Journal of World Business 56 (2021) 101210

Contents lists available at ScienceDirect

Journal of World Business

journal homepage: www.elsevier.com/locate/jwb

Research Note

The (COVID-19) pandemic and the new world (dis)order

Michael A. Hitt a, *, R. Michael Holmes Jr. b, Jean-Luc Arregle c
a
Department of Management, Texas A&M University, College Station, TX, 77843-4221, United States
b
Florida State University, Tallahassee, FL, United States
c
EM Lyon Business School, Ecully, France

A R T I C L E I N F O A B S T R A C T

Keywords: The COVID-19 pandemic produced a significant environmental jolt that has altered the trajectories of economies
Pandemic and institutions and the strategies of MNEs. We examine the pandemic effects on countries’ political and reg­
Political and regulatory institutions ulatory institutions, the interplay between their formal and informal institutions and the resulting environmental
Nationalism
uncertainty. These changes are transforming the global landscape, MNEs’ raison d’être and their international
Market-seeking and resource-seeking FDI
strategies. MNEs are having to change or develop new country- and firm-specific advantages, refashion their FDI,
Supply chain strategy
Regional strategy focus supply chain networks, and emphasize regional strategies and localization. Although these strategies may
help them to bound uncertainty, they produce other forms of risk. A new economic order is likely to arise along
with transformed MNEs.

“The institutions created following the Second World War—The United
Nations, the International Monetary Fund…no longer serve us well
enough to protect multilateralism and international law. That is what the
crisis of COVID-19 has shown, beyond a shadow of doubt, that things
have to change…The most troubling realization is that the COVID-19
pandemic is not even the biggest threat facing the world…The world is
in crisis and things are about to get much worse unless we change.”
(Justin Trudeau’s address to the United Nations, September 25,
2020)
1. Introduction
Since the beginning of the twenty-first century, the world has
increasingly experienced technological, sociopolitical, and institutional
changes (Ahlstrom et al., 2020) that collectively are leading toward a
new economic order. In the midst of these changes, a cataclysmic
disruption occurred in the form of the COVID-19 pandemic, which
produced economic upheaval, altered the trajectories of industries,
exceeded the capabilities of experienced managers to respond, and
tested the resiliency of firms, states, and institutions. Scholars working
on much longer time horizons than in management, as in history, have
highlighted that pandemics are a major part of the big picture of his­
torical and societal change and development (Snowden, 2019) and un­
fortunately have become regular occurrences (e.g., MERS, SARS, Swine
flu, and Ebola since 2000). Some bleak predictions, envisioning the
current pandemic as a “dress-rehearsal” for the next one (see Snowden,
2019), make it even more important to examine and thoroughly analyze
their effects. Even if the immediacy and extent of these changes have
been extreme, they are common outcomes of environmental jolts that
affect multinational enterprises (MNEs) and shape their international
strategies (Meyer, Brooks, & Goes, 1990). These changes have coursed
through most countries in the world, leaving almost no organization or
individual untouched. In his recent book, Zakaria (2020, p.4) referenced
a statement attributed to a famous historical figure suggesting that
“There are decades when nothing happens, and then there are weeks
when decades happen.” He concluded that “As the worst passes, we
emerge into the ‘dead cold light of tomorrow’…” (Zakaria, 2020, p.3).
Our purpose is to examine the COVID-19 pandemic’s effects on coun­
tries’ political and regulatory institutions, the resulting transformation
of the global landscape, and implications of these changes for MNEs and
their international strategies.
With millions contracting the virus and more than two million hav­
ing already died from it by early 2021, countries and pharmaceutical
firms invested substantial resources to discover a vaccine that prevents
the virus’s ill effects. Now with vaccines proven to be successful in
building immunity against the virus, our interest is to understand the
potential longer-term effects of the pandemic even after the vaccines are
distributed and administered. Prior to the significant economic and

* Corresponding author.
E-mail addresses: mhitt@mays.tamu.edu (M.A. Hitt), mholmes@business.fsu.edu (R.M. Holmes), arregle@em-lyon.com (J.-L. Arregle).

https://doi.org/10.1016/j.jwb.2021.101210
Received 15 October 2020; Received in revised form 25 January 2021; Accepted 2 March 2021
Available online 6 March 2021
1090-9516/© 2021 Elsevier Inc. All rights reserved.
M.A. Hitt et al.
social disruption caused by the pandemic, Ahlstrom et al. (2020) sug­
gested that changes were creating a New Normal environment. Hitt,
Arregle, and Holmes (2021), building on North’s (1999) insights, sug­
gested that we live and operate in a non-ergodic world in which a dy­
namic equilibrium emerges after major disruptions but continue to
change thereafter, leading to an ongoing loop of dynamic equilibrium
states that alter the boundary conditions of current theories and
increasing the importance of strategic flexibility and stakeholder
relationships.
Justin Trudeau’s address to the United Nations suggests that the
world is in a crisis, and the pandemic has contributed to it (Trudeau,
2020). In fact, the pandemic has likely exacerbated the effects of other
changes that are occurring, such as concerns about climate change and
social justice. This essay explores the likely post-pandemic economic
landscape with a special focus on the changing institutional environ­
ments and international strategies employed by MNEs, as shown in
Table 1.
2. Changing institutional environments
Country institutional environments play an important role in the
selection and implementation of firm strategies. Research has shown
that country institutional environments affect firms’ resource profiles
and the degree of uncertainty in industries, which in turn influence
firms’ willingness to undertake risky strategies (Hitt, Sirmon et al.,
2021), as well as the financial consequences of such strategies
(Vanacker, Zahra, & Holmes, 2020). Likewise, a recent review of prior
research demonstrated that institutions have a major influence on the
international strategies that firms employ (Xu, Hitt, Brock, Pisano, &
Huang, 2020). For example, there is evidence that formal and informal
host country institutions affect the foreign direct investments made by
firms (Holmes, Miller, Hitt, & Salmador, 2013), and a large
meta-analysis demonstrated that firms’ home country institutions affect
their ability to extract positive returns from their international strategies
(Marano, Arregle, Hitt, Spadafora, & van Essen, 2016). Because in­
stitutions are important, MNEs devote considerable resources to moni­
toring and influencing the domestic and foreign institutional
environments they confront (Holmes, Zahra, Hoskisson, DeGhetto, &
Sutton, 2016; Sutton, Devine, Lamont, & Holmes, 2021). Thus, one
Table 1
COVID-19: Major Environmental Effects and International Strategy Changes.
