Industrial policy, green challenges, and international business

Abstract Nation-states are designing their industrial policies increasingly to not only enhance national competitiveness, but also to simultaneously address “Green Challenges”, concerns about the natural environment that require concerted action among different actors in society, including domestic and foreign multinational enterprises (MNEs). This blending of global and national policy objectives is leading to a new wave of industrial policies in advanced economies that are informed by scholarly discourses in evolutionary economics, innovation systems, and 'wicked problems'. We discuss the implications of these sustainability-oriented industrial policies for MNEs. They operate in increasingly diverse local ecosystems shaped by local actors and local policies as we illustrate for two such ecosystems in Nordic countries: circular economy and energy transition. Many MNEs face a tension between capabilities they could use to help nations achieve their sustainability goals and incentives to protect existing rents and business models. They may thus engage pro-actively or reactively in both market and nonmarket realms in each country in which they operate. We discuss the interactions between MNEs, governments, and other actors in host countries pursuing both sustainability and competitiveness objectives, and outline how ensuing tensions create new challenges and opportunities for international business scholarship.