1.

Reflections on global strategy in

a turbulent world
Stephen Tallman and Mitchell P. Koza

The sudden and unexpected onset of the coronavirus pandemic in 2020 brought
the world economy to a virtual halt in the face of medical challenges not seen
since the Spanish flu of 1918. The unprecedented onslaught of the Russian
army’s move into Ukraine in 2022 caught gradually recovering global supply
chains by surprise and shut down important inputs of oil, natural gas, wheat,
nickel, steel, and aluminum, as well as other key minerals. These recent events
come on top of significant disruptions to the global economic system created
by the Trump administration’s war on trade and investment with China and
Europe, the earthquake/tsunami/nuclear disaster in Japan, floods in Thailand,
drought in California and China, war in and refugee floods from Syria, and
a variety of other disasters both natural and manmade. And then there are
the existential threats of climate change, population growth, environmental
degradation, species extinction, and food supply disruptions. The neo-liberal
economic policies of globalization, efficient operations, and effective infor-
mation processing, which have been the foundation of an expanding global
economy through decades of a relatively stable world business environment,
seem unable to withstand effectively the turbulence that has descended on
global markets.
At the same time, and in part at least due to this turbulence, the rise of
nationalism, authoritarianism, and increasing preferences for local owner-
ship, production, and distribution have become ascendant in Eastern Europe,
Turkey, India, the Middle East, Latin America – and even among a growing
number of policymakers on both sides of the North Atlantic. This is likely to
accelerate as increasingly authoritarian and xenophobic populist governments
respond to pandemics, massive population shifts, income inequalities, and
extensive job restructuring with isolationist economic and social policies.
These increased frictions in the system threaten the macro-political economy
and the flows of trade, capital, and investment that support it on an institutional
level. They also create critical strategic and organizational challenges for
multinational companies that are trying to adjust to a new and less friendly
environment for global business strategy.

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 Reflections on global strategy in a turbulent world 3

Global business strategy is strategy in context; it studies “cross-border activ-

ities of economic agents or the strategies and governance of firms engaged
in such activity” (Tallman & Pedersen, 2015: 273). Consequently, while all
business strategy must adapt to new and evolving exogenous conditions, this
imperative is more apparent, more immediate, and more consequential in
global markets and among global multinational enterprises (MNEs), where
crossing borders is a ubiquitous activity. Strategic and organizational responses
to the turbulent “new world order” are essential for companies hoping to be
“selected in”, to borrow Darwinian terminology. How can companies deliver
on demands for sustainability, adaptability, and local identity while also pro-
viding for worldwide reach, world-class technology, and world-beating com-
petitiveness? What can we expect of tomorrow’s companies as they adapt to
the newly turbulent world order and try to manage these environmental cross
pressures? And how do the short- and long-term consequences compare as
multinational firms contemplate major, potentially “bet the company” redirec-
tion and investment? Can slack-ridden “just-in-case” operational and logistical
strategies really drive out low-cost, efficient “just-in-time” and “just-enough”
strategies in the face of global financial market pressures – which themselves
are likely to be exacerbated, not mitigated, by this same turbulent, more uncer-
tain, higher-risk global order?

THE CONDITIONS AT THE START: OFFSHORING,

OUTSOURCING, AND SUPPLY CHAIN EFFICIENCY

Well before the world slipped into its current macro-turbulence – geopolitical,
environmental, cultural, demographic, healthwise – we were observing trends
away from the traditional large, vertically integrated, bureaucratic multina-
tional company as the mainstay of the international economic order. Perhaps
the single most important factor driving and permitting change was the infor-
mation and communication technology (ICT) revolution. Increased computing
power, increased transmission bandwidth, increasingly small devices, increas-
ingly powerful software, and increasingly sophisticated users recalibrated
transactional relationships in global markets. Increasing efficiency no longer
required tight bureaucratic controls when vast arrays of data were available
and easily analyzed in close to real time. While the impact of ICT still is far
from complete, certain trends that are dependent on technology had become
apparent since the beginning of the 21st century. Supply chains had become
longer and more complex, and increasingly dependent on outsourcing special-
ists in distant locations. “Factoryless goods producers” such as Apple and Nike
own few productive (in the traditional sense) assets but control their global
value chains (GVCs) and accumulate most of the network profits by tightly
controlling critical intangible assets (Buckley et al., 2022). Only the increas-

