Managing, theorizing, and policymaking in an age of sociopolitical uncertainty: Introduction to the special issue

Abstract

The last 15 years have brought a fracturing of the relative stability of the post-Cold War world, an era characterized by the ascendance of free markets, consumer choice, globalization, and social change valuing individual autonomy. This move away from the placid waters of the 1990s is being driven by a combination of formal and informal sociopolitical actors and in both coordinated and uncoordinated forms at the local and global levels. However, while these historical currents we are seeing may be different in form, content, and nuance, it is hardly a radical departure from previous instances of instability in global commerce. This special issue examines the rise of sociopolitical uncertainty and how it matters for international business and policy. Following on the heels of other recent research into social movements, civil society, and the actions of insiders and outsiders, we call for greater understanding of political personalities, actors, and movements in altering the landscape for international business.

“May you live in interesting times”

INTRODUCTION

The last 15 years have brought a fracturing of the relative stability of the post-Cold War world, an era characterized by the ascendance of free markets, consumer choice, globalization, and social progress. In the wake of the terrorist attacks of September 11th, 2001, and the global financial crisis of 2007 to 2009, compounded by the COVID-19 pandemic (and associated responses to it) and the largest land war in Europe for nearly 80 years, the “end of history” and supposed triumph of liberal democracy (Fukuyama, 1992) has been replaced by a variety of different ideas and perspectives about how to run a country – or how other countries should run theirs. This change has seen a move from global superpower politics to ideas of globalization rendering borders unnecessary to a much more disjointed global and local political landscape where the mixture of players is more fluid, uncertain, volatile, and disruptive (Meyer, 2017), and where non-governmental social movements are a frequent source of sociopolitical uncertainty.

For some, this is a radical historical realignment that requires new thinking and fresh theorizing, both in the realm of management (for business) and in policymaking (from the side of government). For others, it is a matter of nuance requiring an examination of the present considering what we know of history. For example, the quote at the beginning of this paper originated with Frederic Coudert in 1936. His friend, Sir Austen Chamberlin, wrote a response to Coudert’s use of the quote that would sound familiar to anyone reading a newspaper or blog today: “[s]urely, no age has been more fraught with insecurity than our own present time” (Coudert, 1939). Where there is a lack of perspective it is easy to believe that “the revolution is near”. However, with perspective, one can see that, perhaps, just perhaps, it is “just a little bit of history repeating” (Gifford, 1998). The key is understanding what ‘bit’ of history is repeating and in what form – requiring an understanding of perspective – and what parts of what we are experiencing have a true historical uniqueness that requires new understanding and theorizing. For example, is the level of tensions amongst the new mixture of “great powers” just a repeat of the realpolitik of the 19th and 20th centuries? Or is there more than just a repeating of old models of global political conflict with new players?

Following on the heels of the sociopolitical changes we are seeing today are sea changes in the fabric of society, including increased political polarization in Western democracies, disparate impacts of climate change, the use and abuse of social media to foment violence and misinformation, the resurgence and mainstreaming of racism, authoritarianism, and ethnic/national supremacy movements, declining socioeconomic mobility, and growing economic inequality. Confidence in the ability of political elites across countries to come together to solve some of the most vexing problems is low, yet many of these major challenges require international cooperation – or at least a lack of international obstruction. At the same time, extreme centralization of political power, decision-making processes, and the power of the purse (finance) has forestalled the ability of communities and localities to contribute meaningfully, undercutting local knowledge – a phenomenon not all that dissimilar in many aspects to the centralization of power seen in the formation of a centralized Roman Catholic Church arising at the beginning of the second millennium out of the chaos of the fall of the Roman Empire in the second half of the first millennium (see, e.g., Heather, 2022). As of this writing, there are unfavorable prospects for further international cooperation, especially given fragmentation of power, the return of large-scale inter-state conflict, widespread mistrust of elites, and new competing alternatives of politics, economics, and business, at both the global and local levels.

Within the international business research realm, the end of the 20th century marked a rise in complacency surrounding the extent to which sociopolitical factors impacted upon national economies, policy formation, and global management (Lundan, 2018). The 1990s were a period in which the Western liberal democratic market system seemed to be on a winning streak, and the fall of communism represented the greatest impetus to the free flow of ideas and commerce that the world had ever seen. However, this euphoria was short-lived, and the period post-2001 has highlighted the fractures in domestic and international sociopolitical structures that perhaps always existed; as Buckley (2021) noted, history provides context but the role of time – especially in the long run – provides evidence.

