Towards a Tradeoffs-Based Theory of GVC Governance: Three Essays on Mitigating Exposure to Reputational, Transactional, and Operational Hazards Along Global Value Chains

Abstract

According to the Reading School of International Business – pioneered by scholars such as John Dunning, Alan Rugman, Jean-Francois Hennart, and Alain Verbeke – multinational enterprises (MNEs) deliver a net benefit to society through the value they directly and indirectly create for various stakeholder groups when venturing abroad. Specifically, by recombining firm-specific advantages (FSAs) with location-bound country-specific advantages across international borders, MNEs generate significant economic and social benefits for host countries, local communities, and global consumers alike. By relocating and coordinating production and innovation activities across both organizational and geographic borders, MNEs can fully leverage country-specific comparative advantages across the globe, thereby creating a pathway towards sustainable competitive advantage. All in all, the Reading tradition advances a positive view of MNE activity by focusing on how cross-border FSA recombination underpins MNEs’ ability to create value. What the Reading School is missing, I think, is a more formal and rigorous examination of the risks, hazards, and other negative externalities that MNEs are exposed to – specifically within the context of their global value chains (GVCs) – when venturing abroad. Since the 2020 Covid pandemic, these risks, hazards, and negative externalities have only intensified, and in this increasingly volatile, uncertain, complex, and ambiguous (VUCA) world, the inherent fragility and vulnerability of interconnected GVCs has been put on full display. MNEs face heightened reputational hazards (e.g., brand damage due to human rights violations along their GVCs), transactional hazards (e.g., contractual risks arising from partner opportunism in cross-border collaborations), and operational hazards (e.g., global supply chain disruptions due to exogenous shocks), each of which jeopardize the willingness and capability of MNEs to venture abroad. My thesis therefore consists of three manuscripts that collectively address the following three questions:

How can MNEs reduce their exposure to reputational hazards along their GVCs? How can MNEs reduce their exposure to transactional hazards along their GVCs? How can MNEs reduce their exposure to operational hazards along their GVCs?