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4 Strategy in a turbulent era

ing use of ICT made possible the radical offshoring and outsourcing that we
have seen leading up to (and amplifying, if not creating) the current crises.
Downstream value propositions have also undergone deep structural change,
especially in services, where working capital charges are less relevant. The rise
of the “gig economy” and other approaches to radically decentralized value
delivery to customers substituted ICT for bureaucratic oversight and allowed
firms to maintain tight control over armies of “contractors” while minimizing
resource expenditures and exposure in international markets.
As more and more countries moved from relatively low levels of devel-
opment into “emerging market economy” status, MNEs looked to them (and
especially the Big Emerging Markets, BEMs, of China, India, Brazil, South
Africa, Nigeria, and the like) as large and potentially rapidly growing markets
and, critically, as low-cost sources of production for themselves and for the
developed world. Companies in these countries and in other nascent industrial
economies have become more sophisticated and more integrated into the world
economy as the countries offered better-educated and trained workers and
their own intangible assets. As a result, the possibilities for MNEs to outsource
non-core – but not unimportant – activities from these countries, or for emerg-
ing market firms to extend their operations into developed markets, seemingly
became endless. This information-age approach to business, whether dispersed
manufacturing or remotely owned personal services delivered by “independent
contractors”, builds the global organization around the “one big idea”, a brand,
a few lines of code, and a minimum of recognized full-time employees. This
increasingly dispersed, market-based, and ICT-driven globalization of markets
and supply chains was typified by the rise of China as an essential market,
a vital link in global supply chains, and increasingly as the homebase of many
rapidly expanding and highly competitive MNEs of its own. Even the 2008
global recession had at best a temporary impact on this system, which only
gathered itself for further expansion on the same model within a couple of
years.
Our own work conducted over the last decade points toward the increasing
dissolution of large, bureaucratic, and vertically integrated MNEs in favor of
dispersed networks of value-adding firms tied to, but not necessarily owned
by, global flagship firms (Tallman & Koza, 2010). The global flagship firms
cut headcount, capital investment, and actual internal production to the bone,
replacing commitment with flexibility, bureaucracy with technology, tangibles
with intangibles, and working capital with short- and long-term contracts.
Firms became MNEs by moving production to countries that had become
major markets and then using these sites also to supply the original home
market and other international locations, as described years earlier in Vernon’s
(1966) International Product Life Cycle model, through intra-firm trade –
exports kept within the boundaries of the firm (Casson, 1987). The rapid evo-

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 Reflections on global strategy in a turbulent world 5

lution of global markets and the accession of large emerging market countries,
especially China, into the World Trade Organization allowed firms to consider
widespread offshore production, possibly but not necessarily servicing the pro-
ducing nation, but primarily aimed at a worldwide market. Moreover, offshore
production offered the opportunity to repatriate innovations and organizational
capability to home countries which could then be redeployed across far flung
subsidiaries (Koza, Tallman, & Ataay, 2011).
The rise of offshore manufacturing was highlighted by opposition to the
North American Free Trade Agreement (NAFTA), seen as opening the door
to moving low-cost production out of the US, but with the US remaining
the primary market. By the time of the 2004 American presidential election,
recognition arose that China was the actual beneficiary of much of this off-
shoring and moreover that many business services were also moving offshore,
often to India (Blinder, 2006). At the same time, largely domestic firms were
looking to outsource this international production rather than trying to manage
factories or call centers in emerging markets, and developing ICT made moni-
toring contract performance more reliable and less expensive. Ever-freer trade,
a rules-based world order, and densely integrated networks allowed efficiency
to rule in “the global factory” (Buckley & Strange, 2011) as uncertainty seemed
to disappear. Global just-in-time supply chains produced globalized products
based on universal technologies to satisfy increasingly convergent demand
across markets in all places and at all levels of development. Value was deliv-
ered by innovation, technology, branding, and integration, no longer by tightly
controlled, vertically integrated manufacturing. Global MNEs could focus on
the high-value ends of the “production smile”, while outsourcing the low-value
basics to production specialists in low labor cost locations (Mudambi, 2007).
Companies like Xfinity in the US and Wanadoo in France can and do focus
on the “last mile” for information and content delivery. Moreover, we observe
companies such as Apple making an estimated 100% gross profit margin on
iPhones and other devices, while contract assemblers such as Foxconn made
a few dollars apiece for building these electronic marvels in Southern China.
Technology, redundancy, and integration in the global factory were expected
to result in flexible, responsive, decentralized networks of supply and distri-
bution that would be robust to disruptions in one part of the system as other
providers covered for them (Buckley & Ghauri, 2004).
Tallman and Koza (2010) proposed a unique and uniquely capable model
for understanding business organizations for the global information age
economy. The concept of the global network organization addressed out-
sourcing and specialization, offshoring and globalization, with a model
reliant on two key concepts. Strategic Assembly, or building the organization
in a strategic manner, is based on a deep understanding of complex goals,
competing needs for innovation, flexibility and resilience, and strident and

