with its focus on achieving evolutionary
cesses, as described in Figure 1. The dynamic fitness, provides a number of additional strategy
capabilities (DC) framework suggests that MNEs options. These range from sophisticated technol-
should actively devise their own destiny, and ogy buffering strategies to what could be a corner-
should engage, where possible, in collective stone of the new enlightenment, namely the
responses utilizing a multi-level, multi-national, initiating of cooperative action with rule-of-law
and multi-stakeholder approach, thereby triggering abiding governments, and the co-designing of
‘their own’ first-order cascading processes. Individ- effective multi-stakeholder policies. Such policies
ual firm actions should be augmented with coordi- should guarantee that the fruits of innovation in
nated industry (or ecosystem) and state-level the global economy cannot be unduly acquired by
responses, both mini-laterally (e.g., Group of (neo) techno-protectionist states. Here, the driver
Twenty—G20 in the realm of economic coopera- of individual MNEs’ actions should not be the
tion, BRICS New Development Bank in the realm of conventional ‘profiting from innovation’ target,
alternative international financial institutions, etc.) but rather the insight that a rising tide will lift
and multi-laterally (e.g., the EU and its aim at many boats, with IPR protection recognized as the
developing an integrated industrial policy for its global economic system’s premier public good that
member countries that would promote a European logically deserves exceptional and impassioned
‘‘industrial renaissance’’). collective action. Absence of such collective action,
The industrial policy interventions with their may pull an increasing number of countries
novel tools that we observe today are inconsistent towards pursuing simplistic tit-for-tat, (neo)
with traditional theories on strategic trade and techno-nationalist policies, which would be an
investment policies, and internationalization unfortunate outcome as it would likely diminish
motives. The dynamics at play are not the conven- the world’s long-run technological innovation
tional (temporary) sheltering of domestic markets capacity in strategic sectors.
against more advanced foreign rivals, through
building up a domestic industry. The strategy is to

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 The structural reshaping of globalization Olga Petricevic and David J Teece
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5
National Science Foundation and National Science
ACKNOWLEDGEMENTS Board. Science and Engineering Indicators 2018 (NSB-
We thank the Editor, Professor Rajneesh Narula, for 2018-1). Full Report available at https://www.nsf.gov/
very constructive and helpful guidance throughout the statistics/2018/nsb20181/report. Accessed 10 July
revision process, and two anonymous referees for their 2019.
6
insightful comments. We also gratefully acknowledge Classical liberalism as used here has at least three
discussions on the earlier versions of this paper and dimensions: economic freedom, liberty as the pri-
comments received from Paul Tiffany, Arie Lewin, mary political value, and social freedom.
Bruce Guile, Greg Linden, Michael Witt as well as 7
The World Justice Project Rule of Law Index mea-
participants at the 2019 New Enlightenment Conference sures how the rule-of-law is experienced and
in Edinburgh, Scotland. perceived by the general public in 126 countries
and jurisdictions worldwide across eight factors:
Constraints on Government Powers, Absence of
NOTES Corruption, Open Government, Fundamental
Rights, Order and Security, Regulatory Enforce-
1
Countries outside of the North Atlantic were ment, Civil Justice, and Criminal Justice. Full report
classified as ‘‘the rest’’ and included China, India, available at https://worldjusticeproject.org/our-
Indonesia, South Korea, Malaysia, Taiwan, Thai- work/research-and-data/wjp-rule-law-index-2019.
land, Argentina, Brazil, Chile, Mexico, and Turkey Accessed 5 July 2019.
(Amsden, 2001:1). 8
Ideas about the rule-of-law are central to Wes-
2
Benito and Narula (2007) identified the ‘core’ tern legal and political thought since Aristotle
circa 2007 to be consisting of the United States, distinguished between the rule-of-law and ‘the rule
Germany, France, UK, Belgium, the Netherlands, of the individual.’
Japan, and Canada, while other nation states were 9
Thucydides Trap refers to the phenomena of a
identified as ‘the rest’ or ‘periphery’ or ‘on the rising power and an established dominant power
periphery of the periphery’ based on the level of almost always breaking into conflict. Allison (2017:
integration into the global economy (by volume xx) notes that ‘‘[a]voiding Thucydides’s Trap in this
and density of foreign direct investment (FDI) case [US-China] will require nothing else than
activity). Similar classifications can be found in bending the arc of history.’’ For additional analyses
the political economy literature, for example exam- see Allison (2017).
ining trade relations between North and South (cf. 10
China’s vibrant ancient history, culture, litera-
Dahi & Demir, 2017). The countries of the North ture, and writings furthermore illuminate impor-
are usually defined as developed (or First tant aspects of the norms and values that guide its
World/center/core/metropolis) and include North conduct today (Pye & Leites, 1982). For example,
America (except Mexico), Western Europe, Japan, some argue that China has done a good job,
Oceania, and Israel. The countries of the Emerging following advice of Deng Xiaoping, of ‘‘hiding
South are usually defined as developing (or Third capacities and biding time’’ (Chen & Wang, 2011:
World/less developed/peripheral) while the coun- 198). The sinologist Schwartz early on suggested
tries of the Rest of South have not reached the the need for sensitizing and analyzing the ongoing
partially industrialized or developing status. changes with respect to China ‘‘within the frame-
3
By rule-of-law, we do not refer to a specific class work of a civilization in which modern Western
of laws. We refer to a legal system that is supposed premise of a total qualitative rupture with the
to be impartial as to how it treats individuals and ‘traditional’ past has not occurred’’ (Schwartz, 1985:
organizations, and is applied equally to all parties 2).
(including foreign-owned or controlled actors), in a 11
AfroBarometer. 2014/2105. AD122: China’s
non-discriminatory and transparent fashion. growing presence in Africa wins largely positive
4
The term ‘‘dragon multinationals’’ was intro- popular reviews. https://afrobarometer.org/
duced by Mathews (2002) in his book ‘‘Dragon publications/ad122-chinas-growing-presence-africa-
multinationals: A new model of global growth’’ to wins-largely-positive-popular-reviews. Accessed 1
describe firms internationalizing from the countries April 2019.
(e.g., Brazil, India, China, etc.) that originally 12
Make in India. http://www.makeinindia.com/
occupied the periphery of the global system. about. Accessed 1 April 2019.