Institutions
Regulatory and Political Institutions
Nationalism vs Globalization
Protectionist Trade Policies
Access to Critical Goods
Democratic vs Autocratic
Rule of Law vs Informal Norms
Political Leadership
Formal vs Informal
Nonmarket Strategies to Change Restrictive Trade Policies
Informal Institutions as Substitutes for Formal Institutional Weaknesses
Confluence of Institutions
MNEs’ Raison d’Etre
Disruption of Firm Specific and Country Specific Advantages
Economic Decline and Institutional Change
Knowledge Creation for FSAs and CSAs
Proximity to Global Distribution of Knowledge
Dependence on Technological Resources-Support for Social Interaction and Knowledge
Creation
International Strategies
Supply Chain Strategies
Smaller Tight-Knit Supply Chain
Built-in Redundancies and More Loosely Coupled Supply Chain Networks
Foreign Direct Investments
Efficiency Seeking FDI in Near Term
Market Seeking FDI in Focused Locations
Regional Strategies (Location)
2
Journal of World Business 56 (2021) 101210
would expect institutional changes triggered by the pandemic to have a
strong influence on the development, implementation, and conse­
quences of firms’ international strategies.
2.1. Political and regulatory institutions
In recent years, the political policy positions in several countries (e.
g., U.S., U.K.) became more nationalistic, changing the institutional
landscapes that MNEs confront. To some degree, this shift has been a
reaction to several outcomes of globalization, following the 2008
Financial Crisis, that some in society view less positively, such as the
offshoring of manufacturing and supply chain functions, which pro­
duced domestic job losses in several industries in many advanced
economies. Nationalistic policy foci often result in protectionist trade
regulations and other regulatory actions that are unfavorable to glob­
alization. These regulations commonly are designed to restrict and
discourage the flow of foreign goods into domestic economies to protect
and encourage the production of domestic goods and services.
The pandemic has heightened many of the concerns about global­
ization and may lead to more nationalistic regulatory policies in the
future. First, the pandemic has had severe negative effects on many
countries’ economies, producing rapid increases in unemployment and
significantly lower or negative economic growth. For example, the Eu­
ropean Union’s (EU’s) GDP declined by 4 % in the first quarter of 2020
and by an additional 12 % during the second quarter. Although third-
quarter GDP increased by 13 %, the EU’s GDP remains well below its
pre-pandemic levels (Eurostat, 2020a). Additionally, economies are
expected to continue to rebound to some degree, but many of the job
losses may be permanent. Indeed, it is estimated that at least four million
of the U.S. jobs lost during the pandemic may be permanent (Mutikani,
2020).
Politicians are urged to have short-term and visible responses to their
citizens suffering from these unforeseen and dramatic changes, some­
times to the detriment of more long-term and efficient decisions. The
short-term (urgent) goals of many governments are to avoid the collapse
of their country’s economic system and social fabric and do what is
necessary to overcome the many problems created by the pandemic.
Against this backdrop, nation states’ sphere of intervention and power
also has been increasing. For example, the pandemic has facilitated a
larger role of government in the economy, as demonstrated in the large
grants paid by the EU and the U.S. government to facilitate developing
and/or producing and distributing products and services (e.g., testing
kits and drugs) to combat the pandemic (Abrams, 2020; EU, 2020; HHS,
2021). In the future, we probably can expect more institutional changes
to protect domestic economic interests and domestic jobs. Yet, such
institutional foci also have costs. Protectionist policies can provoke
regulatory responses from countries whose firms and goods are affected.
They also may lower domestic firms’ exposure to foreign competition,
perhaps reducing efficiency and the incentives and ability to innovate.
Over the long term, such policies may curtail domestic firms’ access to
foreign resources and their ability to sell goods in foreign markets,
including those from the country that originated trade regulations,
thereby harming the firms they were trying to protect (or those in other
domestic industries). Moreover, government funding for private busi­
nesses often removes financial resources from the private sector (e.g.,
via increased taxation), and a larger role of government in the economy
also increases the potential for cronyism (Holmes et al., 2016).
Furthermore, the large economic stimuli in many countries might
constrain those countries’ financial flexibility in the future.
Second, the pandemic has highlighted the need to control access to
certain goods. Many countries were unprepared for the severity of the
pandemic and thus experienced shortages of medical supplies. These
events, often emphasized by the news media in different countries, have
had a vivid impact on public opinions that is unlikely to dissipate. In
some cases, these supplies were manufactured in other countries—with
few domestic suppliers of certain drugs and medical equipment needed
M.A. Hitt et al.
to combat the pandemic. For example, even after U.S. firms ramped up
their production of the fabric used in masks to combat the pandemic,
Chinese firms continued to produce fifteen times the amount of this
fabric that U.S. firms did. By the end of the first half of 2020, several
large economies—including France and Germany—produced insuffi­
cient volumes of masks for their populations and were forced to rely
heavily on imports, typically from China (Eurostat, 2020b). For these
reasons, the pandemic demonstrated some of the drawbacks of global
supply chains and offshoring. Moreover, the actions taken by some
countries to secure needed supplies often were at the expense of other
countries (i.e., countries competed for a limited supply of medicines and
personal protective equipment). The nationalistic approach inherent in
these actions works against the multilateralism referred to by Justin
Trudeau and might trigger additional or retaliatory nationalistic actions
from governments and MNEs located in countries that initially suffered
from these behaviors.