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6 Strategy in a turbulent era

often conflicting demands from external stakeholders. It refers to the con-

sidered use of the full range of internal development, mergers, acquisitions,
joint ventures, syndicates, and strategic alliances to construct the formal and
informal organization. Where and how to draw the permeable boundaries of
modern companies is a constant and on-going strategy discussion for senior
managers, boards of directors, regulators, workers, unions, and governmental
officials (Koza, Tallman, & Ataay, 2011). Understanding what assets are the
real basis of competitive advantage for the MNE is essential – and these are
often small but critical bits of knowledge rather than vast capital-intensive
processing facilities. At the same time, knowing where and how to position
or access resources – both strategic and complementary – is essential to the
cost efficiency that came to drive the global system. And finally, governance,
and particularly the choice of owning assets versus accessing them as needed,
provides the network with the flexibility that is needed to adjust quickly to
changing demand patterns and supply variations.
Strategic Animation describes the processes for providing strategic direction,
incentives for both efficiency and innovation, and managerial motivation – all
while maintaining flexibility, adaptability, and responsiveness by minimizing
bureaucratic oversight, sunk investment, and organizational homogeneity.
In newly assembled companies it is not uncommon to lack traditional tools
of rewards, measurement, and other incentives. For these companies, man-
agement without control is a new strategic imperative. By using market-like
incentives, common managerial technology, modular task structures, and other
tools to make cooperation efficient and rewarding, global MNEs were pioneer-
ing ways to motivate a widespread network of affiliates, subsidiaries, partners,
and contractors to work cooperatively to the benefit of all through self-interest
(Tallman & Koza, 2016). Nowhere is this more relevant than in professional
service firms, including, but not limited to, accounting, consulting, finance,
and insurance firms.
We found that bureaucracy, with its formal structures, command-and-control
approach to governance and direction, vertical integration and inflexibility,
inability to adapt to changing context, and limited incentives for innovation
for most operational units, was ill suited to the demands of the global infor-
mation economy. In a system where global integration of national markets
was increasing year on year, as were information technology-based control
mechanisms, and where armies of increasingly skilled workers were becom-
ing available across the many emerging market countries, something new
was needed. With its focus on innovation everywhere, lean organization,
and growth incentives, the Global Network Organization, made up of many
suppliers bound to a “flagship” global MNE (Rugman & D’Cruz, 1997) by
common interests, economic incentives, and information systems as opposed
to bureaucratic rules, seemed an increasingly apparent answer.

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 Reflections on global strategy in a turbulent world 7

THE WORLD CHANGES AND THE SYSTEM TURNS

CHAOTIC: THE BEST AND WORST OF TIMES

Then it all changed. The sudden onset of trade wars and real wars, viruses both
real and virtual, of labor strife and populism, isolation and political disinte-
gration, have generated a chaotic system. That is, a system highly sensitive to
unexpected, often small, variations in inputs yet offering the potential to settle
eventually into a new equilibrium likely to be radically different from the past
half-century. A bat bites a vendor in a Chinese “wet market” (maybe…) and
the global economy collapses while millions of people die. When Germans
cannot import oil from Russia to run their BMWs, Americans in Los Angeles
find that prices on their widely available gasoline stocks go through the roof.
If Ukraine’s farm output is bottled up in port by the Russian navy, people go
hungry in Africa and bread costs more in Portland, OR. The authoritarian rulers
of one state after another blame immigrants, racial groups, minority religions,
and democracy, and begin using exports as weapons, threatening investment,
cutting off labor supplies, and threatening or even starting wars. Buckley and
others (2022) observe that these new realities are changing power relationships
between MNEs and their various global value chain partners, and between
MNEs and the governments where they operate. Fragmentation of production
of goods has stalled, but not for services, while royalties and license fees have
grown faster than FDI and trade since 2010 (Buckley et al., 2022). What the
world has discovered is that the supposed resilience of the global system had
been undermined by the drive for efficiency and low costs.

