MNC Strategy in Contested Environments: Stay Put or Stay Foot?

Abstract

The chapter ‘MNC Strategy in Contested Environments: Stay Put or Stay Foot?’ provides a contemporary view on the key questions relating to the strategic orientation of multinational corporations (MNCs) in emerging markets with a particular focus on China. Until recently, possible heterogeneity in business strategy and firm performance was concealed by the seemingly endless growth story in the emerging market arena. In view of increasingly harsh conditions, both in terms of host-country markets and institutions, foreign-invested firms may either choose to concede, conform, contest, compete, collaborate or co-create, to name a few conspicuous configurations. More than four decades have passed in which emerging markets have burgeoned as the preeminent growth drivers propelling the efficiency- and market-seeking MNCs to the forefront of cross-border economic activity. This development has been supported by global integration, multilateralism as well as institutional transition and reform. Hence, institutional factors, alongside external industry structures as well as internal firm resources, have been credited with having superior explanatory power in emerging economies. Moreover, high-level dynamism and discontinuities have always been the hallmarks of emerging markets. However, a new level of turbulence has emerged triggered by exogenous shocks such as Covid-19 as well as geopolitical conflicts and power shifts. MNCs face unprecedented challenges; and their commitment in terms of foreign direct investment (FDI) have been put to the test like never before. Decision makers in MNC subsidiaries and their headquarters ask themselves the question: ‘Stay Put or Stay Foot?’.

1. Introduction

The chapter starts out by encapsulating the conceptual underpinnings of international business (IB) strategy, the theory of the MNC and motives to go abroad. In order to (re-)strategize possible strategic avenues of MNCs under increasingly challenging conditions, this text draws on typology-driven theorising and reflects on the convergence of the IB strategy literature and institutionalism. The chapter also discusses the impact of environmental discontinuities, current research trajectories and questions for future research.

2. The reshaped anatomy of the MNC

The starting point for answering the question whether foreign-invested firms should stay invested or pull out of emerging markets is a discourse of their major reasons to go abroad [1]. The fundamental questions of why MNCs exist and which strategies they pursue lie in the heart of IB strategy and the theory of the MNC [2, 3, 4]. An exploration of these motives is crucial for any remain/exit decision.

2.1 The changing contour of IB strategy

The MNC traditionally refers to any corporation that is registered, owns and manages entities in more than one country [5]. These organisations undertake FDI and possess or, to a certain degree, control value-added activities in several countries. The ACRONYM MNC is often synonymously applied for multinational enterprise or multinational company. Recently, foreign-invested firms have sought to become more socially embedded in their local contexts [6, 7] as boundaries between the firms and the environment have become loose [8]. Likewise, digital technologies have fundamentally reshaped the understanding of the MNC. Technology-enabled actors, also described as ‘digital MNCs’, do not necessarily have to employ productive assets and staff in subsidiaries abroad. By utilising for instance cloud-based platforms and business ecosystems [9], these largely virtual ventures tend to operate outside of the traditional import-export/FDI continuum. Referred to as ‘born-globals’ [10], these firms do not expand gradually but go global from day one. While technology can fundamentally change business models, the debate to remain in, or withdraw from, emerging markets is applicable to firms irrespectively of their degree of digitalisation. It is a matter of systemic understanding of the emerging market context, not a matter of technology. Reverting to the definition of the overarching subject, modern strategy is for the most part footed on the long-standing notion by the Harvard professors C. Roland Christensen and Kenneth R. Andrews [11] that refers to strategy as a concept that explores an organisation’s internal capabilities versus the competitive environment. Correspondingly, the field of IB strategy refers to effectively and efficiently matching of an MNCs internal strengths and weaknesses (compared to rivals) with the external opportunities and threats [12] in geographically dispersed environments [13]. As such, IB strategy seeks to explain how firms generate and utilise competitive supremacy so to yield superior performance in their product-market domains [14]. It assesses the configuration, strategic orientation and leadership of cross-border enterprises and the corresponding effects on micro- and macroeconomic performance (e.g. economic expansion, productivity, workforce utilisation). Taken together, the literature on IB strategy focusses on MNCs and uses developing markets as research background to conceptualise theory [15, 16].