The purpose of this introduction to the special issue is to provide some of this context for the brave new world that businesses globally face. The almost brazen return of 1970s-era problems, including high inflation, authoritarianism on the move globally, an aggressive Russia and a weak and divided United States, worries about nuclear war, and a sense that our best days were behind us, has upended the international business environment.

THE STATE OF IB RESEARCH ON SOCIOPOLITICAL UNCERTAINTY

The structural and global shift after the freewheeling ‘90s revealed itself in business realities but also reflected a lack of meaningful and effective theorizing within the international business (and to a lesser extent, economics) literature. To date, we have limited theoretical and practical guidance on how to address, manage, and understand these phenomena in the context of business and business operations. As with any set of issues, there are a number of related theories that we, as scholars, call on to address the management of sociopolitical movements and the implications for policy (Davis, McAdam, Scott, & Zald, 2005), including focusing on stakeholders (Devinney, 2011; Devinney et al., 2013a, 2013b; Nartey, Henisz, & Dorobantu, 2018) and political institutions (e.g., Doh, Rodrigues, Saka-Helmhout, & Makhija, 2017; Henisz & Swaminathan, 2008; Murtha & Lenway, 1994; Tihanyi et al., 2012).

However, the Asian financial crisis, the dot-com boom and bust, and then, the terrorist attacks of September 11th – monumental events driven by a number of factors, including economic, political, and sociopolitical – exposed our theories for understanding business as limited with regard to longer-term changes occurring in societies. Indeed, in the first instance, our theories were almost wholly focused on being reactive to short-term global governance events. While research acknowledged the issues of business operating environments – a huge literature beginning in the 1960s focused precisely on political risk and how firms dealt with it (Mascarenhas, 1982) – the firm was a passive actor in such an environment. The agency for any political or policy changes would come from governments and regulatory bodies rather than from within the business community or from individual firms, a theoretical supposition that made the role of public policy, key for the strategic response options available to business, entirely exogenous to the firm (Ring et al., 1990). Given that public policy was a key lever for mitigating sociopolitical uncertainty, the logical extension to extant theory was that firms were also at the mercy of the changing times, seeing them as another risk to be managed. However, by examining sociopolitical uncertainty only as a risk, this work was in danger of feeding strategic myopia, seeing individual events rather than larger trends.

Of course, scholarship is, by its very nature, heterogenous and, although some research has focused on being purely reactive, an alternative stream of literature in the beginning in the 1990s and 2000s focused on how governance trends could be proactively mitigated from the firm side, focusing on corporate political activity and nonmarket strategies (i.e., Lawson et al., 2013; Doh et al., 2015). Unfortunately, much of this work has been short-term oriented, situating a firm within an environment where risks are mostly known and where regular, persistent, and consistent interactions with governments and civil society characterized a firm’s operating environment (Hartwell & Devinney, 2021). Another limitation of this work was a focus on the degree to which there is a commonality of purpose that can be found with respect to stakeholder interests. Hence, there was a blind spot in the work that seemed to avoid issues of stakeholder conflict, particularly around complex issues, and how this conflict can come to a head [what Luo & Shenkar (2011) called “cultural friction”]. Additionally, the emphasis on democratic environments where stakeholders have degrees of legitimacy (Doh & Teegen, 2002) and where there exists a non-violent process of arbitration and resolution has left a theoretical void with respect to autocratic settings, where some stakeholders are declared illegitimate or in cases where physical violence and intimidation are the norm (Rose-Ackermann, 2018), or for polycentric or decentralized systems, where vectors of influence are less apparent (Arregle, Miller, Hitt, & Beamish, 2016).

This brings us to the second drawback in our theorizing of business environments, which is that these and other theories have lacked imagination on the factors that drive structural breaks and longer-term shifts in the global business environment. None of our theories predicted the fall of the Berlin Wall. None of them predicted the 9/11 attacks. None of them predicted the political fracturing of many Western democracies, the rise of populism (e.g., Rodrik, 2018) and the rise of Russian and Chinese global imperial ambitions (e.g., Devinney & Hartwell, 2020). None of them predicted the degree to which social media could be weaponized so quickly by individuals and nation-states (Reisach, 2021). In this sense, our theories risk being unscientific in not involving any real ability to make predictions that are meaningful (Devinney, Pedersen & Tihanyi, 2013a). Also, theories than cannot be used predictively are simply less valuable to policy makers and managers, who are looking to theory to guide behavior in a meaningful way rather than simply explaining what happened in a sophisticated fashion after the fact.

