Caught in the crossfire: Dimensions of vulnerability and foreign multinationals exit from war-afflicted countries

Li Dai, Lorraine Eden, Paul W. Beamish

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

Research summary: When war occurs in a country, some foreign multinational enterprises (MNEs) stay on, while others flee. We argue that MNE responses to external threats depend on the firm's vulnerability, which we decompose into exposure (proximity to threat), at‐risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo‐referenced sample of 1,162 MNE subsidiaries in 20 war‐afflicted countries between 1987 and 2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource‐based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies. Managerial summary: A recent survey of multinational enterprise (MNE) executives revealed that 30 percent of the respondents believed that their firms were exposed to collateral damage from war, with more than 90 percent expecting risks to rise. Yet, 25 percent of the executives indicated that their firms had no continuity plan. Our study of MNEs in war‐afflicted countries highlights the costs of not having a response strategy in place. We find that, in war zones, otherwise highly valuable locations and resources can become sources of vulnerability that prompt early withdrawal from a host country. Our work further highlights the value of real options thinking—where structural solutions such as building redundancy into a portfolio of options may exist in advance of problems—for navigating hostile environments. Copyright © 2016 John Wiley & Sons, Ltd.
LanguageEnglish
Pages1478-1498
JournalStrategic Management Journal
Volume38
Issue number7
Early online date30 Nov 2016
DOIs
Publication statusE-pub ahead of print - 30 Nov 2016

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Multinationals
Vulnerability
Exit
Multinational enterprises
Resources
Threat
Resilience
Costs
Liability
Continuity
Damage
Real options theory
Host country
Real options
Contingency
Proximity
Subsidiaries
Resource-based view
Redundancy

Keywords

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Cite this

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Caught in the crossfire: Dimensions of vulnerability and foreign multinationals exit from war-afflicted countries. / Dai, Li; Eden, Lorraine; Beamish, Paul W.

In: Strategic Management Journal, Vol. 38, No. 7, 30.11.2016, p. 1478-1498.

Research output: Contribution to journalArticle

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