2.2 The enduring motives of the MNC

As outlined, MNCs play a pivotal role in IB strategy and global economic governance. There have been several explanations for their origins and existence, all offering different angles with respect to the rationales underlying international business proceedings. Major proponents include the theory of trade [17], the theory of monopolistic advantage [4, 18], the theory of transaction cost [19, 20], the theory of product life cycle [21, 22], the stage approach [7, 23, 24, 25], theory of network [26, 27] and the OLI-model refereeing to the ownership-location-internalisation triplet [3, 28, 29, 30]. The OLI framework, also called ‘eclectic paradigm’, presumes that production in different countries necessitates an ownership-based advantage [30]. This kind of competitive edge can have various incarnations, however, it is often manifested in the proprietary technology applications of the MNC. While the various theoretical strands are helpful in studying the roots of the foreign-invested firm, ultimately, the major reasons for exploring foreign markets refer to the accessibility of inexpensive natural resources as well as a high-skills low-cost workforce (‘Ricardian’ [17] argument) and economies of scale (EOS) as well as product differentiation (‘Krugmanian’ [31] argument). Based on these dimensions, Dunning [3] formulated several classifications of MNC motives. (1) Resource-seeking: These MNCs aim to establish access to resources like raw materials, human capital or other input factors, e.g., a UK firm sets up shop in Mainland China to manufacture and ship back to the UK and other markets. This can also entail the insurance of a stable supply of raw materials (backward or ‘upstream’ integration) or of product quality (forward or ‘downstream’ integration). (2) Market-seeking: These MNCs aim to spot and utilise additional markets for a company’s goods and services. For example, in order to use excess capacity, MNCs seek to increase world market share by moving into emerging markets. It is important to consider that for specific categories of products and services, the creation and dissemination have to be simultaneous, hence, market-seeking goes hand-in-hand with other motives. (3) Efficiency-seeking: These MNCs strive to reshuffle their extant assets in order to optimise their worldwide footprints. This can entail cross-border specialisation by tapping into disparities in factor costs, to manage dependencies or to mitigate risks, as well as world-wide procurement practices to save resources and enhance cost-effectiveness by streamlining their global operations. (4) Strategic assets-/capabilities-seeking: These MNCs aim to establish a strategic presence in a foreign market in order to shield or enhance their global competitive positioning. This can entail an inorganic growth strategy based on corporate mergers/amalgamations and acquisitions (M&A) or taking control of domestic assets including research and development (R&D), expertise and staff. It can also include pre-emptive measures to prevent competitors from entering the market or acquiring local strategic assets/capabilities. The above outline shows that varied reasons have been proposed in the literature on internationalisation. These argumentations seam to be logical and have been supported by rigorous research in emerging markets. Dunning [32, 33] showed that the impetus of foreign-invested firms to operate abroad can seamlessly transform from market-seeking and resource-seeking (to utilise the extant edge over competitors) towards developing strategic assets (to defend and improve the current competitive differentiation). Notwithstanding, efficiency-seeking drivers are widely acknowledged to constitute the dominant forces of cross-border integration in the context of IB and MNC strategy. An increased focus on global sourcing has been identified by Zaheer and Manrakhan [34] as well Kotabe and Murray [35]. In contrast, Cypher and Dietz [36] see an emergence of fully aligned manufacturing networks and business models. The preceding discussion shows that MNCs are in emerging markets for motives relating to efficiency, resources, markets and strategic assets. However, these motives are subject to constant shifts and disruptions in the competitive industry, firm resources constellations and institutional environments, both in the host country and home country. In particular, the efficiency-seeking motive needs to be reviewed for its ongoing validity. In this context, MNC have been keen to maintain their ability to engage in regime arbitrage [37], a corporate practice of tapping into more favourable conditions in one jurisdiction to circumvent less favourable ones elsewhere. For instance, the controversial practice of transfer pricing poses an ongoing concern. Non-governmental organisations such as the OECD and G20 have coined these tactics as ‘base erosion profit shifting’ (BEPS). This criticism is echoed by the State Administration of Taxation (STA) of China which has called out the tax avoidance schemes by MNCs. Despite the institutional crackdown and public scrutiny, MNCs may not abstain from such practices anytime soon as these regimes are closely linked to the major motives to operate there in the first place.

3. The new emerging market context

Emerging markets have been the enduring raison d’être of MNCs. Having served as magnets for FDI over a prolonged period of time, these growth regions have provided MNCs with a spacious canvas to pursue their cross-border growth agendas. They offered new revenue sources and allowed MNCs to prolong the life cycle of their product segments. In return, MNCs transferred technologies, enhanced local leadership practices, created employment and upgraded China’s ability to compete on the global stage. However, in the recent past, emerging markets have witnessed considerable upheaval and volatility. One manifestation of this new era has been an increasingly assertive presence by China in the global economic and geopolitical theatre. For MNCs it is helpful to understand the formative events, dynamics and risks that have given rise to these developments. Common definitions describe emerging markets as territories that feature accelerating expansion but meagre pay using elements of the free-market economy as key drivers for progress and growth [38]. This block includes the evolving economies of the Asian region, South America, the Arabian Peninsula, Africa and several post-Soviet states. One common denominator of these countries is an economy that is tightly directed by the state [39]. Emerging markets at large feature such a profile. Still, China is in a dominant position due to the country’s market size and investment influx. As a matter of fact, China has attracted the ‘lion’s share’ of FDI within the emerging market arena. Eight out of ten companies listed in the global Fortune 500 have set up operations in China [40]. Consequently, China has the utmost relevance for practicing managers of MNCs as well as academic researchers seeking to explore how economic actors interact and align with their environment [41].