One of the reasons for this lack of success and meaningfulness is that many of our theories are based predominantly on institutional-level analyses and structures that are stable, persistent, and rational (Aguilera & Grøgaard, 2019), but the issue of sociopolitical disruption is not just an institutional phenomenon, nor is it limited to formal institutions such as the political structure of a country or the extent of its executive constraints. The greater challenge emerging from the 2000s has been the development of quasi-state and private actors (Heim, Kalyuzhnova, Li, & Liu, 2019), the expansion of civil society globally, and the organization of citizens into social movements with direct ramifications for business (Rana & Morgan, 2019). Some of this has been for good – such as in the expansion of “global monitory democracy” (Devinney, 2011) – and some not so good – as in the expansion of mercenary armies (such as Russia’s notorious Wagner Group). Sociopolitical uncertainty is ultimately manifest through the collective behavior/decisions/choices of individuals, whether as employees, managers, consumers, policymakers, and/or social actors (with multiple roles possible for each individual).

More importantly, this uncertainty is often operationalized and institutionalized through the actions of specific political actors and policy makers, either following the Zeitgeist or imposing their own views of society; hence, it is important to have a theoretical approach which can, when necessary, encompass the myriad of behavior/decisions/choices made at the level of individual leaders or policy makers and to examine this across political domains and time, whether it be based on in-depth historical studies or decision-theoretic approaches. At the same time, by definition, sociopolitical uncertainty operates in complex environments that exhibit both homogeneity and heterogeneity. Therefore, studying sociopolitical uncertainty also requires comparative analysis to disassemble the lessons that can be generalized from those that reflect specific contingencies. This would require comparing the varieties of political change and their implications on performance to understand the extent to which politics and society interact locally and globally.

One of the drivers of social change are the personalities of leaders within the political realm, most often the executive but not exclusively. As we have argued in previous work (Devinney & Hartwell, 2020), the new word of increasing political volatility needs a different lens for both managers and scholars to make sense of it, namely one which incorporates the role of the personalities of leaders into institutional, organizational, and policymaking approaches. Sociopolitical movements are, by definition, collective and are often driven by mechanisms for collective action; however, their windows of opportunity and their ability to influence the system are driven not only by institutional levers but by the people who are in power at the time. Put another way, policies may bounce around the halls of power for some time, but it is only a policy entrepreneur [to use Kingdon’s (1984) phrase] who can push them through to fruition. These policies may go with the cultural Zeitgeist or they may cut against it, and they may be in line with political orthodoxy or they may deviate substantially, but in each case, they are brought to the fore by political (and in some cases, business) actors. Understanding the roles of personalities, politicians, and individuals (acting alone or in concert) is thus crucial for understanding the broader historical trends which businesses face in the 21st century.

Another driver of social change is social movements. Management scholars note that the study of social movements, organizational analysis, and institutional theory began to intersect in the late 1990s (Rojas & King, 2018: 2). Recognizing that social movements can be powerful vehicles for social change, researchers sought to better understand how organizational stakeholders change corporate practices. Internal and external stakeholders may work to change an organization from within, or to leverage collective pressure across external organizations. These efforts can be collaborative or competitive (Rojas & King, 2018; Soule & King, 2006). When effective, movements supported or initiated by NGOs can influence business practices across industries and the institutional environments in which they operate (Rojas & King, 2018), and in areas where institutional voids exist, or where formal governance mechanisms are not fully developed, stakeholder pressures may actually encourage firms to assume social or political responsibilities that they otherwise may not have (Scherer & Palazzo, 2011).

As we have seen with anti-immigration sentiment (Chacón, 2016), citizen tax revolts (Martin, 2008), modern slavery (Crane, 2013), populism (Rodrik, 2018) and a host of other social movements, the issue of sociopolitical uncertainty impacts the nature of not just stakeholder and institutional theory but the actual management and operations of firms for the short and the long term. Bouquet and Birkinshaw (2008) presciently noted that “low power” actors do have strategies and paths to make them less “low powered”, and the multiplier effect of social media, combined with political polarization, has given some voice to the formerly silent. This has arisen not just when CEOs behave badly but also when there are issues of stakeholder conflict across countries or questions on the limits of free speech on social media and employment rights and management of supply chains (e.g., with respect to modern slavery). Political risk has also mutated (Hartwell & Devinney, 2021) and it is no longer so clear from which direction it is coming: Is it driven by government? Is it driven by civil society? It is both? How do these dimensions interact and drive policy, which then affects business? And are our characterizations of the relationships between government, business, and civil society still correct [see, e.g., Boddewyn (2016)]? Or are there different interfaces and modes which need to be taken into account?

