1 Introduction

After a period of lowered interest, international business policy has recently roared back onto the academic scene (Lundan, 2018; Van Assche & Lundan, 2020). A variety of trends have contributed to the renewed attention to the policy side of international business. First, populism has erupted across the globe in the wake of the Great Recession of 2008–2009, which has fed a wave of antitrade sentiment (Rodrik, 2018), and has challenged long-standing views on international business policy (Kobrin, 2020). Several national leaders jumped on the populist bandwagon by throwing their support behind export mercantilism (Evenett, 2019), renegotiating or leaving trade agreements (Casadei & Iammarino, 2021), or embarking on trade wars (Bown & Irwin, 2019). Academics have responded by analyzing the rationales behind the reversals in international business policies (Van Assche & Gangnes, 2019a; Kobrin, 2020) and how these policy shifts impact international business flows (Van Assche & Gangnes, 2019b; Gereffi et al., 2021).

Second, technological changes have altered the ways how firms conduct international business, raising the question of what this means for the effectiveness of traditional policies. One new international business trend that has received lots of attention is the emergence of global value chains. Another is the widespread adoption of new digital technologies by manufacturing firms including robotics-enabled automation, AI-enhanced systems, and supply chain digitalization (e.g., Internet of Things, blockchain, and additive manufacturing). Both are dramatically transforming the global trade and investment landscape (Zhan, 2021), and are pushing scholars to ask how public policies should be redesigned to reflect these new global realities (Gereffi, 2019; Pietrobelli et al., 2021).

Third, there is a growing acknowledgment that international business has a larger transformative power over societal trends than was previously thought. Many pundits connote international business with labor market turbulence (Autor et al., 2016), rising income inequality (Grossman & Helpman, 2018), environmental degradation (Singhania & Saini, 2021), and weakening economic resilience (Gereffi, 2020). Others point out that this same transformative power of international business can be used to attain the United Nations’ Sustainable Development Goals if they are properly harnessed (Van Zanten & Van Tulder, 2018). International business scholars have contributed to these discussions by developing new research on the relation between international business and grand societal challenges (Buckley et al., 2017), by analyzing the complex link of international business with poverty (Kolk et al., 2018), human rights (Wettstein et al., 2019) and income inequality (Zhao et al., 2021), and by evaluating the implications for international business policy (Van Tulder et al., 2021).

The Academy of International Business (AIB) has recognized the importance of these trends and has responded by creating the new Journal of International Business Policy in 2018. In the past 3 years, this journal has published a wide variety of papers on public policy related to international business. AIB has also rekindled its relations with UNCTAD to strengthen the nexus of complementarity between international business research and the policy practitioner community (Lundan & Assche, 2021).

Yet, despite the huge academic enthusiasm about the topic in international business circles, there remains substantial ambiguity about what international business policy really is. Despite several recent editorials in the Journal of International Business Policy and other journals on the topic, extant scholarship has failed to pin down a formal definition of international business policy or delineated what topics the research field encompasses. Scholars have rather taken an “I know it when I will see it” approach, which has been a natural step in the progression of the emerging research field, but which needs to be overcome for the research field to mature and to distinguish itself from other areas of international business.

The goal of this chapter is to address this gap in the literature. We start off with the development of a formal definition of international business policy. Next, we use it to delineate the types of research questions that are at the center of the research field. Finally, we discuss a roadmap for research on international business policy.

2 Defining International Business Policy

A logical place to begin is to determine what scholars mean with international business policy. This sounds simple enough, but it is actually quite hard to determine since researchers seldom provide a definition. A rare exception is Lundan (2018) who, in her inaugural editorial of the Journal of International Business Policy, describes international business policy as the area of public policy that relates to international business. Similarly, Clegg (2019) defines international business policy as a “change [in public policy] intentionally instigated by a government to have an action upon the decision making and behavior of firms within the international business domain.” Such definitions are accurate in the sense that they encompass pretty much anything that can be considered international business policy. But they are at the same time so broad that they do little to convey what the field of international business policy studies and how this differs from traditional international business research or scholarship in other related fields.