3.1 The changing of the guards

The ascend of emerging markets and developing countries including China did not occur unexpectedly. It has been predicted by market observers such as O’Neill [42], former chief economist at Goldman Sachs, who published an influential analysis in which he coined a block of selected countries BRICS (referring to the Federative Republic of Brazil, Russian Federation, Republic of India, People’s Republic of China (PRC) and Republic of South Africa). These economies have been credited with the prospective capacity to exert far-reaching implications for the international political economy. It has been assumed that their favourable demographics and resources endowments set them up for spectacular economic growth. Further ACRONYMs for high-potential country clusters followed suit, such as MINT (referring to the United Mexican States, Republic of Indonesia, Federal Republic of Nigeria and Republic of Turkey) coined in 2014 by asset management firm Fidelity Investments, and the Next 11 (MINT plus the People’s Republic of Bangladesh, Arab Republic of Egypt, Islamic Republic of Iran, Islamic Republic of Pakistan, Republic of the Philippines, Republic of Korea and Socialist Republic of Vietnam). However, more than two decades have passed and predictions about the BRICS as the most rapidly expanding markets have not quite materialised. While China has been reporting FDI inflows and GDP in unparalleled dimensions, the economies of India, Russia and Brazil have notably disappointed by not diversifying away from commodities towards the private sector. China’s GDP (>USD18tr, 2022) has been twice the other BRICS’s in aggregate (<USD8tr, 2022). China’s economic prowess and leadership within the BRICS illustrates the paramount importance of the country for the success foreign firms in emerging markets [43, 44]. Scholars have pointed out that the rise of China foreshadowed a ‘global-Asian era’ [45]. However, irrespectively of whether the forecasts have materialised or not, the BRICS movement symbolised a changing of guards in the global economy leaving the developed G7 economies in its wake struggling for relevance.

3.2 The assertive rise of China

China has been known for the utmost consistency of purpose underpinning the nation’s grand strategy, which has mainly been geared towards stability. The country’s focus on stability is informed by its past characterised by extreme crises during periods of turbulence (e.g. the Great Chinese Famine 1959–1961, many armed conflicts including the Opium war 1839, Chinese Civil War 1927–1950, Korean 1950–1953, Sino-Indian 1962, Vietnam 1965–1969 and Sino-Vietnamese 1979, and occupation by Western colonial powers in the ‘century of humiliation’ 1839–1949). Dèng Xiǎopíng, known as the chief architect of modern China, introduced a far-reaching opening-up and reform course in 1978 allowing MNCs to invest and participate in the country’s exceptional development. The acceptance to join the World Trade Organization (WTO) in 2001 allowed the country to export on WTO terms, a step that turbocharged China’s drive to become a global powerhouse. This journey was supported by a relentless push to progress in the value chain cultivating proprietary capabilities including innovative technology applications. Henceforth, China has gone from being unnoticed to competing with the world’s largest economies. The upward trajectory attracted the attention of foreign investors which swarmed into the Chinese market to participate in the ‘gold rush’. This has led to a situation where foreign companies in China employed a workforce of 16 million individuals [46] accounting for at least half of China’s exports. Foreign firms also were helpful in disseminating Western best practices enhancing China’s productive capabilities. However, the long chain of crises has been a key element of the PRC’s founding narrative. It also has sustained the long-standing view harboured by the Chinese Government that foreign actors are sources less of potential than of peril, uncertainty and even humiliation [47]. It is important for MNCs to understand that such thinking has shaped the country’s collective social psyche. It has also been instrumental in creating today’s Sino-US antagonism and regional bipolarity. One of the major triggers for the ‘dragon to awake’ (referring to China’s rising assertiveness on the global stage), was a series of recent events that has arguably disqualified the US-led system in the eyes of China, as well as other emerging economies, as it exposed brinkmanship (not statesmanship), both in politics and in economics. The subprime mortgage crisis of 2007–2010 can be seen as a crucial juncture at which China started to openly push its superpower ambitions and the narrative that US hegemony is in decline. Under the Xí Jìnpíng administration, China switched to a more assertive brand of grand strategy. In this context, China has led the initiative to redefine the BRICS as an intergovernmental organisation to establish a parallel system to the US Dollar, as well as the Bretton Woods system of monetary management and financial agencies including the World Bank and the IMF. By doing so, China aims to champion an alternative to the Western model offering a diplomatic forum and financial system, shifting away from the US dollar as a default. The initiative is embedded in President Xí Jìnpíng’s greater power diplomacy with the Chinese characteristics model. The model’s manifesto is based on the four principles of (1) big powers are key, (2) neighbours [peripheral countries] are first, (3) developing nations are the base, and (4) multilateralism is the stage (dà guó shì guān jià; zhōu biān shì shŏu yào; fā zhǎn zhōng guó jiā shì jī chŭ; duō biān shì zhòng yào wŭ tái). This approach positions Chinese foreign policy in the developing world as a driver to move the global power balance. The rationale is to create ‘strategic fulcrums’ (zhàn luè zhī diǎn) for building Chinese influence and exporting the ‘China Model’ through policies. In fact, China’s state media (CGTN, 2019) has positioned the BRICS as an ‘antidote to the G7 and other U.S.-dominated institutions’. Alongside the BRICS, another multilateral platform has emerged in the form of the Shanghai Cooperation Organisation (SCO) which has been set up in 2001 by Russia and China. The nine-member group comprises the states of previous Soviet Central Asian as well as India, Pakistan and Iran. By courting other authoritarian regimes, China aims at countering Western control in Eurasia. Another key project along the same lines is the Belt & Road Initiative (BRI), also described as ‘New Silk Road’. For China, BRI represents a new gateway to Western Europe, the African continent and the Middle East through Central Asia [48]. It also solidifies the country’s new-found friendship with Russia. It has emerged since 2013 as China’s geo-industrial policy and global infrastructure development strategy disrupting the previous order of regional economic integration. It involves vast capital as well as terrestrial and maritime infrastructure investments in nearly 70 countries and international organisations that help to cement Chinese influence in the many nations along these economic corridors. BRI also undermines the previous East Asian development model known as the ‘flying geese pattern’ (yàn hán lĭ lùn). This model by Akamatsu [49] promulgates that East Asia’s economic rise has been led by Japan, followed by the newly industrialising economies of Asia (NIEs or Asian Tigers) and the members of the Association of Southeast Asian Nations (ASEAN). While being the dominant orthodoxy in the region since Japan’s first modernisation drive from 1870 onwards, China has leapfrogged to a pole position bypassing the established V-shaped flight formation. By means of attracting the largest amount of FDI and know-how, China has gained competitiveness and increased the pressure on Asian neighbours to ensure that they remain competitive. The BRI has intensified these frictions as it allows China to trade overland depriving Asian neighbours along the major trade routes through the South China Sea of their share. All these forays into multilateralism—i.e. BRIC, SCO and BRI—have been designed to establishing China as a global power to challenge the US, which has not been involved in these initiatives. However, at the same time, China has become more isolated from countries and organisations in the West, as Anthony Saich [50] of Harvard Kennedy School has observed. Again, the transformation of China into a more complex and evolving country does not come as a surprise. It was predictable based on the country’s sheer size, culture and work ethics as well as storied history. China works relentlessly towards becoming more confident and capable of making the goal of national rejuvenation a reality. Spearheaded by the so-called ‘wolf warrior diplomacy’, coined from a Chinese action movie, this approach is characterised by combative nationalism. China has moved from the more cerebral premise of ‘hide and bide’ (tāo guāng yǎng huì) under the leadership of Dèng Xiǎopíng to the blatant statement that the ‘US is not qualified to speak from a position of strength when criticising China’ [51]. The change in direction has not been an impulsive act. It is an integral part of a long-term plan, or ‘100-year marathon’ [52]. In fact, the Chinese government is executing against a vision to outstrip the US and other economies by 2049, the centennial anniversary of the CCP-led revolution. The party also seeks to complete the long-stated goal of ‘national unification’ with Taiwan by the same time.