Global Supply Networks

What we are seeing in the real world of global markets suggests that the
entire international trade and investment network is failing to deliver on its
promises and may well be teetering on the brink of total collapse. Global
supply networks were struggling in early 2020 as a result of Brexit in Europe
and the Trump tariffs on steel and aluminum and on many other Chinese
goods and retaliation from China, the European Union, and other countries.
The onset of the COVID-19 pandemic at that time simply shut down global
supply networks as China closed production in many cities, ports there stopped
loading, ports in the US and other importers stopped unloading, trucks, trains,
and airplanes stopped moving goods and people, and fear gripped much of the
world. Backlogs of container ships lying offshore grew months long. Workers
in retail, transportation, hospitality, and other personal service industries were
laid off or stayed home – or got sick and couldn’t work. A significant part of

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8 Strategy in a turbulent era

world commerce stopped for a short time and resumed in a halting and incon-
sistent fashion for a year.
And then vaccines were approved, and people started to resume their lives,
and – of course – suddenly overstressed supply lines collapsed, goods became
unavailable, prices jumped, and a feared global economic collapse suddenly
gave way to record inflation across much of the world. Pent-up demand ran
into defunded supply, and chaos seemed imminent. And as this condition
began to ease slowly, Vladimir Putin decided that the Spring of 2022 would be
a good time to right what he saw as historical wrongs by invading Ukraine with
military forces. While his strategic judgement turned out to be greatly lacking,
supply disruptions of Ukrainian grain and minerals and sanctions on Russian
exports have left the world with a shortage of wheat and other essential foods,
oil and natural gas, and essential minerals – all industries that relied in great
part on commodity production in Ukraine, Russia, or both. And increased
food, energy, and transportation costs, economic sanctions, increased suspi-
cion of immigrants, and fears of the political and medical risks of travel and
tourism led quickly to a new burst of inflation across the world, and significant
struggles for even the most modern globally networked MNEs.
Has the concept of the global network failed? Or did mistaken assumptions
and bad implementation simply get caught out by unpredictable events?
We would argue for the latter interpretation. Building networks of suppliers
working on relatively short-term contracts was supposed to create an efficient,
innovative, resilient system of supply, with global systems integration able to
shift production quickly in response to changing conditions. Unfortunately,
a relatively long period of economic stability let the demands of efficiency
drive out slack and therefore resilience. As various production sites were
closed to the world by natural disasters, such as the COVID-19 pandemic,
the Japanese tsunami, or the Thai floods, or by manmade troubles, such as
the poorly considered Japanese nuclear reactor design or poorly designed
tariff increases by populist regimes, systemic weaknesses were exposed
(Perez-Batres & Trevino, 2020). For instance, in a world of many suppliers, it
seems that certain key components for many systems are ultimately sourced
by everyone from one location and often, indeed, from the same company, as
in the case of semiconductors from Taiwan Semiconductor Manufacturing
Company (TSMC), so that seeming redundancy and adaptability turned out to
be illusory. With the truth hidden by many sub-contracts, all eventually leading
back to a single source, a local natural disaster could stop an entire global
industry. Narrowed choices of ultimate suppliers also turned out to be exposed
to disastrous strategic choice. We saw, for instance, that when COVID-19
shut down many markets for goods and disrupted supply chains, demand
dropped suddenly for many commodities. In response, and as national policy
shut production sites to control the disease, the production of semiconductor

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 Reflections on global strategy in a turbulent world 9

chips, among many other key industrial components, slowed dramatically.