Third, the pandemic has shed new light on the differences between
democratic and autocratic political institutions and their effectiveness in
responding to the crises emanating from the pandemic. Governments
with greater autocratic and centralized control are able to act more
quickly and take actions that might be less popular with the populace (e.
g., lockdowns). Yet, acting quickly is only positive if appropriate actions
are taken and if the existing centralized bureaucratic structure is effec­
tive. For example, China’s eventual success at reducing the spread of
COVID-19 within its borders illustrates the benefits of centralized power
structures, while its ineffectiveness at dealing with weak signals across
its regions in the early stages of the pandemic, illustrates the limits of
such structures. Alternatively, democratic structures may take longer to
respond but often use a more decentralized approach. This approach
allows governments to experiment with different solutions in order to
identify the most effective ones to implement more broadly (Gambar­
della, 2020; Holmes et al., 2013). The differences between these two
types of political systems, harbored by the weakening of international
institutions and the growing prevalence of cybernation [i.e., information
collection, combination, manipulation, and data sharing (Etzioni,
2015)], could lead to what Petricevic and Teece (2019: 1489) called a
“bifurcated” world with two opposing camps on the world stage. For
instance, they argued that whereas “rule-of-law countries” build inno­
vation capacity on the basis of international intellectual property pro­
tection, other more autocratic countries tend to do it by voluntarily
circumventing this protection and thriving on international technology
access or acquisition by any means possible. This competition can have
domino effects with broad international implications, as when the U.S.
passes laws or imposes embargos on technologies of Chinese firms, and
China responds in kind. Of course, the pandemic did not cause differ­
ences between democratic and autocratic political institutions, but it has
brought these differences into sharper focus and perhaps exacerbated
tensions that already existed prior to the pandemic.
Fourth, and relatedly, the pandemic has highlighted the importance
of effective political leadership in government, whatever the nature of
the political institutions. Among countries with more centralized power
structures, some were more effective at containing the effects of the
virus than others (e.g., Singapore versus Iran). We find a similar pattern
in countries that have more decentralized power structures (e.g., New
Zealand and Germany versus the U.S. and U.K.). Thus, political policy
approaches and leadership might have a major influence on the effec­
tiveness and implementation of various types of institutions (e.g., reg­
ulatory foci). Even historically strong institutions can be less effective
when the external environment creates changes that they are ill-
equipped to handle, especially in the absence of strong leadership to
advocate for and/or implement changes to those institutions. An issue
integral to the policy decisions made by government leaders is the
manner in which the need or desire for economic growth is balanced
with the need to promote or ensure public health and welfare. And the
decisions and actions by government leaders to manage the economic
and health effects of the pandemic can have a major influence on the
3
Journal of World Business 56 (2021) 101210
strategies employed by domestic firms and MNEs operating in those
countries.
2.2. Formal and informal institutions
Above, we discussed some of the changes that have occurred pri­
marily in certain political institutions and extensions thereof (e.g., reg­
ulations based on formal institutions). Although some of these changes
are related to trade between countries (e.g., U.S. and China), their
implementation often has effects on firms whose goods are sold in other
markets. Firms that are harmed by tariffs or other restrictive policies can
respond in several ways to these changes. Though they lack the formal
authority and sovereignty of government institutions, they can engage
in nonmarket strategies to try to influence legislative leaders and policy
makers either to change regulations or their implementation, either to
be less harmful to the firm’s operations or to provide financial support
(e.g., economic stimulus and bailouts) to reduce the impacts of economic
shocks. Firms also may encourage their industry associations to lobby
the government leaders for changes because such associations carry the
force of more firms and potentially create more pressure and incentives
for government leaders to “listen” and act on their concerns (Holmes
et al., 2016). Similarly, firms and their managers can act as institutional
entrepreneurs to encourage and help design formal institutions to
combat specific problems (Greenwood & Suddaby, 2006; Maguire,
Hardy, & Lawrence, 2004).
In addition, informal institutions often supplement or substitute for
formal institutions. Typically, informal institutions change more slowly
than formal institutions (Holmes et al., 2013). However, when major
environmental changes disrupt or possibly negate the ability of country
or international formal institutions to elicit desired behaviors, informal
(and more local) institutions may help firms deal with problems created
by the disruption and resulting formal institutional voids (Webb, Khoury
& Hitt, 2019). For instance, social norms related to wearing a mask and
social distancing emerged in many communities located in U.S., where
formal state-level institutions did not enforce such practices. Alterna­
tively, firms within industries may develop informal institutions that
help those firms work around formal institutional constraints. For
example, firms in an industry may build relationships with major
stakeholders in other supportive industries to help them manage the
challenges (and risk) created by the uncertainty (Hitt, Sirmon et al.,
2021). Similarly, the Business Roundtable members’ commitment to
prioritize the needs of non-shareholder stakeholders, which might take
on added importance due to the pandemic’s harmful effects on em­
ployees and customers (e.g., Hitt, Arregle et al., 2021), is a recent
example of informal institutions substituting for formal institutional
voids.
Moreover, it is important to study the confluence of these institutions
in dealing with the pandemic. Each country has formal and informal
institutions that originate from multiple (poly) rule-setting centers [e.g.,
governments, associations, and communities (Ostrom, 2010)], leading
to different kinds of institutional polycentrism [i.e., the manner in which
these multiple and independent institutional actors make mutual ad­
justments to order their relations within a general framework of rules
and norms (Ostrom (2005)]. Economic actors in some countries can take
advantage of this polycentrism to address the pandemic’s challenges,
while in others they are irremediably constrained. It is important to
study the confluence of these multiple formal and informal institutions,
which can have different effects than a single institution or several
separate institutions (Batjargal et al., 2013).
In addition, Devinney and Hartwell (2020) argued that formal in­
stitutions often cannot be divorced from the key people who implement
them. They suggested this concern is especially evident in more
authoritarian regimes such as in China and Russia, but also can be
observed in more democratic countries. Indeed, significant policy shifts
such as the Brexit deal in the U.K. and the “America First” agenda in the
U.S. were products of the popular support for specific leaders and their
M.A. Hitt et al.
ideas in certain segments of society. Thus, focusing on institutional re­
gimes, while neglecting the influence of individual leaders, social
movements, and public opinion, may not always provide adequate ex­
planations for institutional outcomes, especially when the leaders try to
achieve political end goals in their implementation of institutions or in
creating new ones. Surprisingly, even old and iconic democratic regimes
do not appear immune from such influences.
Firms seek strategies and actions to help them navigate their insti­
tutional environments, for example in their supply chain strategies.