Journal of International Business Studies

 The structural reshaping of globalization Olga Petricevic and David J Teece
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13
The pillars of the post-WWII international most MNEs have had a mixed experience. For
commerce system were: (1) The Bretton Woods example, Google had a well-documented, very poor
system of monetary management and stability; (2) experience. Other foreign MNEs have done remark-
the GATT, established in 1948 to promote multi- ably well. For example, BMW apparently makes
lateralization of trade relations. It subsequently most of its profits in China (Boeriu, 2018). How-
morphed into the WTO; and (3) the IMF and the ever, many firms are now re-evaluating their posi-
World Bank, established inter alia to provide long- tions in—and capabilities for—operating in China.
term financing for economic development. The As a result, some MNEs are actively divesting non-
United Nations Conference on Trade and Develop- core or underperforming assets, or exiting China
ment (UNCTAD) was established in 1964 to stim- entirely. According to the 2017 annual Chinese
ulate trade, investment, and development Business Climate Survey Report (issued by AmC-
opportunities for developing countries and help ham China in partnership with Bain and Com-
them integrate into the world economy. pany), nearly a quarter of respondents say they
14
In 2016, this initiative was re-named as Silk have recently moved or plan to move operations
Road Economic Belt and the 21st-century Maritime out of China. Companies which have exited Chi-
Silk Road, and it is presented as an infrastructure, nese operations include Adobe, Best Buy, Home
energy, and transportation project aimed at linking Depot, L’Oreal, Mark & Spencer, McDonald’s,
China to 70 countries in Asia, Africa, Europe and Nikon, Panasonic, Seagate, Sony, Tesco, and Uber,
Oceania. while several others are announcing that they will
15
China’s Technonationalism Toolbox: A Primer. soon depart (e.g., Staples). Nearly half of the
(2018, March 18) U.S.-China Economic and Trade surveyed firms feel they are not treated fairly when
Review Commission. https://www.uscc.gov/sites/ operating in China, with the highest level of
default/files/Research/China%27s% concern (59%) in R&D-intensive industries. Many
20Technonationalism.pdf. Accessed 1 September U.S. small, entrepreneurial firms, once enchanted
2018. by economic prospects that China might offer, are
16
China’s self-sufficiency attitude can be traced also leaving (Areddy, 2018). China’s investment in
back to the perspective of Mao Zedong, Chairman the United States is likewise declining.
20
of the Communist Party of China, which contrasts The term was first coined in 1987, by Robert
sharply with the philosophy characterizing open Reich. It referred to the United States policies to
trading regimes that take their intellectual heritage protect technological breakthroughs from suppos-
from Adam Smith and David Ricardo. edly unfair exploitation by Japan. For a detailed
17
The Thousand Talents Plan. http://www. discussion of this ‘policy guidance’, see Reich
1000plan.org/en/history.html. Accessed 1 Septem- (1987) and Kennedy (2013).
21
ber 2018. For a comprehensive report and detailed dis-
18
While Knight (1921: 259) defines uncertainty as cussion, see the Office of the United States Trade
a state where it ‘‘becomes impossible to classify Representative. Findings on the Investigation into
instances objectively,’’ Milliken (1987: 136) distin- China’s Acts, Policies and Practices Related to
guishes three types of perceived environmental Technology Transfer, Intellectual Property, and
uncertainty, each referring to the imperfect under- innovation Under Sect. 301 of the Trade Act of
standing of environmental conditions: state uncer- 1974. (22 March 2018). https://ustr.gov/sites/
tainty (not knowing how environmental default/files/Section%20301%20FINAL.PDF. Acces-
components might change), effect uncertainty (not sed 1 August 2018.
22
knowing to which extent environmental changes IDAR Opinions § 7-9, 11-12 (cited in Ibid).
23
might affect the organization because it lacks Detailed information can be found at https://
sufficient knowledge of cause-effect relationships www.plattform-i40.de/PI40/Navigation/EN/Home/
between components), and response uncertainty (not home.html.
24
knowing which options might be available to react The European Commission identified six ‘‘key
to environmental changes as well as to which enabling technologies’’ that are non-software
consequences a certain response option might research fields (micro and nanoelectronics, nan-
lead). otechnology, industrial biotechnology, advanced
19
Whereas MNEs invested with enthusiasm in materials, photonics, and advanced
China from the early 1990s on, wishing to take
advantage of the growth of the Chinese economy,