CONTRIBUTIONS OF THE SPECIAL ISSUE

Given this shifting and unpredictable environment that both global and local businesses now face, unmoored to varying degrees from some of the certainties that characterized earlier decades, we have developed this special issue to encourage ground-breaking research on the wide array of new challenges facing multinational enterprises. The collection of articles we have amassed provide a modest attempt to shift the debate within IB towards understanding the new realities of sociopolitical and political uncertainty. The papers in this issue are grouped by their emphasis and their level of analysis: the first two examine the factors that support or undermine intergovernmental organizations and the multinational financial instruments available for managing local political risk. Both articles examine multinational institutions, collective agreements, and resources, and how they can be leveraged (or not) at the national or local levels in a country. By contrast, the third and fourth articles focus on national-level policies, country conditions, and the choices of national leaders (and, indirectly, the individual voters who elect these leaders) and how they influence multinational enterprises’ nonmarket strategies.

Moore et al. (2022) focus on the challenges intergovernmental organizations (IGOs) face in sustaining cooperation. Effective IGOs can bring countries, policymakers, and even civil societies together to address issues that require multinational cooperation. Yet, the greater the divergence in political philosophies, economic objectives, values, and expectations across the members of an IGO, the greater the threat to the organization. Thus, while collective agreements have the potential to generate group-wide benefits, individual country values, policies and political aims may diverge widely from that of the IGO. When this happens, institutional schisms can occur between member states and the IGO. The reality is the while IGOs are useful to their signatories, they are not static. While IGOs influence signatory behaviors, they are also vehicles that signatories use to wield power over one another, which can itself be a source of sociopolitical uncertainty.

A key contribution of the article is to offer a framework that captures some of the causes of schisms using countries in the European Union (EU) as an illustration. As an IGO, the EU generates a variety of collective benefits for member states through common internal and external policies. Factors such as facilitating cross-border trade and supporting the movement of people and workers across countries, has generated widespread economic gains for Member States (Stojčić et al., 2021) and associated levels of support among countries which have gained the most (Anderson & Reichert, 1995). Yet, these gains are not universal or equally distributed. The authors argue that there are two factors that affect the possibility of a schism between a nation state and the EU: the strength of national-level institutions and the level of compliance that individual member states have with EU policies (see Figures 1 and 2). In cases where a state has strong institutions and high compliance with EU policies, there will be a low likelihood of a schism. On the other hand, states that have weak national-level institutions and low compliance are characterized as those with the greatest likelihood of schism. Nation states with high levels of compliance but weak [such as Croatia, see Goldner Lang et al. (2019)] or strong national institutions (such as Finland) face a moderate and low rate of schism, respectively.

Since so many of today’s complex problems may be overcome with collective action, it is critical for the leaders of IGOs to understand which characteristics of members states are more likely to affect the success of the institution. Also, in the short term, politicians may focus on the symbolic importance of joining an IGO and underestimate the potential for interinstitutional conflict. However, in the end, IGOs are vehicles of policy where natural differences exist amongst signatories and hence friction and potential schisms are simply part of the IGOs DNA.

The paper by Müllner and Dorobantu (2022) offers additional insights into the potentially important role that supranational institutions such as regional development banks and other entities play in mitigating political risk and investment uncertainty. The authors examine how regional development banks and other supranational lenders can mitigate host country political risk for large-scale infrastructure projects. The findings suggest that loan syndicate arrangers – banks that coordinate a portfolio of loans from other financial institutions – aim to pool together the economic leverage of multinational banks with dominant economic ties to the host country with the leverage exerted by supranational institutions. By doing so, supranational lenders can simultaneously reduce their own portfolio risk as well as well as the political risk associated with a specific investment. The authors argue that because of the leverage that international financial institutions can exert on political host country actors, debt-based financing is more effective than equity financing at reducing political risk for investors. A key contribution of the study is thus to demonstrate that in certain circumstances, economic dependencies and supranational institutions can mitigate political uncertainty.

Panibratov, Herrera, Esquerdo and Klishevich (2022) complement the previous articles by focusing on the national-level political ideology in a country – in this case populism in Mexico – and the response of multinational enterprises (MNEs). In countries characterized by unstable governments and/or policies, it is often challenging for managers of MNEs to cope with uncertainty. Consistent with a growing body of research suggesting that prosocial strategies can be effective for managing and mitigating country-level political risk (Darendeli & Hill, 2016; Hartwell, 2018; Oetzel & Getz, 2012; Pimentel-Albino, Oetzel, Oh, & Poggioli, 2021), the authors find that social investments can be an effective way to deal with political uncertainty. In this study, the authors examine how MNEs respond to an initiative by populist president Andres Manuel Lopez Obrador – the Fourth Transformation (4T) – aimed, paradoxically, at reducing government spending and reducing corruption while at the same time increasing social and infrastructure spending. Examples of non-market strategies included forming local partnerships with other firms to better understand the sociopolitical pressures in the host country, forming coalitions to enhance political capital in Mexico.