Informal institutions may be especially important with regard to firms’
global supply chains and foreign operations, due to the uncertainties,
weaknesses, and variation in formal institutions across and within many
countries. Reflecting these different concerns, the pandemic is affecting
the traditional drivers at the core of MNEs’ raison d’être.
3. MNEs’ Raison d’Être
A central mechanism in MNEs’ strategies is their potential to have
firm-specific advantages (FSA) combined with country-specific advan­
tages (CSA) in host-markets, as is evident in Dunning’s (1988) eclectic
paradigm. The pandemic might affect this mechanism in several ways.
First, the sharp economic contraction and increased uncertainties
due to the pandemic creates a dilemma for many MNEs. If they reduce
their activities in their home country or in their foreign operations, they
risk losing some resources or capabilities that contribute to their FSA or
CSA. If they do not, they take a financial risk, which can affect the
survival of the firm. FSA and CSA often derive from organizational
routines or processes that are tacit, complex, and based on experiential
learning, as illustrated by the knowledge-based view of MNEs (Kogut &
Zander, 1992; 1993). They cannot be placed in hibernation and easily
reactivated when firms will need them in the post-pandemic period. The
risk is that, by reducing or closing down certain activities and/or laying
off employees (e.g., personnel or executives in the home or host coun­
tries), some of these FSA or CSA might be eroded or lost, thereby jeop­
ardizing future recovery and expansion in the post-pandemic period.
This problem is acute when unique technological innovations and
knowledge, spread across multiple worldwide subsidiaries and sup­
pliers, are at the core of the success of MNEs. Usually, these resources or
competences are based on years of organizational practices and coop­
eration and on flows of resources accumulated over time (Dierickx &
Cool, 1989), but the rapid and severe economic downturn and the
resulting uncertainties are threatening their preservation.
Second, economic and/or political changes due to the pandemic in
the home or host countries can disrupt institutional environments and
undermine MNEs’ existing or future FSA or CSA. Such changes can
reduce economic growth and demand, disrupt cash flows, displace
workers, limit the immigration of needed human resources, and lead to
rapid and disruptive shifts in government policy that cause inefficiencies
in MNEs’ strategies and structures. For instance, the unanticipated
changes created by the pandemic have directed more attention to MNEs’
decisions about international outsourcing and contracting for products
that were seen as commodities (e.g., no asset specificity and small
number bargaining) and were available easily from diverse foreign
suppliers (e.g., masks and drugs). Many IB theories emphasize
economics-based strategies and decisions, and many of these earlier
decisions were consistent with transaction cost economics (TCE) (e.g.,
Williamson, 1985) and internalization theory (e.g., Buckley & Casson,
1976). However, some of the previous “make vs. buy” decisions within
MNEs became ineffective when the international environment and
countries’ institutional environments changed suddenly and caused the
unexpected and exceptional increase in the demand for certain products.
Considering the unique nature and scale of the shock created by the
pandemic, it was difficult for managers to anticipate these events and
the level of ensuing uncertainty. Likewise, although strong country in­
stitutions increase predictability, the pandemic has transformed many
strategic decisions for MNEs from risky to uncertain, meaning that
4
Journal of World Business 56 (2021) 101210
managers have less knowledge and understanding about future potential
outcomes (Langlois & Cosgel, 1993). The economic and institutional
uncertainty and other dynamics created by the pandemic—such as
possible institutional changes driven by nationalism—have forced many
MNE managers to reexamine how they exercise judgment in making
strategic decisions, while also making their strategic decisions about
FSA and CSA more complex. Thus, the pandemic is complicating and
reshaping the mechanisms that constitute the raison d’être of MNEs.
Third, contextual factors such as the need for travel (Boeh &
Beamish, 2012) or health risks hinder some knowledge creation needed
to develop and support FSA and CSA (Rugman, 1981). For instance,
Schotter and Beamish (2013) defined the concept of Hassle factor to
summarize non-economic variables that affect location choice. These
variables include contextual (exogenous) dimensions at the country
level, such as safety risk, that matter to managers personally and affect
FDI decisions at the firm level (DeGhetto, Lamont, & Holmes, 2020).
More generally, in addition to usual economics-based location choice
criteria (e.g., investment potential), “foreign location decisions in MNEs
are influenced by how troublesome it is for managers to travel to or live
in certain places” (Schotter & Beamish, 2013: 521). Obviously, the
pandemic has reinforced the importance of health risks, the availability
of advanced medical care, and other Hassle factors. It also is likely the
pandemic will lead to new Hassle factors, such as vaccine availability
across multiple countries and localities within countries. Thus, this
Hassle factor, possibly with new components, will likely become more
important as non-economic factors that shape MNEs’ location choices
both during the pandemic and after it subsides.
Fourth, the map of countries’ proximity to the global distribution of
knowledge, markets, and resources is likely to change due to the
pandemic. Nachum, Zaheer, and Gross (2008) found that geographic
proximity of countries to the rest of the world has a positive impact on
MNEs’ propensity to make foreign investments in those countries. More
specifically, they found that proximity to the world’s knowledge and
markets was a stronger driver of location choice than was proximity to
the world’s resources, though larger MNEs were able to benefit more
from remote locations than smaller firms were. The pandemic may
reshuffle positions in this world map, with lasting effects for future
MNEs’ strategies. For instance, more remote locations that handled the
pandemic better might become more attractive for future MNE in­
vestments, either because their pandemic responses strengthened MNE
managers’ confidence in their institutions or because their economies
suffered less damage from the pandemic.