A common feature of both definitions is that they treat international business policy as a subcategory of public policy, and so an important stepping stone for developing a more actionable definition of international business policy is to dissect the concept of “public policy.” Political scientists commonly describe public policy as a course of action that a public entity takes to address a particular societal challenge (Smith & Larimer, 2018; Knill & Tosun, 2020). This definition is instructive for our purposes since it highlights a series of defining characteristics of public policy. First, it refers to actions that are taken by decision-makers in public entities, that is, by policymakers. Second, it focuses on tackling challenges at the societal level that require collective engagement. The study of public policy is thus about (1) identifying important societal challenges that require government action to be effectively addressed, (2) formulating government-directed solutions to these societal problems, and (3) assessing the impact of the proposed solutions on the target problem (DeLeon, 2006; Smith & Larimer, 2018).

A second steppingstone is to identify what area of public policy is covered by international business policy. Political scientists generally classify public policies into different subcategories according to the domain that policymakers try to shape to address a societal problem. That is, subcategories of public policy describe the means used to tackle societal goals and not the ends themselves. Foreign policy, for example, refers to those public policies that shape the activities and relationships of one state in its interactions with other states to reach certain societal goals. Industrial policy describes the actions that governments take to shape the development of specific industries with the aim to address certain societal problems. Agricultural policy are government-directed actions that shape the agriculture sector to reach certain goals. We can follow this same approach to develop a formal definition of international business policy:

International business policy is a mix of actions that a public authority takes to shape international business with the goal of addressing a societal challenge.

This definition has the advantage that it provides a clear picture what the field of international business policy studies (see Fig. 1). It analyzes the policy process by asking what societal challenges public authorities at different levels decide to or should prioritize by shaping international business through their actions. It conducts policy analysis by studying the optimal international-business-shaping actions that policymakers should adopt to address these societal challenges. And it performs policy evaluation by analyzing the effectiveness of these actions in addressing societal challenges.

Fig. 1
An Illustration depicts the data flow as follows. Government directed actions: Facilitator, Regulator, producer, buyer; followed by International business: Foreign direct investment, trade, migration and more; followed by societal challenges: Economic growth, national security, Sustainability and more.

Field of international business policy research. Source: author’s own figure

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3 Addressing Societal Challenges

Public policy is a statement by a government of what it intends to do about a societal challenge. But what is a societal challenge precisely? And which political processes do governments use to determine which societal challenges to prioritize?

A societal challenge describes any real-life problem that has a large and often heterogeneous impact on different groups of society and that require coordinated and sustained efforts from multiple stakeholders to get resolved (DeTombe, 2002). Many of these challenges are “wicked” in the sense that they are complex, systemic, interconnected, requiring insights from many perspectives (Eden & Wagstaff, 2021).

Societal challenges occur across a wide variety of dimensions, all of which may be addressed in the field of international business policy. To just name a few, they comprise of economic problems such as slowing economic growth, the rise of precarious work, or the negative employment effects of automation on at least some types of workers; they include social problems such as entrenched racism, gender or other types of inequality, or police brutality; they cover health problems such as vaccine hesitancy, drug addiction or rising healthcare costs; they include environmental problems such as climate change, water shortage or air pollution.

It is important to recognize that societal challenges occur across different levels of government, even though priorities may differ substantially. Cities, for example, face urbanized societal challenges such as homelessness and cluster performance that are of less concern for national policymakers. Policymakers in international organizations prioritize challenges related to global public goods and beggar-thy-neighbor problems which are not spotlighted by state or provincial governments.

The priorities in terms of societal challenges also vary across countries. Least developed countries face challenges of informality and poverty that are more muted in developed countries. Oil-exporting countries are more concerned about economic diversification than countries that have a highly differentiated economy. Water-scarce countries have an existential urge to find solutions against chronic water shortages.

There are a set of urgent societal challenges that transcend geographic, economic, and societal borders and are therefore universally shared. Sometimes referred to as “grand challenges” (George et al., 2016; Buckley et al., 2017), these include environmental threats like climate change, demographic, health and well-being concerns, and the difficulties of generating sustainable and inclusive growth. Policy-wise, one of the most authoritative current frameworks addressing grand challenges is undoubtedly the United Nations Sustainable Development Goals (SDGs) agenda, a plan of action to promote sustainable development by tackling a range of issues from gender equality to peace and justice (Van Tulder et al., 2021; Van Zanten & Van Tulder, 2018).