Saha, Shirodkar and Lawton (2023) examine another emerging market, India, and how firms cope with a crucial aspect of sociopolitical uncertainty: trade policy. As a key target in the rollback of globalization since the global financial crisis, policy uncertainty regarding trade – as typified in the trade wars between the US and China and former President Trump’s embrace of protectionism [and its lasting embrace by President Biden but for fundamentally different political reasons; see Lemieux (2022)] – can have a massive disruptive effect on business. The work done here shows the effectiveness of private collective action for shifting political narratives and policy regarding trade. Utilizing a unique survey of Indian firms and, bringing the special issue full circle, this study shows the complementarity of both private and collective action to influence the policy landscape but in a manner which is tied towards broader goals (i.e., free trade) and less with specific ones (i.e., one firm’s bottom line). Moreover, given the formal institutional weaknesses in India, the use of industry associations fulfilled an important informal role in mitigating political uncertainty, substituting socio-commercial organization for strictly political access.

With the papers in this volume, we hope to have contributed in terms of expanding our knowledge of sociopolitical uncertainty and possible business responses from the point of view of management, theory, and policymaking. More research is undoubtedly needed, as the aforementioned current events and broader geopolitical, social, and economic trends appear to point towards a future of more volatility and uncertainty, not less. In such an environment, we will continue to need to understand how international business may not only survive but also thrive. However, what these papers also reveal is that history matters more than just as context. What appears new and challenging today invariably has parallels that allow us to learn from the past in ways that are not solely contextual – and hence are potentially quite generalizable. In this sense what is required first and foremost is understanding that existing models and existing ideas that have stood the test of time can provide guidance in an academic, practical, and policy form. Only once have we explored what has gone before and, in particular, how events have been examined by other disciplines, will we be able to understand better the drivers of sociopolitical uncertainty.

Biographies

Timothy M. Devinney

is Professor and Chair of International Business at the Alliance Manchester Business School, University of Manchester. He is the author of more than 100 articles in leading journals and more than 12 books. He is a Fellow of the Academy of International Business, The Academy of Management, the Academy of Social Sciences, European International Business Academy, and the Alexander von Humboldt Stiftung (where he was also a recipient of the Forschungspreis).

Christopher A. Hartwell

is Professor of International Business Policy and Head of the International Management Institute at the Zurich University of Applied Sciences (ZHAW) School of Management and Law, Professor of International Management at Kozminski University in Poland, Visiting Professor at Tashkent State University of Law, and former President of the Center for Social and Economic Research (CASE) in Warsaw. Prof. Hartwell’s interests are in institutional development, especially the interplay between financial institutions and other political and economic institutions. He is also the author of Two Roads Diverge: The Transition Experience of Poland and Ukraine (Cambridge University Press, 2016), Institutional Barriers in the Transition to Market: Examining Performance and Divergence in Transition Economies (Palgrave Macmillan, 2013), and Kazakhstan: Snow Leopard at the Crossroads (Routledge, forthcoming 2023).

Jennifer Oetzel

is Professor of Strategy and Kogod IB Professor at American University. Her research and teaching focus on social sustainability strategy, business adaptation to climate change, and disaster risk management. More specifically, she looks at how companies can reduce business risk by promoting economic, social, and environmental development and engaging in peace building in countries where they operate. She has won multiple research awards and co-authored a book published by Cambridge University Press in 2022 entitled, Business Adaptation to Climate Change. Her work has appeared in the Strategic Management Journal, Organization Science, Harvard Business Review, and the Journal of International Business Studies, among numerous other outlets.

Paul Vaaler

is the John and Bruce Mooty Chair in Law & Business, a joint appointment to the University of Minnesota’s Law School and Carlson School of Management. His research and teaching interests lie at the intersection of business, law, and politics. His work has appeared in journal articles published in the Academy of Management Journal, Journal of Business Venturing, Journal of International Business Studies, Journal of International Management, Journal of Management Studies, Journal of World Business, Organization Science, Strategic Management Journal, Strategy Science, and other academic journals. He is a Senior Editor at Journal of International Business Policy. He is a Consulting Editor of the Journal of World Business.