3.3 The new pressures and constraints

A high level of protectionism and regulatory complexity are characteristics of the institutional context in China, although the inflow vast amounts of FDI would suggest a more deregulated environment. In fact, China’s sweeping reform and transformation process has been limited to the economy and had little bearing on the political landscape [53]. As a consequence, MNCs have been highly constrained in their pursuits to foster innovation amid the lack of basic legal certainty [54]. As a matter of fact, there have been waves of MNC market withdrawals and factory/office closures involving global players such as Yahoo, Microsoft, Adobe, Adidas and Panasonic [55]. In this context, multisport entrepreneur and publisher Dan Empfield [56] explained that ‘there was a stampede into China to make bicycles beginning in the mid-1990s; and now there is a stampede out of China. Brands today are looking to make bikes anywhere … as long as it’s not China.’ The damage is not limited to the manufacturing or technology sector though. In the financial services industry, venture capital firm Sequoia had to split off its China unit amid rising tensions and Beijing’s crackdown on international professional services firms [57]. These high-profile cases send warnings to Western firms doing business in China. However, many departures may arguably be rooted in MNCs’ skewed view of the business environment and the local institutions [58]. One indicator of firms’ incapacity to adapt to the institutional context is the number of public crises that has hit numerous blue-chip companies, inflicting considerable reputational and financial harm. Longitudinal research spanning from 2000 to 2011 by the China Europe International Business School (CEIBS) found that in excess of 25% of well-known MNCs in China were subjected to public affronts [59]. Foreign market participants may have overestimated their capacity to manage and manipulate the host-country context while they may have underestimated the firepower of their host-country’s arsenal of interventions. Despite the fact that the the Chinese market system is evolving, there is little doubt that China is a political economy that the local institutions can exert overriding authority over MNCs [60]. As such, doing business in China is subjected to a myriad of state interventions and political agendas [61]. Specifically, China’s institutional environment has been portrayed as ‘force within a cell of regulations’ [62]. It also shows that ideology matters: While studying today’s capitalism is important, the tenets of Marxism remain true [63]. Several political initiatives have put MNCs as a disadvantage including ‘indigenous innovation’ (zìzhŭ chuàngxīn) by the 2003–2013 Hú/Wēn government and ‘innovation-driven development’ (chuàngxīn qūdòng fāzhǎn) by the subsequent Xí/Lĭ government. These industrial strategies focussed on protectionism enacted by state procurement policies [64]. Despite the fact that stability is of fundamental importance to China, the country’s institutions and policies have been altered dynamically. MNCs that want to remain in the market need to be clear-eyed about the fact that China’s legal system promotes nationalistic themes singling out Chinese and non-Chinese investors [65], as manifested in regulations governing Sino-foreign joint-ventures (JVs). In the institutional landscape of China, two different types of sentiments with respect to foreign-invested players can be identified. The streams equally put China’s national interests in the centre of their thinking. One group reverts to technocratic protectionism seeking to make China inhospitable for MNCs and the domestic economy more shielded. The other group favours a pragmatic market-orientation seeking to make China more welcoming for MNCs and the domestic economy more competitive. Furthermore, with respect to handling the economy, China has previously pursued a ‘comprehensive well-off society’ (quánmiàn jiànshè xiăokāng shèhuì) based on a Confucian near-ideal state, and has practiced a hands-off approach to many sectors which have minted billionaires, a celebrity culture and giant companies at a breath-taking pace. However, under the current administration, China aims at rectifying perceives socioeconomic issues cultivating a ‘patriotic atmosphere’ for the industries, regardless of what people and companies/investors may want. The central government has launched sweeping crackdowns in many once-freewheeling sectors, including social media/e-commerce (i.e. Alibaba Group, Meituan, Tencent), online gaming (e.g. NetEase), cryptocurrency (i.e. bitcoin), education (i.e. New Oriental), online finance (e.g. Ant Group), ride hailing (e.g. Didi Chuxing), property (e.g. China Evergrande Group) and health care (i.e. unregistered cosmetics). Similarly, the government has recently embarked upon a sweeping clampdown impacting a wide spectrum of sectors creating volatility and uncertainty for newly established firms and seasoned incumbents alike [66]. China’s far-reaching interventions are reportedly not aimed at choking private sector growth or decouple from the US/international system. Instead, the goal is to help consumer-facing technology platforms in fulfilling their mandate of promoting common prosperity or smoothing social disparity. This major push brings the Chinese State front-and-centre into all elements of its citizens’ lives and company’s strategic agendas. Major downsides to be considered by MNCs relate to China’s reclassification as a political threat rather economic partner, declining public sentiment towards the country in MNC home nations, the multi-pronged regulatory crackdown on various industries (especially technology and professional services), alongside the risks related with an ageing population and associated dependency ratios and skill shortage. In addition, China is one of the most exposed geographies in terms of climate change. In terms of competition, China’s local sectors have aggressively moved from a strategy of imitation to a strategy of innovation [67]. China’s under-the-radar but globally competitive innovators disrupt along the entire configurational spectrum including products/services, processes and business models. The economic and institutional shifts described makes MNCs’ engagement in China challenging, and potentially unfeasible. Against this backdrop, the focal point of strategic management research lies in MNCs’ strategic answers to these institutional pressures.