When demand for consumer goods surged in 2021, suddenly many products
that used these chips as components, most notably automobiles, could not be
manufactured in a timely way. It turned out that terminating contracts and
shutting down chip foundries, and (falsely) hoping to rely on TSMC, could
be done much more quickly than revving production back up and starting the
supply chains moving again.
Competitive pressures for efficiency and technology have left the world in
a situation where a small number of companies make the most of the world
supply of various essential commodities in a limited number of highly sophis-
ticated and very capital-intensive fabrication facilities in only a few locations
– notably China, Taiwan, and South Korea in the case of computer chips. No
matter what companies are contracted by Ford, BMW, or Geely to supply
various chips, actual manufacture of these key components lies in the hands of
these few “fabricators”. And they stopped production when contracts dried up
and then faced long delays in increasing supply when demand suddenly surged
across virtually all goods-producing industries at the same time. So American,
European, Japanese, Indian, and other customers who suddenly wanted that
new car once they felt they could start leaving home again simply could not
get one. And the price of used cars jumped dramatically as this latent demand
shifted, and… well, we all know the story. Logistical systems intended to be
maximally efficient through the application of just-in-time principles to global
supply chains had been working just fine during the long period of expansion
but were unable to deal with sudden drops and surges in demand resulting from
trade wars and COVID-19 (Buttonwood, 2022). With no inventory capacity
to save on working capital charges, slowdowns required decommissioning
production, so that sudden increases had no inventory stock to draw from –
and restarting production was slow and problematic. So too was restarting the
shipping system, with shortages and chokepoints from one end to the other
preventing a smooth recovery and unfulfilled demand leading to price inflation
as consumers bid against each other for – oh, pretty much everything.
The cost of production technology made excess capacity for chip produc-
tion irrational – at least while the system worked smoothly. It also meant that
worldwide markets tended to be supplied from a minimum number of plants
sized to maximize scale economies in the face of intense competitiveness from
both customers and competitors. Excess capacity, stockpiles, inventory, truly
redundant suppliers – all were driven out by the relentless demand for better
technology at a lower cost. When the system was jammed by unexpected
events, it simply did not have the slack to adapt to sudden changes. Today, key
Taiwanese electronics assemblers are moving assets out of China, with about a
30% reduction (Leaders, 2022), but many of these assets have only moved, like
sport shoes and clothing before them, to Vietnam and Bangladesh. Companies

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10 Strategy in a turbulent era

are relearning the seeming eternal truth that slack resources represent the
embodied capability of firms to adapt to unpredictable future events.
One widespread policy response to sudden disruptions in global markets
was to demand that production be moved to local or regional suppliers in
many markets (Perez-Batres & Trevino, 2020). Pressures to reverse the flows
of production to offshore sites had been building for years, if not decades, but
MNEs were generally able to resist political pressures by pointing to more
available, less expensive, goods and services for all, even if some workers
lost jobs to less expensive labor in the BEMs of Asia. Also, as borders were
closed, either to imports or to exports, alternative sources of supply turned out
to be inadequate or non-existent – so that high tariffs on steel imports to the
US had little impact on an American industry that was not prepared to expand
(but was happy to take profits when the price of foreign steel jumped up). In
the end, American products made with more expensive foreign and domestic
steel became non-competitive in foreign markets and lost sales to higher
prices at home. Knee jerk increases in centralization, represented by enhanced
regulation and government held “golden shares”, multiplied the challenges for
firms competing in markets where both the pace and direction of change are
inherently unpredictable.
Multinational companies will need to be prepared for increasing frictions
in international transactions at the political, social, and economic levels while
experiencing increasingly transparent information. It seems likely that oper-
ations will be forced to decentralize into multiple locations, both to satisfy
populist demand for local adaptation and to relieve the potential for supply
disruption that is inherent to single point sourcing. Again, Buckley and others
(2022) predict increasing barriers to trade in both final and intermediate goods,
slowing offshoring to low wage economies, while environmental concerns are
likely to slow globalization of goods production, but the “work-from-home”
ethos of the COVID-19 era may encourage further dispersal and offshoring
of intellectual services. They conclude that the rents to intangible assets are
likely to rise, while tangible assets will begin to accumulate near their markets
rather than in offshore production centers. Increasing automation and new
technologies such as 3D printing, artificial intelligence, robotic assembly,
GPS tracking, and the like have made local production, production near or in
the market region, potentially competitive for price, technology, reliability,
and quality. As unskilled labor-intensive inputs are increasingly driven out by
capital intensive investment in technology, locating production facilities where
unskilled labor is available and cheap matters less and less. Of course, excesses
in eliminating global sourcing bear their own problems. The Economist
(Leaders, 2022) estimates that replicating 25% of world supply chains would
increase costs by about 2% of world GDP.