Finally, even if technological resources for online interactions have
developed significantly and become more commonplace during the
pandemic, knowledge creation derived from headquarters-subsidiary
and between-subsidiary interactions still requires some level of social
interactions or embeddedness between different entities (e.g., Delles­
trand & Kappen, 2012). For example, successful new product develop­
ment can require close cooperation between a R&D center in one
country, subsidiaries in other countries or regions that are responsible
for future sales and commercialization, and manufacturing units in
additional locations that are responsible for production, mixing FSA and
(location-bound) CSA in different countries. Again, the major disrup­
tions created by the pandemic are likely to upend such processes. For
example, the implications of reduced travel and face-to-face interactions
during the pandemic for trust development and coordination processes
remain unclear. Research suggests trust develops slowly in virtual teams
(Wilson, Straus, & McEvily, 2006), especially when they are globally
dispersed (Kirkman, Rosen, Gibson, Tsluk, & McPherson, 2002). Effec­
tive leadership (Joshi, Lazarova, & Liao, 2009) and altered training
regimens (Gilson, Maynard, Young, Vartiainen, & Hakonen, 2015) may
be necessary to overcome these challenges. All of these effects concur­
rently trigger major changes in MNEs’ networks of subsidiaries (i.e.,
configuration and nature of the linkages) but, even if some of their
implications are visible, some changes will probably take time to unfold
and come to full fruition, having lasting impacts on MNEs.
M.A. Hitt et al.
4. Changing international strategies
Beyond affecting the development of FSAs and CSAs that constitute
the raison d’être of MNEs, the global pandemic and other environmental
complexities are changing the international strategies of multinational
firms. We focus on a few of them: MNEs’ supply chain strategies, foreign
direct investments (FDI), and location choices (focus).
4.1. Supply chain strategy
Many MNEs have developed global supply chains to source physical
inputs, conduct value chain activities, and generate and leverage
knowledge from other organizations, often across multiple countries.
Developing and maintaining cost advantages (or cost parity), accessing
valuable resources and capabilities, and gaining a better understanding
of foreign customers, are three of the major reasons for global supply
chains. These advantages help MNEs build and enhance their competi­
tive advantages to compete more effectively in both their domestic
markets and international markets. Though these are admirable goals
and many MNEs have been well-served by global supply chain strate­
gies, the pandemic has made these supply networks more challenging to
manage due to the economic downturns, travel restrictions and reduced
willingness to travel, and nationalistic and protectionist policies and
institutions.
Verbeke (2020) suggested that the pandemic was likely to have
several effects on global supply chains. Clearly, the pandemic has made
the economic and institutional environments more volatile and uncer­
tain. And the uncertainty is even greater when the home country in­
stitutions are more distinct from those in the suppliers’ countries (higher
institutional distance). As such, Verbeke (2020) suggested that, in the
uncertainty created by the pandemic, sourcing MNEs will make greater
investments in intelligence to better understand their suppliers and the
likely institutional environments under which they must operate. The
institutional conflicts between certain countries heighten the risk, and
the multilateral institutions (e.g., United Nations, World Health Orga­
nization, World Trade Organization) established to help manage such
conflicts and facilitate coordination have been further fractured by the
pandemic and governments’ responses to it. In turn, Verbeke argued that
MNEs will reduce their irreversible investments in dispersed foreign
locations to manage these enhanced risks more effectively in the future.
These actions likely will lead to smaller and tighter-knit supply chain
networks, stronger relationships among supply partners with the pur­
pose of building and maintaining trust, and a smaller geographic foot­
print in the network. In so doing, firms’ supply chains are likely to
become more regionally oriented (The Economist, 2019), perhaps
increasing the roles and importance of regional economic and political
integration for MNEs’ strategies (as long as these regions survive the
centrifugal political forces created by the pandemic). For instance, the
27 countries in the European Union probably have a unique potential to
fulfill this role in Europe. Additionally, MNEs’ traditional goal of opti­
mizing their supply chain could be attenuated (or redefined) to deal with
existing and future potential pandemic shocks, perhaps placing the cost
and efficiency optimization into perspective by accepting some re­
dundancies, slack, or a more loosely coupled system, in an MNE’s supply
chain network. These outcomes may help manage the uncertainty and
risk inherent in these cross-country supply networks while maintaining
as many of the advantages of such networks as feasible.
4.2. Types of FDI
According to Dunning (1993), there are three types of (motives for)
FDI: market seeking, resource seeking, and non-market seeking (e.g.,
with the recent focus on efficiency seeking). Large MNEs often have
engaged in all three types of FDI, sometimes simultaneously. If we
expect that all three types of FDI will remain, however, the use of the
different types of FDI may be more selective in the post-pandemic
5
Journal of World Business 56 (2021) 101210
period. At least in the near term, we expect efficiency seeking FDI to
be the least important motive, especially because withdrawing from
such investments may allow MNEs to reclaim certain work for domestic
operations with the intent of responding to nationalistic policies and
attempting to placate political leaders. Yet, in the post-pandemic period,
there may be special opportunities to secure resources and capture
markets vacated by weakened rivals or those that did not survive the
economic disruption. However, even where these special opportunities
exist, many firms may proceed cautiously to manage the level of un­
certainty and risk they are likely to encounter. For instance, the preva­
lence of remote work during the pandemic, and the accompanying
advances in the technologies used, may allow MNEs to access specific
types of human capital globally without engaging in FDI (EYQ, 2020).
There are multiple ways in which firms can manage their risk or
uncertainty when engaging in FDI, but one major way is through the
location(s) chosen. For example, for market-seeking FDI, MNEs might
choose to enter countries which were less affected by the pandemic.
Earlier, we noted that some government leaders were able to design and
implement policies that lessened the number of serious illnesses from
the virus or achieved a faster pace of vaccinating their citizens. As a
result, these countries suffered less economic disruption and might be
among the earliest to return to economic growth and prosperity. MNEs
investing in these markets may have more economic opportunities and
experience lower risk. Other countries may present opportunities for
resource-seeking FDI. For example, developing and some emerging
economy countries may be less connected to the global economy,
thereby experiencing lower economic disruption. Also, the lack of global
connections may have buffered these countries because of lower expo­
sure to the virus. Many of these countries, such as in Sub-Saharan Africa,
remain rich in natural resources that may be accessed through FDI. Yet,
care must be taken to ensure that these countries are advantaged by the
FDI as well. Additionally, the pandemic might shape resource-seeking
FDI in different ways compared with the other types of FDI. For
instance, exogenous forces such as weaker worldwide demand for some
resources (e.g., oil)—rather than problems related to the creation and
exploitation of FSA and CSA that may depend importantly on internal
operations—could be more important for resource-seeking FDI.
Of course, location has been a major factor in MNE internationali­
zation decisions for some time (Dunning, 2000). Next, we consider the
focus of location in internationalization.