4. The strategic (re-)orientation of the MNC

As the macro- and micro-environmental conditions for MNCs operating in China have changed considerably, many foreign-invested firms see themselves under pressure to rethink and revise their most fundamental strategic bets as well as tactical deployments.

4.1 The revised strategic imperatives

Research on MNCs has shown that major economic discontinuities in the past, such as the financial currency collapse in Asia (1998), the SARS outbreaks (2003), the subprime loan meltdown in 2008 and China’s equity market crash in 2015, have tended to elicit defensive responses. Correspondingly, the exogenous shocks in recent years, including the start of the global Coronavirus pandemic (2020) and the invasions of Ukraine by Russia (2014 and 2022), have had corresponding effects. In many instances, grand strategic ambitions by MNCs have been replaced by damage limitation. Along with these economic and geopolitical ruptures, distinctive reflexes in firms’ strategic responses to exterior contingencies have revealed themselves. Prior to the frictions, the unequivocal game plan of foreign-invested companies in China was to ‘push the envelope’ in terms of business growth often ignoring the potential performance limits that firms cannot surpass unharmed. A large proportion of the MNCs in China pursued ambitious expansion plans [68, 69, 70, 71, 72]. While rising competition was requiring businesses to innovate and adapt to remain competitive, potential variations in strategic orientation, organisational resources and firm performance were less decisive as organisations were growing alongside the overall market expansion. This is to say that in periods of turbulence, variations in strategy configurations may become more conspicuous as both capabilities and shortcomings are highlighted. For example, in the context of the previously mentioned disruptions, firms often revert to reflexes that can be loosely described as prospective, defensive, analytical or reactive. Utilising these conceptions as a baseline, a widely confirmed typology can utilised to further explore the peculiarities of MNC strategy in China.

4.2 The power of typology-driven theorising

Business strategy at the level of the firm has been the classical criterion for researchers in the field of strategic management. Choosing the firm as a unit of analysis, typology-driven theorising, in particular the Miles and Snow [73] typology, can be used to conceptualise the strategic orientation of MNCs in China. The major idea behind the concept of typologies is a grouping of features into generic clusters based on their level of similarity. These frameworks help to identify frequently observed characteristics of firms in order to generate overarching types which represent the different co-alignments of these organisational aspects [74]. Strategic typologies have been described as ‘a form of social scientific shorthand’ ([75], p. 149) and instruments to effectively explore complexity [76], both conceptually and methodologically [77]. Typologies enable scholars and practitioners to structure the organisation management in a full and integrated manner [78]. They are frequently called fields [79], modes [80], archetypes [81], generic strategies [82], gestalts [83, 84], typologies [85] or taxonomies [86] Irrespective of the terminology used, all incarnations require their members to have configurational similarity and internal consistency [82, 87]. If packaged in the form of typologies, the theory is especially practical as it can capture multiple linkages simultaneously. As such, typologies allow for a more systematic investigation of MNC strategy in emerging markets as they capture reciprocity and bidirectional cause-and-effect relationships [88].