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 Reflections on global strategy in a turbulent world 11

At the same time, ownership as a necessity for strategic control was coming
to seem increasingly obsolete as digital information technologies either elimi-
nated or reduced information asymmetries in deal making, made moral hazard
both visible and easily punished, and rendered compliance and operations
monitoring inexpensive and ubiquitous (Dierickx & Koza, 1991). However,
the supply crisis showed that contracts could be broken or unfulfilled, and
that some customers were more important than others. When only a portion of
a supplier’s output can be produced, some customers are going to go without.
This is not hidden or opportunistic, just the way things are… but most likely
smaller, less lucrative, newer, more challenging customers will be forced
to shut down while big MNEs outbid each other for the remaining supply.
But, if more downstream companies owned their key suppliers, could they
have preserved their input streams? Possibly so, although this implies more,
smaller, less efficient, less focused suppliers, and consequently higher costs.
Demands for sustainability in the face of natural pressures (disease, climate
change, sea rise, air and water pollution, population trends, and the like) and
distributive justice in the face of income inequality, health care inequities,
and employment restructuring and uncertainty will increase the complexity
of cross-border operations and require increasing innovation and resilience on
the part of companies. The new global strategic organizations will be active
and empowered citizens of the new economic order. Everyone has an interest
in how they exercise their franchise, and once more, ownership may become
ascendent again. Social justice goals are almost certainly going to raise costs,
and disinterested customers are less likely to accept higher prices than internal
customers who also benefit from sustainability claims at the corporate level.
Kieretsu and chaebol-like structures with partial interlocking ownership struc-
tures may become increasingly relevant and effective.

Worldwide Markets and the Gig Economy in Services

We see that the seeming “black swan” events of the last few years (Perez-Batres
& Trevino, 2020) have thrown global networks into chaos. Downstream
markets, especially for services, have been evolving toward network models
with the actual providers being contracted by global MNEs such as Uber,
Airbnb, Lime, Grubhub, FedEx, and the like. These companies were clearly
succeeding with their “asset light” approach to international markets, despite
pushback from governments, competitors, and individuals (Marano, Tallman,
& Teegen, 2020). The character of these personal services has kept many
workers on the job, although the fever to field driverless automobiles suggests
a tech solution perhaps even here – eventually – but by outsourcing the actual
provision of services, the big platform MNEs have been able to minimize

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their labor and human resource costs, including salaries, insurance, retirement,
unemployment benefits, and most other indirect compensation.
In a stable system with few institutional restrictions on corporate expansion,
particularly in industries where the basic economic and social consequences
were poorly understood, MNEs could easily establish their internet-based plat-
forms in any country and contract with local suppliers actually to do the work
for the customer. A scalable brand, concept, web page, and a bit of code could
be put into place anywhere at a low cost with a tiny startup team to collect local
suppliers. In a growth economy, the model worked almost everywhere, with
both customers and service providers satisfying needs that often had never
been recognized. However, the idea of decentralized global networks quickly
ran into problems as communities felt overwhelmed, providers realized that
they were being exploited and underpaid, and the few executives became
vastly wealthy. Suddenly, the widely touted “sharing economy” looked much
more a vehicle for exploiting workers to enrich their bosses and expand the
already huge wealth gap in the industrialized nations. Revolutionary political
movements sadly have been birthed in these kinds of circumstances in other
periods of history.
Again, the outcome of rapid global expansion, decentralized control,
outsourced value creation, and inadequate institutional response provided
an initial burst of optimism and market expansion, followed by a cascade of
problems – blithely unanticipated in the rush toward the shiny new idea of
the network economy, but sadly obvious in hindsight. So we see Uber banned
from some countries, selling out to local competitors in others, and taking on
drivers as employees in yet other locations. Airbnb has devastated housing
markets in San Francisco, acceded to legal limits on short-term rentals in New
York, tried to accommodate local communities in Paris and Barcelona. And
they closed in Moscow… together with McDonalds and many other Western
retailers and service firms.
The downstream side of the “great network transformation” has had more
impact concerning larger and longer-term societal concerns for the environ-
ment, wealth inequalities, worker exploitation, and the like than has the supply
chain problem – at least until recently, when rapid inflationary effects began to
directly affect customers and communities. However, events like the pandemic
have had an impact here as well. Uber has become much less available, even
in its California home, as drivers caught COVID-19 and customers feared that
they might, too. Suddenly, the lack of health insurance had real bite. And then
the Russian attack on Ukraine raised the cost of gasoline dramatically, and
drivers struggled to make a living; when prices went up, fewer could afford
the rides that were supposed to transform urban transport. With few traveling,
Airbnb and its many hosts confronted a dramatically lower demand for their
services, and even with travel now increasing (at least until oil prices are fully

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 Reflections on global strategy in a turbulent world 13

realized in airline tickets), the health issues of staying in a home rather than
a hotel may give tourists pause. Both food and goods delivery became vastly
popular during the pandemic but are threatened by the desire of many to leave
their houses and return to restaurants, grocers, and malls. Demand whiplash
has hit the entire sector hard, and the lack of any sort of safety net for service
“contractors” has become an issue as demand dries up and companies see
actual profitability move farther into the future.