4.3. Location and regional strategy
Earlier, we noted the trend toward deglobalization, perhaps partly
motivated by non-economic considerations and institutional pressures.
However, recent work by Cuervo-Cazurra, Doz, and Gaur. (2020) sug­
gests that the new regulations designed to discourage globalization have
had little effect on cross-border economic flows. They argue that MNEs
have realized value from the global supply chains, have invested greater
effort to localize global operations (gaining local legitimacy), and
engaged in lobbying to enhance institutional support for their interna­
tional strategies. Although these attributes and actions may have offset
many deglobalization pressures, those pressures have been greatly
multiplied by the pandemic. As acknowledged by Trudeau (2020) in his
address to the United Nations, many of the multilateral institutions
established to support global economic development and political co­
ordination (e.g., The World Bank and World Trade Organization) have
become less effective in recent years, especially in light of the pandemic.
We expect that firms will continue engaging in cross-border trade but
do so more cautiously in the post-pandemic period. The inward focus of
many country political institutions, the heightened volatility, uncer­
tainty, risk, and failures of government and multilateral institutions may
lead many firms to reconsider or refocus their internationalization ef­
forts. Rugman (2005) argued that many MNEs have focused their
internationalization efforts on regions for some time, and Enderwick and
Buckley (2020) predicted that the pandemic will strengthen this focus.
M.A. Hitt et al.
Although countries located in a similar geographic region often have
comparable or related institutional profiles, Arregle, Miller, Hitt, and
Beamish (2013) found that firms engaged in arbitrage, comparing re­
gions and then countries within a region, to identify the best locations
and sets of institutions to support their business activities. The inter­
national turmoil created by the aforementioned and possible future
political changes resulting from the pandemic may destabilize the
existing institutional profiles of regions, perhaps compromising the
development of some countries within these regions, even if they make
no changes. Countries that do not dramatically modify their political or
economic environment, for example, may be affected by the changes
made by other countries in the region. As a result, even if countries can
act unilaterally to overcome the pandemic, their success also depends on
the actions of other countries in their respective regions due the growing
regional perspectives adopted by many MNEs and supra-national in­
stitutions, such as the EU and various intraregional free-trade organi­
zations. Similarly, one country’s actions might harm the attractiveness
of the region for MNE investments.
Enderwick and Buckley (2020) also argued that the pandemic will
likely lead to a regionally based global economy. A regionally based
economy, they argue, can achieve a more effective balance between
national and international interests and more efficiency in the supply
chains, because regionally based supply chains may be easier to manage
and coordinate than globally dispersed supply chains. Regionally based
MNE strategies, which often entail shorter geographic distance from the
home country and more geographic concentration, also generally
confront fewer or less severe institutional differences and might lower
uncertainty. However, this approach is not a panacea because without
effective multilateral mega-institutions, there may be more political and
economic conflicts between and within the regions. Additionally, these
conflicts can be difficult to reconcile because of the confluence of both
country-level and regional-level interests. Such conflicts may further
constrain firms’ foreign investments outside of their home region except
for highly promising resource-seeking FDI. Therefore, it is unclear if
these regionally based strategies are relatively temporary in response to
the pandemic or are longer-term consequences of the pandemic due to
multilateral institutional constraints and the difficulties (e.g., adjust­
ments costs) that MNEs could experience trying reverse such strategies.
5. Conclusions: MNEs in the post-pandemic new world
Westney (2021) argued that there have been multiple challen­
ges—such as populism, trade tensions, and the pandemic most recen­
tly—in the global operations of MNEs. Nationalistic policies create
expectations for extreme localization by MNEs, making the integration
of subsidiary operations across country borders seemingly less relevant
and more difficult to achieve. Historically, although MNEs understand
the value of localization, they also have found that value is created by
effectively integrating their various international operations. Yet,
nationalistic policies often place restrictions (e.g., tariffs) on the flow of
goods and people across country borders, thereby increasing the
complexity and challenges for MNEs to create value in this way.
Although it is not yet clear which of these changes will be permanent (i.
e., after the pandemic subsides), we know that the pandemic has fueled
or exacerbated disruptions in countries’ institutions and in the world
order more generally. These disruptions have different temporal dy­
namics. Some of them probably are easier to reverse while others might
structure the next decades. These dynamics are context dependent and
might vary across MNEs, industries, countries, regions, and (poly­
centric) institutions, making it difficult to predict specific outcomes.
Even before the pandemic, Kobrin (2017) predicted a prolonged
period of political instability and economic uncertainty, partly as a
result of globalization and its perceived negative implications for certain
stakeholders, and the pandemic has heighted these concerns. Although
MNEs seek to manage or reduce the instability and uncertainty, some
political, economic and institutional changes have constrained the
6
Journal of World Business 56 (2021) 101210
strategic actions that MNEs can take. MNEs may respond by developing
smaller and more tight-knit supply chains, engaging in more focused
market-seeking and resource-seeking FDI, and developing and imple­
menting more regionally based strategies.
Because these strategies also carry risk, Verbeke (2020) suggested
that MNEs may increase their level of product diversification. Such
diversification reduces the product market risk within geographic
markets, though perhaps not across markets and thus, this approach may
be less common than regional strategies. Likewise, a more focused
geographic footprint reduces some risk but may increase other types of
risk. If firms use a regionally based strategy, they could be subject to
political and/or economic risk in the region (e.g., Asian Financial Crisis).
As Trudeau suggested in his talk to the United Nations, the pandemic
may not be the worst problem countries and MNEs have to face in the
coming years. Westney (2021) argued that continuing climate change
and its possible consequences—including more frequent wildfires,
catastrophic storms, and droughts—might have substantial effects on
MNEs’ supply chains and markets in the coming years. She also suggests
that large established MNEs will be expected to help address the prob­
lems caused by environmental degradation and help develop a more
sustainable environment. The pandemic has focused even more atten­
tion on climate change and its consequences, as financial resources have
become scarce and reduced travel has lowered carbon emissions (which
many believe are largely responsible for climate change). Likewise, the
potentially severe economic consequences of climate change may
become more salient when added to the negative economic conse­
quences of the pandemic. Zakaria (2020) argued that the sudden and
massive seizures are experienced about every 10 years (three since
2000—9/11/2001, 2008 Financial Crisis, and the current pandemic)
and future ones are likely to have cascading effects. He noted that
globalization is not dead, but we are living in a new age of globalization
with countries becoming more parochial, ongoing changes in the eco­
nomic power distribution, and an increasingly borderless digital world.