4.3 The strategic types

The field of generic strategic typologies boasts several well-known models. Porter [82], Abell [89] and Miles and Snow [73] belong to the most prominent ones. A major difference lies in their theoretical underpinnings. Whereas the Miles and Snow [73] model entails a causal model (adaptive cycle), the designs of Porter [82] and Abell [89] lack a theory-driven approach since these typologies are axiomatic-led based on fundamental economic principles. By comparison, the Miles and Snow [73] typology appears to be better suited to examine the firm surroundings than Porter’s [82] archetypes which intentionally circumvent any contextual properties [90]. The model conceptualised by Raymond E. Miles in collaboration with Charles C. Snow (1978) encapsulates the ways that different modes of adaptive firm conduct results in distinctive organisational configurations, so-called strategic types, which can be used by an organisation to align with its context. Firms permanently face a trifecta of mission-critical obstacles which they have to deal with in an agile manner in order to reconcile both their internal capabilities as well as their external surroundings. These obstacles relate to the entrepreneurial challenge (e.g. referring to the choice of product-market domain), the engineering challenge (e.g. concerning the choice of technology) and the administrative challenge (e.g. concerning the choice of organisation and processes that translate into innovation). The framework by Miles and Snow [73] entails a quadruplet of types proposing that generic strategy commonly manifests itself in one of these forms, namely Prospector, Defender, Analyser and Reactor (P-D-A-R). The model suggests that each type seeks specific solutions to the three obstacle clusters that form the adaptive cycle. These groupings feature heterogeneity in their functional specialisation, strategic prioritisation, resources endownments, experience and economic outcomes. The Prospector type views the environment as unsettled, ensures manoeuvrability and draws on innovation to respond to change, frequently emerging as the trend-setter of the sector [91]. Prospector-type organisations are led by upper echelons that focus on know-how in marketing as well as innovation and constantly monitor external change in order to experiment and respond with creative solutions to novel environmental developments. The Defender type seeks to occupy a secure foothold in a product-market domain that is comparatively insulated from change and priorities engineering, continuous improvement in productivity and cost optimisation. At the helm of Defender-type organisations is typically a coalition of finance and production executives who often do not sense external change and who have little appetite to go out of their ways apart from conducting minor adjustments in the configuration of the organisation and process landscape. The Analyser type simultaneously embraces continuity and agility seeking to utilise the merits of both the Prospector and Defender modes. These organisations practice ambidexterity in a way that they dually pursue Defender strategies in certain business segments and Prospector-type strategies in different ones [73]. As such, they thrive on a ‘second-but-better’ positioning. Due to their dual orientation and hybrid configuration, these firms face more internal sophistication and a delicate balance between functional areas. In business area that are characterised by relative continuity, they focus on operational excellence and efficiency, in other more dynamic domains, they attentively observe the competitive landscape and engages solely in projects that offer clear potential for competitive differentiation and scalability. The Reactor type misses a stringent strategy and is highly susceptible to external contingencies. Firms belonging to this strategic type find it hard to cultivate a solution to the challenges of adaptation and hence are ‘ill-conceived strategies’ [90]. When Miles and Snow [73] and Porter [82] are compared, there is an apparent similarity between the Reactor type and Porter’s [82] ‘stuck-in-the-middle’ classification [90]. The literature on typology-driven theorising in the strategic management and marketing field [86, 92] offers an abundance of studies on the Miles and Snow [73] framework. The conceptual and empirical soundness of this typology has been established for numerous sectors, including public services [93] as well as in emerging economies [58, 94, 95, 96].

4.4 The strategy-performance link

Firm performance, or economic validity, is the consequent of any business domain, including strategy. Broadly speaking, academic scholarship in the strategy domain seeks to explain the determinants of organisational outcomes [97]. Various research studies have examined the linkages between strategic type membership, distinctive competencies [98] and organisational performance [99]. So is there one best performing type? No, there is not. The typology developed by Miles and Snow [73] embraces the notion of equifinality [100] stating that all viable strategy types harbour the potential to yield optimum firm performance. While not directly stated in the 1978 (Miles & Snow) framework, equifinality is implicitly described [101]. None of the types, apart from the Reactor type, is associated with any performance limitations. The exception of the Reactor is based on the fact that this type has been viewed as being ill-equipped of managing the various boundaries described in the adaptive cycle [73]. When discussing research findings for MNCs’ strategic type membership in China, research data surveyed in the first quarter of 2016 can be utilised. The data was collected during a time when China experienced the country’s slowest economic performance since the global financial crisis 2008–2009. The empirical research was based on a questionnaire of 62 items and generated 212 responses. The data have been solidified by means of triangulated data capturing [102] including external.