Journal of International Business Studies

 The structural reshaping of globalization Olga Petricevic and David J Teece
1507

manufacturing) that underpin innovation in prod- practices’’ will take on a new light when it is not
ucts across many industries (Commission of the the lowest cost source that one must access, but a
European Communities, 2009). secure source!
25 29
However, some non-strategic sectors/industries In January 2018, a U.S. federal jury found the
are also likely to be implicated, albeit to a lesser Chinese Sinovel Wind Group, the manufacturer of
degree. They are implicated because of collateral, wind turbines, guilty of stealing wind mill technol-
second order cascading effects. For example, agri- ogy and trade secrets from the U.S. supplier AMSC.
culture, not at all strategic in the sense described In March 2018, the U.S. issued a formal report that
above, could be disrupted by retaliatory tariffs by placed pressure for technology transfer and below-
China as the United States (and in the future market licensing terms at the head of a list of
possibly the EU) imposes its tariffs, in part to gain numerous complaints dominating the new trade
concessions on the IPR protection front. Non- dispute. Then in December 2018, the chief financial
strategic industries may also become implicated officer of telecom-equipment manufacturer Huawei
when, as with cement and steel, China overinvests Technologies Co. was arrested on suspicions of
in certain industries and then attempts to gain selling technology to Iran (The Economist, 2018b).
market share globally. Such judicial interventions are too rare and infre-
26
It may be possible to resurrect those as very quent to provide a counter-balance to China’s
long-term, multiple stage versions of supporting behavior.
30
models, but none is to that extent developed at For a fairly critical commentary on how the
present. United States has ignored its own history of mer-
27
We thank an anonymous reviewer for making cantilism and interventionist policies, see Chang
us articulate this point. (2002). A comparative analysis of interventionist
28
Ordinary/operational capabilities should not be policies by the United States and European coun-
neglected. Supply chain decoupling well likely tries is offered in Weiss (1997).
require re-adjusting of basic operations. ‘‘Best

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Open Access This article is distributed under the
Zollo, M., & Winter, S. G. 2002. Deliberate learning and the terms of the Creative Commons Attribution 4.0
evolution of dynamic capabilities. Organization Science, International License (http://creativecommon-
13(3): 339–351.
s.org/licenses/by/4.0/), which permits unrestricted
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ABOUT THE AUTHORS author(s) and the source, provide a link to the
Olga Petricevic, PhD is an Assistant Professor at Creative Commons license, and indicate if changes
the University of Calgary. Her current and pub- were made.
lished work examines the nature and the role of
dynamic capabilities in the context of high-tech-
nology firms and by adopting interdisciplinary

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional
affiliations.
Accepted by Rajneesh Narula, Area Editor, 16 August 2019. This article has been with the authors for three revisions.

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