Still, as emphasized by historians, elements of imagination and in­
genuity also emerge during such difficult times, perhaps leading to
significant improvements over the long term. Hopefully, some of the
effects we have described will also lead to such future positive changes.
One outcome may be MNEs engaging in institutional entrepreneurship
to help shape revisions to existing institutions, or the development of
new institutions, to better prepare for and reduce the negative effects of
future pandemics and other major disruptions that might occur.
Thus, the complex problems caused by the changing institutional and
economic environment, the global pandemic, and its implications for
other potential disruptions (e.g., climate change) likely will require
managers to respond in ways that demand new capabilities. MNEs may
face dynamic equilibria because their environments are in a continual
state of change. As a result, they must be able to design and implement
strategic change regularly. In fact, Hitt, Arregle et al. (2021) argued that
managers (e.g., in headquarters and subsidiaries) will need to develop
supra-dynamic capabilities. That is, they need to build the capability to
develop new capabilities (Helfat & Peteraf, 2015) within complex and
dynamic contexts, to tailor those capabilities to the needs of the local
environments, and to alter these capabilities quickly and with increasing
frequency. These managers must be resilient in the face of daunting
challenges and changes, build hybrid and agile organizations that inte­
grate multiple strategies, logics, and structures, and attend to diverse
stakeholders’ (including governments) interests more effectively. Such
changes, along with imagination and ingenuity may be needed to design
innovative strategies (domestic and international) and implement them
rapidly to compete in the pandemic and post-pandemic world (dis)
order.
References
Abrams, R. (2020). What’s in the stimulus package for small businesses, PPP loans and
cultural grants. USA Today. December 30.
M.A. Hitt et al.
Ahlstrom, D., Arregle, J. L., Hitt, M. A., Qian, G., Ma, X., & Faems, D. (2020). Managing
technological, sociopolitical, and institutional change in the New Normal. Journal of
Management Studies, 57, 411–437.
Arregle, J. L., Miller, T. L., Hitt, M. A., & Beamish, P. W. (2013). Do regions matter? An
integrated institutional and semiglobalization perspective on the
internationalization of MNEs. Strategic Management Journal, 34, 910–934.
Batjargal, B., Hitt, M. A., Tsui, A. S., Arregle, J. L., Webb, J. W., & Miller, T. L. (2013).
Institutional polycentrism, entrepreneurs’ social networks, and new venture growth.
Academy of Management Journal, 56(4), 1024–1049.
Boeh, K., & Beamish, P. (2012). Travel time and the liability of distance in foreign direct
investment: Location choice and entry mode. Journal of International Business Studies,
43, 525–535.
Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. London:
Holmes & Meier Publishers.
Cuervo-Cazurra, A., Doz, Y., & Gaur, A. (2020). Skepticism of globalization and global
strategy: Increasing regulations and countervailing strategies. Global Strategy
Journal, 10, 3–31.
DeGhetto, K., Lamont, B. T., & Holmes, R. M. (2020). Safety risk and international
investment decisions. Journal of World Business, 50. https://doi.org/10.1016/j.
jwb.2020.101129.
Dellestrand, H., & Kappen, P. (2012). The effects of spatial and contextual factors on
headquarters resource allocation to MNE subsidiaries. Journal of International
Business Studies, 43, 219–243.
Devinney, T. M., & Hartwell, C. A. (2020). Varieties of populism. Global Strategy Journal,
10, 32–66.
Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of
competitive advantage. Management Science, 35, 1504–1511.
Dunning, J. (2000). The eclectic paradigm as an envelope for economic and business
theories of MNE activity. International Business Review, 9, 163–190.
Dunning, J. (1993). Multinational enterprises and the global economy. Harlow: Addison-
Wesley.
Dunning, J. H. (1988). The eclectic paradigm of international production: A restatement
and some possible extensions. Journal of International Business Studies, 19, 1–31.
Enderwick, P., & Buckley, P. J. (2020). Rising regionalization: Will the post-COVID-19
world see a retreat from globalization? Transnational Corporations Journal, 27(2). htt
ps://ssrn.com/abstract=3692317.
Etzioni, A. (2015). The new normal: Finding a balance between individual rights and the
common good. London: Routledge.
EU. (2020). Coronavirus: EU funding for the transport of medical goods, medical teams and
patients. June 18, 2020. European Union https://ec.europa.eu/commission/pressco
rner/detail/en/ip_20_1118.
Eurostat. (2020a). News release: Euroindicators. https://ec.europa.eu/eurostat/documents
/2995521/10662173/2-13112020-AP-EN.pdf/0ac3f053-f601-091d-ea21-db1
ecaca7e8c.
Eurostat. (2020b). Which country imported the most face masks?. https://ec.europa.eu/eur
ostat/web/products-eurostat-news/-/DDN-20201006-1.
EYQ. (2020). Beyond COVID-19: Will you define the new normal or watch it unfold?
Ernst & Young Quarterly. https://www.ey.com/en_us/covid-19/will-you-define-the-
new-normal-or-watch-it-unfold.
Gambardella, A. (2020). STR Plenary - 20/20: Focusing on COVID’s implications for the
field of strategic management. Academy of Management Annual Meetings.
Gilson, L. L., Maynard, M. T., Young, N. C. J., Vartiainen, M., & Hakonen, M. (2015).
Virtual teams research: 10 years, 10 themes, and 10 opportunities. Journal of
Management, 41, 1313–1337.
Greenwood, R., & Suddaby, R. (2006). Institutional entrepreneurship in mature fields:
The big five accounting firms. Academy of Management Journal, 49, 27–48.
Helfat, C. E., & Peteraf, M. A. (2015). Managerial cognitive capabilities and the
microfoundations of dynamic capabilities. Strategic Management Journal, 36,
831–850.