third-party insights. Based on Snow and Hrebiniak’s [99] framework, participating MNCs considered themselves to be Prospectors (33%), Defenders (26%), Analysers (28%) and Reactors (13%). The descriptive results were more levelled than in comparable research. For example, a study by Boyd and Reuning-Elliott [103] generated nearly two thirds Analysers (62%), close to one third Prospectors (31%), a small proportion of Defenders (7%) and no Reactors. Rugman and Verbeke [104] stated that the percentage of Reactors types is elevated in studies focussing on small-sized enterprises. Out of the study sample, 40% of firms stated that their business objectives correspond with institutional requirements, 49% view institutions to be erratic and 44% inadequately developed. Considering organisational outcomes, a substantial number of companies indicated flat or dwindling sales (39%), profits (55%) as well as market shares (57%). One statistically significant predictor of strategic type membership is volatility (p = .028). The level of perceived volatility corresponds (inversely) with the Miles and Snow [73] P-D-A-R continuum. Generally speaking, the more volatile the environment is perceived, the more likely the respondent shows a Reactor mode. Although the absolute figures do not immediately show: 81% of Reactors consider the environment to be volatile vs. 65% of Prospectors. Thus, the Reactor type is more likely in volatile environments. This corresponds with Tan and Litschert’s [105] research in China. External volatility showed an inverse linkage with proactivity (i.e. prospective orientation) and a positive relationship with a rather passive stance (i.e. defensive orientation). With respect to the affiliation to generic strategy types, Prospectors have a positive linkage with revenue from sales (0.2998*) as well as a negative linkage with share of market (−0.4914*). On the contrary, the strategic mode of Analyser shows a positive link with share of market (0.2989) despite the fact that there is no sidak-adjusted coefficient of statistical significance. All remaining types have no sufficiently strong linkages. The Prospector and Analyser take the lead in terms of most deliberate strategic types in the Miles and Snow [73] strategy spectrum. While often described as the most aggressive [106] and boldest [107] in terms of risk-taking, the Prospector has typically been described as high-achiever. Yet, in terms of overall success, Miles and Snow [73] acknowledge that the ‘Prospector seldom attains the efficiency necessary to reap maximum economic benefits from any of its chosen markets’. The time horizon of this type of generic strategy is near-term (1983). The Prospector type also appears to have a limited ‘shelf-life’. This is owed to the fact that along with their successs, Prospectors seek to leverage their newly attained competitive edge to pivot into Analyser or Defender types. Moreover, some scholars found that Prospectors under-perform in emerging economies because of their limited ability to cope with ambiguity [108]. In contrast, the Analyser type has been associated with a ‘second-but-better’ approach championing a higher level of market-orientation as well as a stronger interaction with fellow economic actors to better understand underlying requirements [109]. In line with the analytical orientation implied in its designation, the Analysers invest more time into screening the market contenders and generate a levelled suite of both established and progressive offerings [110]. On the continuum of strategic orientations, the Analyser type is positioned in-between the Defender and Prospector type (1993). This type has proven to be effective both in constant and changing economic environments by pursuing risk-mitigated productivity [58]. They bring together a focus on cost containment and opportunistic bets, a combination that corresponds with the dynamic conditions of the Chinese market and institutional landscape. The Analyser within the Miles and Snow [73] typology is considered a highly active configuration [106] as well as a ‘shaker and mover’ that is surpassed only by the Prospector type [107]. Nevertheless, this type has also been perceived as a champion of incrementalism [58], a feature that can help MNCs to alleviate their ‘liabilities of foreignness’ [111, 112] in an economy that can be identified with dynamic conditions [113], complex entanglements [114] as well as hostile opposition [81]. In the same vein, the Defender type is often seen as a strategic type that performs underwhelmingly. This stems from the preference of this type to seal off a niche in order to compete on costs and superior engineering capabilities [109]. The Defender seeks to safeguard a relatively tight product-market segment [115]. In order to stonewall against external threats, this type tries to perfect technical details and groups around a leadership team of specialists in financial and operational management [110]. Displaying a pronounced risk-aversion [109] and muted activity level [106], this type can still yield above-average performance (profitability) in various settings and frequently overtakes Prospector entities with respect to ROI and cash flow [86]. Naturally, Defenders are more likely to do well in unfluctuating and constricted business segments than in high-powered and unpredictable contexts. Moreover, in view of MNCs motives relating to the cultivation of the Chinese market, the Defender proposition has been criticised for leaning towards being technocratic, narrowly minded, non-agile and risk-avoiding as well as too traditionalist to command a competitive edge in China [58]. Hence, Defender may not be the most fitting type for dynamic contexts as they lack experience in crafting suitable strategies and tactics [107]. As business success in China depends on the ability to handle a dynamic and contested environment while capitalising on emerging opportunities, the Defender type does not appear to be well-equipped to thrive in this context. Correspondingly, the Reactor type can be classified as a configuration that yields subpar performance since reactor firms generate outcomes below the mean. These conclusions regarding the economic validity of Reactors are largely in line with the general portrait of this strategy type. Probably for this reason, various research projects on the Miles and Snow [73] typology have deliberately excluded the Reactor proposition. This is debatable though, as using an incomplete model compromises the integrity of the overall construct. Given the premise that the key objective of foreign-invested enterprises in the Chinese market is to atain market power by tapping into the emerging business opportunities, the chance that MNCs identify as Reactors seams to be diminished [58]. Hence, it is reasonable to expect a comparatively tiny representation of Reactors in any study on this typology in emerging markets. Furthermore, this type is associated with instability, improvisation, ‘fire-fighting’ and short-termism. Reactors dedicate more attention to absorbing outside stress that emerges in an erratic and fleeting ways [110]. They lack both, a coherent plan on how to prevail in competitive encounters [116] and the capability to adapt to the context [106]. Hence, Reactors succumb to their environment [73]. Conant et al. [110] drew the conclusion that Reactors are eclipsed by all the other three types. Notwithstanding, different scholars concluded that this type could surpass outperform the three stable strategic types [99]. These insights have motivated scholars to propose that Reactors could position themselves in a way that allows them to exploit the absence of strategic congruity by converting it into an ability of agility and adaptability [92, 117] that is supposed to yields positive performance outcomes in ever-changing contexts. In summary, the exploration of typology-driven theorising and the review of strategic type membership of MNCs in China supports the notion that there are distinctive paths to high and low performance. The best-performing types in dynamic emerging market contexts are Prospectors and Analysers (i.e. above-the-mean). Defenders are only partially successful while Reactors performed underwhelmingly (i.e below-the-mean). Active agency strategies lean towards competing, conforming, collaborating and co-creating with institution’s authority. In contrast, studies show that adopting the strategic orientation of a Defender or Reactor may not lead to the envisioned success. These strategic orientations tend to either confront, contest, circumventing or concede to institution’s authority. Belligerent approaches are hardly feasible as host country institutions on a local or central level have principal impact on MNCs’ business activities. Nevertheless, considering the increasingly antagonistic situation, Prospector-type MNCs may well wish to dim down their public profile, as there are multiple examples when MNCs have been scapegoated for political reasons. As the Analyser type is the most agile type, it is the one that is assumed to yield the best outcomes in the context presented.

