Caught in the middle: multinational enterprise strategy in interstate warfare

Purpose The purpose of this paper is to investigate interstate warfare and its association with foreign direct investment (FDI) and multinational enterprise (MNE) strategy by integrating insights from international business (IB) and international political economy (IPE) literature. Design/methodology/approach This paper identifies economic and regulatory mediators for the relationship between war and FDI, laying the groundwork to evaluate strategies the MNE would undertake in the event of war in the host country. Findings The effects of war on MNE strategy can be separated into short‐term and long‐term effects. Specifically, the MNE may be influenced by war in its: initial investment decision; factors of significant importance for running the company's local operations; and critical factors for future foreign investments. Research limitations/implications Studies using actual firm‐level data can look at whether MNEs from non‐warring states conduct business as usual elsewhere or leverage war in the host country to their advantage. Further investigation is also needed to determine the power that MNEs in the home country have over foreign policy to assert their own strategies in a particular host market. Practical implications This paper has implications for managers of MNEs in warring host countries or contemplating the expansion of their operations overseas to a war zone with regard to the likely impact of war on firm operations. Originality/value Current paradigms of IB, in failing to account for the macro‐level and contingent nature of warfare, leave a gap in the business literature: specifically, how the international political context affects firms' activities, strategies, and decision‐making processes. This paper attempts to incorporate warfare, together with firm‐specific, industry‐specific, and other country‐specific determinants to inform the question: what determines the international success or failure, and in turn the long‐run competitiveness, of firms in turbulent times?