DISCUSSION AND RESEARCH POSSIBILITIES

The Economist (Leaders, 2022) suggests that this turbulent world is leading to
the reinvention of globalization. Already under pressure from the populism that
was closing borders and raising tariffs, the pandemic and the Russia–Ukraine
war have been transformative. Inventories have grown by $9 trillion, manu-
facturing is shifting away from China and causing shortages in workers, and
reliability has replaced cost minimization in partners (Leaders, 2022). A new
approach to globalization offers opportunities for both practical innovation and
innovative research. How are global MNEs likely to respond to this chaos?
Will the global network firm become a vast international bureaucracy again,
facilitating companywide inertia, or will the adaptation of strategic assembly
and animation expand? Will global supply lines fail in the short run and find
longer-term effectiveness challenging? And will individualist gigs, such as
those in food and package delivery or limo-like services, need to be replaced
by relatively inflexible but stability-producing employment contracts? We
think not universally – but there will be changes, and a need for scholars to
catalog and make sense of them. For instance, stability and the ICT revolution
generated increased globalization, expanded outsourcing, and reduced uncer-
tainty in transactions. How will geopolitical and climate uncertainty – but still
with ever-improving ICT – be reflected in MNE organizations? The strategic
battle between efficiency and resilience has become apparent. What theories
and approaches might be applied to interpret and understand the new reality?
Transaction cost economics? Real options? Resource dependency? Or some-
thing completely new? These events have (and are) taking place in the world
of Big Data – how can researchers and analysts take advantage of massive
banks of near-real-time data to better interpret not just outcomes, but decision
processes in global markets and firms?
Rising costs in the BEMs, and China in particular, already had production
of many goods moving to even lesser-developed countries and resulted in the
beginnings of “reshoring” of production to the US and other industrialized
countries (Malik et al., 2011). The major disruptions of COVID-19 on global
supply chains, and on China’s production capacity have reduced Apple’s
sales by $8Bn and carmaker cashflows by as much as 80% (Leaders, 2022).

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14 Strategy in a turbulent era

Clearly, there is a consensus that reforms are needed, although what those
reforms should be is stimulating vigorous debate. Global MNEs are very likely
to up their demands for real diversification of suppliers, both in location and
provider, and to pursue this imperative up their supply chains to avoid surprise
concentrations. Is re-bureaucratization and vertical integration really the
answer to uncertain supply or shrinking demand? Past research has examined
the impact of the global business environment on MNEs, but times of sudden
change offer multiple natural experiments for examining diversification, inte-
gration, the meaning of markets in the information society – and the value of
hierarchy in the same setting. Bigger firms or better contracts? Will increasing
diversification produce conglomerate discounts or real option premiums?
Scholars should be able to consider such questions with yet-to-be-developed
data sources of unprecedented scale and scope.
In industries with the lowest relative value for input from unskilled labor
and the most from technology (batteries, computer chips, high strength steel,
etc.), at least some production is likely to move to industrial countries, often
with government support and subsidies as these commodity items are seen as
strategic inputs. Less-technology-intensive and more-expensive-to-ship items
are likely to move away from China, but to other emerging markets – and
likely those close to major markets, such as Mexico for the US and Southern
Europe and North Africa and the Middle East for the EU. Such moves will
earn positive attention and response from local governments and press, attract
subsidies, are unlikely to raise costs dramatically (net of inflation pressures),
and are already in process. But global supply chains are likely to persist, with
efforts to avoid areas of growing political confrontation (US–China, China–
Taiwan, Russia–EU) and to diversify more broadly, while bringing critical
suppliers and final assembly to (or back to) the industrial world – though with
up-to-date automation, job growth is likely to remain disappointing. These
events offer a notable opportunity for scholars to tie together changes in the
global business environment along many dimensions with changing strategies,
organizational structures and systems, and HQ-subsidiary (or affiliate) rela-
tionships among MNEs.
This world harkens back to Vernon’s (1966) International Product Life
Cycle. Has that popular, then dismissed, theory resurrected itself for a more
closely tied yet still vastly unequal world? If this world needs control on
a worldwide basis, perhaps the idea of the “Flagship Firm” (Rugman &
D’Cruz, 1997) needs to be revived and reinterpreted for a world of instant
communication and massive information input. Is the very idea of “the firm”
as an economic unit in need of revision? We can see that the “strategic firm”
– that is, the core bundle of critical activities that move a product through its
value creation, delivery, appropriation and disposition process – is not iden-
tical to the “legal firm”, the bundle of assets that is in the legal possession of