5. Conclusion

Quo vadis? When it comes to doing business in emerging markets, in particular China, MNCs find themselves at the crossroads. Emerging economies have emancipated, and China has become a vigilant system competitor. For MNCs, it cannot be business as usual. However, the current headwinds do not per se necessitate firms to go backwards. The new realities may create complications for their China engagement, but it does not mean MNCs have to pack their bags and stay foot (i.e. stay away). MNCs need to engage in a robust reflection on the new normal in emerging markets in general, and in China in particular, and their strategic options going forward. There are very good reasons to engage and stay put (i.e. stay there). The discussion in this chapter shows that their primary motives and mandates (i.e. efficiency-, resource-, market- and strategic assets-seeking) appear to have shifted but in general remain valid. The pendulum has not swung from an open-door policy to a closed-door situation. However, independent of the actual status of the door, the ‘house rules’ may have become more strict and less welcoming. Overall, while China has become more assertive and self-sufficient, the country is not expected to enter a new phase of ‘isolation and locking the country (bì guān suŏ guó). After all, the promise of economic growth and prosperity is central to the regime’s on-going legitimacy. There have been discontinuities sparked by exogenous shocks and decoupling efforts between major economic blocks. However, IB does not have to mirror global political frictions. In fact, from the perspective of MNCs, the notion of decoupling from China is thorny as it entails uprooting global supply chains and rejecting the purchasing power of 1.4 billion consumers. For MNCs, the benefits continue to outweigh the hazards. While the risk-reward equation has changed, an exodus of foreign firms is not immanent. With China having become a firebrand for Western MNCs, there is a clear imperative to de-risk, that is, disentangle complex operations and balance the exposure in order to reduce the vulnerability to external shocks and systemic rivalry. A carefully crafted strategic re-orientation will allow MNCs to effectively insulate themselves from potential risks while ‘keeping the lighs on’ in a market that will continue to act as a powerhouse in the global economy. To do so coherently, strategic typologies, namely Miles and Snow [73], can serve as useful instruments to identify viable strategic configurations as well as modes of interactions between organisations and the environment. The exploration of strategic types showed that Prospectors and Analysers perform best, with Analysers being the most successful type in ever changing contexts including emerging economies [58]. Defenders perform moderately [86] while Reactors achieve underwhelming results. Drawing on these and other findings, one can conclude that proactive engagement and deliberate strategic choice [114] are major hallmarks of sustained performance in emerging markets. MNCs that adopt new ways of collaborating with institutions and other economic actors are best positioned to succeed. MNCs needs to prepare themselves for disclosing more details of their China business, as stakeholder including home-country policy makers may obligate them to stress-test their exposure. Embracing a proactive stance seeking strategic interaction and discourse, including corporate political activities [118] pays dividends and allows for effective risk-management. By reducing the dependency on China, MNCs can better mitigate events out of their control as well as make use of investments outside of their previous must-win market. In sum, MNCs in China face a highly volatile institutional environment and a high risk of regulation, thus it is prudent to basically expect disruption and deleveraging (i.e. a period of slower economic growth). For MNCs, this may feel like the rally is over. However, it is just the beginning of the end of naivety and the start of a more sustainable cycle. There is a fairly robust basis for continued collaboration and integration, and there is a certain level of consensus among foreign businesses to remain invested. While MNCs need to realise that the heyday of China’s abnormally high growth rates has past, a diligent recalibration of their strategy and portfolio will make them continue to thrive in one of the world’s preeminent economies.

List of abbreviations

ACRONYM	a coded rendition of names yielding meaning
ASEAN	Association of Southeast Asian Nations
BEPS	base erosion and profit shifting
BRI	belt and road initiative
BRICS	Brazil, Russia, India, China, South Africa
CEIBS	China Europe International Business School
CPC	Communist Party of China
EOS	economies of scale
Et al.	et alii/aliae/alia (meaning: and others)
FDI	Foreign Direct Investment
G20	group of twenty
G7	group of seven
GDP	gross domestic product
IB	international business
IMF	international monetary fund
JV	joint-venture
MINT	Mexico, Indonesia, Nigeria and Turkey
MNC	multinational corporation
NIE	newly industrialising economies (of Asia)
OECD	Organisation for Economic Co-operation and Development
OEM	original equipment manufacturer
OLI	Ownership, Location, Internalisation
P-D-A-R	Prospector, Defender, Analyser, Reactor
PRC	People’s Republic of China
ROI	return on investment
SCO	Shanghai Cooperation Organisation
UK	United Kingdom
US	United States (of America)
WTO	World Trade Organization