Finally, government priorities in terms of societal challenges are influenced by ideology and politics. Governments rank societal challenges through a complex negotiation between the state and societal actors. Political ideology, special interests, the mass media, and public opinion all play a role in the identification and line-up of societal challenges that governments feel need to be addressed. In Canada, for example, ideology explains why the Canadian government decided to adopt a “progressive trade agenda” that seeks to ensure that the benefits and opportunities that flow from trade and investment are more likely shared among Canadians after the Liberal Party’s rise to power in 2015. What this means is that international business policy not only considers the normative question of how the shaping of international business can address societal challenges but also the positive question of how political processes affect governments’ choices which societal challenges to tackle through international business policy.

All these types of societal challenges and the processes behind their prioritization can fall under the purview of international business policy—as long as they can be effectively addressed through the government-directed shaping of international business. In other words, international business policy scholarship is not confined to societal challenges that are international of nature (e.g., pandemic) nor is it limited to societal challenges that are prioritized by international organizations (e.g., SDGs). Rather, the boundaries of the field are delineated by the presumed or real ability of international business to help effectively address a societal challenge that has been prioritized by a public entity.

4 Shaping International Business

International business policy is limited to those public policies that can address a societal challenge through the shaping of international business. This puts two important conditions on the scope of the research field. First, international business needs to have the presumed or real transformative power to influence a societal challenge. Second, public authorities need to have the ability to shape international business through their actions.

4.1 Transformative Power of International Business

It is easy to show that the first condition is met in many situations. It is well known that international business exacerbates or alleviates many societal challenges that are of first-order importance for policymakers (Zhan, 2021). Evidence abounds, for example, that international business matters for one of the societal challenges of highest public priority: the creation of economic growth (Didier & Pinat, 2017). International trade and foreign direct investment can boost an economy’s efficiency by allowing countries or regions to specialize in those sectors in which they have a latent comparative advantage, thus allowing domestic resources to flow to their most productive use. It can also spur local growth by increasing domestic actors’ access to foreign knowledge pockets through global knowledge connectedness (Cano-Kollmann et al., 2016), boosting local innovation performance (Turkina & Van Assche, 2018).

New international business trends influence this nexus between international business and economic growth. The emergence of global value chains, for example, gives rise to a finer-grained international division of labor where countries or regions functionally specialize in value chain stages instead of entire industries (Timmer et al., 2019) and gain access to foreign knowledge through their global value chain linkages (Ambos et al., 2021). This is critical for developing countries that can embark on fast-track industrialization by focusing on simpler production stages that suit their existing capabilities and by developing upgrading opportunities through their links with lead firms (Gereffi et al., 2005). And it also benefits developed countries that can specialize in high-value-added intangible tasks such as R&D and marketing while de-specializing in manufacturing (Ambos et al., 2021; Van Assche, 2020; Jaax & Miroudot, 2021). Understanding the impact of these new trends on a societal challenge is important since it may affect the urgency of developing an international business policy but may also require a redesign of policy thinking on the topic (Gereffi, 2019; Pietrobelli et al., 2021).

The transformative power of international business, however, is not always for the good. Even if international business creates significant economic progress, the benefits leave many behind. Economists have long recognized that international trade creates both winners and losers and that current institutions do not ensure that the winners sufficiently compensate the losers so that everyone gains. Several recent studies nonetheless show that the extent of negative societal challenges that trade and international business can generate is broader than traditionally thought. Import competition from China not only led to massive job losses among U.S. blue-collar workers (Autor et al., 2013). These workers ended up with lower lifetime income, were less likely to marry, were more likely to end up on disability, and were more likely to die at an earlier age (Autor et al., 2014); and the districts exposed to larger imports from China disproportionately removed moderate representatives from office in the 2000s (Autor et al., 2016). Global connectedness spurs growth in many global cities, but it also generates local disconnectedness with its neighboring regions whose livelihood traditionally depends on their links with cities (Lorenzen et al., 2020). These findings have led to vibrant new research on the link between international business and rising income inequalities within countries (Buchholz et al., 2020; Zhao et al., 2021) as well as the relation between international business and populism (Rodrik, 2018).