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 Reflections on global strategy in a turbulent world 15

the global MNE’s shareholders (Tallman, Buckley, & Luo, 2018). Ownership
rights no longer tie critical value steps together via equity, but value-adding
chains have been functioning efficiently – and despite the challenge of the last
couple of years, these are showing themselves to be both adaptable and resil-
ient. Do we need another new concept of the multinational firm, of contracts
and contract law? Perhaps breaking down the age-old distinction between the
formal and informal organization, as the assembly/animation model (Tallman
& Koza, 2010) attempts, will provide a more relevant guiding metaphor for
the information-age MNE and its complex ecosystem of relations and activi-
ties. We look back to the introduction, where we proclaimed global business
strategy as strategy in context. The global business context, the environment
of the MNE, has changed along multiple dimensions in the last few years.
Global strategy is changing, trying new models and innovative approaches.
This is a chance for scholars to likewise look for new, innovative concepts
and approaches to global strategy, global organization, global markets, while
bringing today’s massive data resources and ever more sophisticated analytic
techniques to the effort.

CONCLUSIONS

Internalization through partial or outright ownership of suppliers and incorpo-

ration of contract service people is likely to increase in the near term as MNEs
maneuver to ensure their supplies as a critical competitive need. However, as
interest rate hikes in the industrial market economies trim demand, and supply
comes online, and supply chains sort themselves out, the pressures from the
temporary imbalances of 2021–22 are likely to subside, and the efficiency and
reliability of outsourcing specialists to return. Vertical integration will again
be inflexible, low in innovation, and costly, both financially and operationally.
As IT will only improve, we expect that beyond the next few years networks of
partners and affiliates are likely to expand. Global network organizations still
offer the best combination of innovation and efficiency, if properly managed
(Tallman & Koza, 2016). The upshot of today’s chaos is likely to be even
more widely dispersed production by even more outsourcing specialists, with
critical inputs moved to industrial nations and final assembly to host market
countries and regions… but still outsourced or shared with partners.
These decisions by global MNEs may well feed back into the political
economies of developing nations. The war imposed on Europe by Russia is
likely to make many Western countries reconsider their reliance on China,
which could well lead to new competition and, perhaps, tension between the
West and China in Africa, South America, and South Asia. Trade agreements
will become even more important but are likely to shift in importance and
alignment. China’s Belt and Road Initiative will be pushed as far as possible

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16 Strategy in a turbulent era

by China (especially in the face of apparent Russian weakness), but, backed

up by increasing military might, is likely to be seen as overly risky, especially
if Western countries begin to respond with their own economic subsidies.
Locations, both for supply chains and markets, are likely to proliferate in
the less-developed world, but may well have to comprise the West or China
for their primary attachment, as MNEs are likely to want to avoid political
issues such as tariffs, investment limits, ownership requirements, and direct
attack if a new Cold War breaks out. However, ownership seems even less
likely in these countries. Alliances, joint ventures, and informal worksharing
agreements, backed up by heavy technological monitoring and surveillance,
are likely to continue the trend toward low capital investment and minimal
financial risk. A new bipolar world may emerge, with its potential for another
Cold War.
We do not see a return to vertically integrating domestic firms or to higher
levels of whole ownership abroad. What we do see is continued development
of the network firm, but with more careful vetting of partners and contractors
and more secure contracts. Efficiency, flexibility, innovation, and intellectual
property are likely to remain the drivers of this new economy, even as societies
become more nationalistic and governments more authoritarian. Only a new
extended period of calm in global markets is likely to drive a shift back to
efficiency (but if chaos settles into predictability, this whole cycle is likely to
happen once again, even in the ever more complex global business environ-
ment of today!).

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