HHS. (2021). Coronavirus (COVID-19) grant opportunities and guidance. U.S. Department
of Health & Human Services. https://www.hhs.gov/coronavirus/grants/index.html?
language=es.
Hitt, M. A., Arregle, J.-L., & Holmes, R. M., Jr. (2021). Strategic management theory in a
post-pandemic and non-ergodic world. Journal of Management Studies, 58, 259–264.
Hitt, M. A., Sirmon, D. G., Li, Y., Ghobadian, A., Arregle, J.-F., & Xu, K. (2021).
Institutions, industries and entrepreneurial versus advantage-based strategies: How
complex, nested environments affect strategic choice. Journal of Management and
Governance, 25, 147–188.
Holmes, R. M., Miller, T., Hitt, M. A., & Salmador, M. P. (2013). The interrelationships
among informal institutions, formal institutions, and inward foreign direct
investment. Journal of Management, 39, 531–566.
Holmes, R. M., Zahra, S. A., Hoskisson, R. E., DeGhetto, T., & Sutton, T. (2016). Two-way
streets: The role of institutions and technology policy for firms’ corporate
Journal of World Business 56 (2021) 101210
entrepreneurship and political strategies. Academy of Management Perspectives, 30,
247–272.
Joshi, A., Lazarova, M. B., & Liao, H. (2009). Getting everyone on board: The role of
inspirational leadership in geographically dispersed teams. Organization Science, 20,
240–252.
Kirkman, B. L., Rosen, B., Gibson, C. B., Tsluk, P. E., & McPherson, S. O. (2002). Five
challenges to virtual team success: Lessons from Sabre, Inc. Academy of Management
Executive, 16, 67–79.
Kobrin, S. J. (2017). Bricks and mortar in a borderless world: Globalization, the backlash,
and the multinational enterprise. Global Strategy Journal, 7, 159–171.
Kogut, B., & Zander, U. (1992). Knowledge of the firm, combinative capabilities, and the
replication of technology. Organization Science, 3, 383–397.
Kogut, B., & Zander, U. (1993). Knowledge of the firm and the evolutionary theory of the
multinational corporation. Journal of International Business Studies, 24, 625–645.
Langlois, R. N., & Cosgel, M. M. (1993). Frank Knight on risk, uncertainty, and the firm:
A new interpretation. Economic Inquiry, 31(3), 456–465.
Maguire, S., Hardy, C., & Lawrence, T. B. (2004). Institutional entrepreneurship in
emerging fields: HIV/AIDS treatment advocacy in Canada. Academy of Management
Journal, 47, 657–679.
Marano, V., Arregle, J.-L., Hitt, M. A., Spadafora, E., & van Essen, M. (2016). Home
country institutions and the internationalization-performance relationship: A meta-
analytic review. Journal of Management, 42, 1075–1110.
Meyer, A. D., Brooks, G. R., & Goes, J. B. (1990). Environmental jolts and industry
revolutions: Organizational responses to discontinuous change. Strategic Management
Journal, 11, 93–110.
Mutikani, L. (2020). U.S. Job growth slows; nearly 4 million Americans permanently
unemployed. Yahoo News. https://au.news.yahoo.com/slower-u-job-gains-anticipat
ed-040713222.html.
Nachum, L., Zaheer, S., & Gross, S. (2008). Does it matter where countries are? Proximity
to knowledge, markets and resources, and MNE location choices. Management
Science, 54, 1252–1265.
North, D. C. (1999). Dealing with a non-ergodic world: Institutional economics, property
rights and the global environment. Duke Environmental Law & Policy Forum, 10(1),
1–12.
Ostrom, E. (2005). Understanding institutional diversity. Princeton, NJ: Princeton
University Press.
Ostrom, E. (2010). Beyond markets and states: Polycentric governance of complex
economic systems. American Economic Review, 100, 641–672.
Petricevic, O., & Teece, D. J. (2019). The structural reshaping of globalization:
Implications for strategic sectors, profiting from innovation, and the multinational
enterprise. Journal of International Business Studies, 50, 1487–1512.
Rugman, A. M. (2005). The regional multinationals: MNEs and ‘global’ strategic
management. Cambridge, UK: Cambridge University Press.
Rugman, A. M. (1981). Inside the multinationals: The economics of internal markets. New
York: Columbia University Press.
Schotter, A., & Beamish, P. W. (2013). The hassle factor: An explanation for managerial
location shunning. Journal of International Business Studies, 44, 521–544.
Snowden, F. M. (2019). Epidemics and society: From the black death to the present. Yale
University Press.
Sutton, T., Devine, R. A., Lamont, B. T., & Holmes, R. M. (2021). Resource dependence,
uncertainty, and the allocation of corporate political activity across multiple
jurisdictions. Academy of Management Journal, 64, 38–62.
The Economist. (2019). Globalisation has faltered. https://www.economist.com/briefing/
2019/01/24/globalisation-has-faltered.
Trudeau, J. (2020). Speech to the United Nations assembly. Canadian Broadcasting
Corporation. September 25 http://www.cbc.ca./news/politics/trudeau.
Vanacker, T., Zahra, S. A., & Holmes, R. M. (2020). Corporate entrepreneurship, country
institutions, and firm financial performance. Journal of World Business. https://doi.
org/10.1016/j.jwb.2020.101162.
Verbeke, A. (2020). Will the COVID-19 pandemic really change the governance of global
value chains. British Journal of Management, 31, 444–446.
Westney, D. E. (2021). MNCS and cross-border strategic management. In I. Duhaime,
M. A. Hitt, & M. Lyles (Eds.), Strategic management: State of the field and its future.
Oxford, UK: Oxford University Press. in press.
Wilson, J. M., Straus, S. G., & McEvily, B. (2006). All in due time: The development of
trust in computer-mediated and face-to-face teams. Organizational Behavior and
Human Decision Processes, 99, 16–33.
Xu, K., Hitt, M. A., Brock, D. M., Pisano, V., & Huang, L. (2020). Country institutional
environments and international strategy: Review and analysis. Journal of
International Management. https://doi.org/10.1016/j.intman.2020.100811.
Zakaria, F. (2020). Ten lessons for a post-pandemic world. New York: W. W. Norton.