Other scholars have turned their attention to the link between international business and environmental sustainability. The relation here is ambiguous. On the dark side, companies may use international business to move pollution-intensive activities to countries with lower environmental policy stringency—the so-called pollution haven hypothesis—thus undermining governments’ efforts to combat global environmental degradation (Bu & Wagner, 2016). On the bright side, international business improves access to new technologies that can be used to make local production processes more efficient by diminishing the use of inputs such as energy, water, and other environmentally harmful substances (Patala et al., 2021). The question of how to properly harness international business for environmental sustainability thus remains high on the agenda for international business policy research.

The COVID-19 pandemic has put a new societal challenge on the spotlight: how does international business affect a country’s ability to provide essential goods? The instigator was the shortages of personal protective equipment (PPE) at the beginning of the pandemic and the difficulties of many countries to obtain vaccines once they became available. Several pundits were quick to point fingers at countries’ overreliance on imports for their supply of essential goods (Evenett, 2020). Across government, academic, and consultancy circles, calls were made to make supply chains more resilient by forcing manufacturing and supply networks to diversify and localize. Here again, academics played an important role in nuancing these views by showing that international business was not at the origin of essential good shortages during the pandemic (Gereffi, 2020) and that the link between international business and resilience is more complicated than generally thought (Miroudot, 2020).

Here again, one needs to keep in mind that a government’s decision to engage in an international business policy is often based on the perceived transformative power of international business which may well differ substantially from its real power. Many populist leaders, for example, are more than happy to connote key societal ills with globalization-related factors such as immigration and trade liberalization even if empirical evidence of these links remains scant (Rodrik, 2018). A key task for international business policy research is thus to validate the accuracy of government narratives related to the transformative power of international business.

4.2 Power of Public Authorities to Shape International Business

A link between international business and a societal challenge is not sufficient for it to be relevant for the field of international business policy. Public authorities also need to have the capability to shape international business through strategic actions. This is an important condition since the scope of authority that falls under the purview of governments and the effectiveness of their actions faces important limitations.

Clegg (2019) points out the importance of governance capability in his editorial for the Journal of International Business Policy that explains why studies on institutions do not necessarily pass the relevance-to-policy test. According to him, “Institutions shape behavior, but it is policy that changes behavior.” He continues: “[i]nstitutions are not relevant to international business policy simply by virtue of shaping behavior. However, if they are amenable to government control or, more generally official control, and they have either (or both) a theoretical or empirical effect upon international business, then public action to change them falls within the scope of international business policy.” In other words, an important stress test for international business policy research is that it focuses on phenomena that can be altered through public actions.

The condition of governance capability is particularly relevant since international business itself influences public power. A highly influential literature in international business has modeled foreign direct investment as the outcome of a bargaining game between multinational firms, home countries and host countries (Kobrin, 1987; Ramamurti, 2001; Vernon, 1971). Other scholars have pointed out that governments have been losing regulatory powers precisely because many social and economic interactions are expanding beyond the reach of territorially bound national jurisdictions (Doh, 2005). Multinational firms’ international tax avoidance practices, for example, have reduced the capabilities of governments to earn tax income on locally generated value added (Ting & Gray, 2019). International production fragmentation has made it easier for multinational firms to shirk tariffs or quotas by relocating production facilities to third countries (Van Assche & Gangnes, 2019b).

The decline in governance capability of countries is partly compensated by the emergence of new forms of global governance. The World Health Organization has the mandate to establish, monitor, and enforce international norms and standards that ensure that all countries around the world invest sufficiently to develop the ability to rapidly detect, assess, report and respond to new outbreaks (Ruger & Yach, 2009). The World Trade Organization has the triple task of providing a negotiation platform for its members to draw up new trade rules; of conducting the day-to-day work of monitoring members’ compliance with existing rules; and of providing a formal dispute settlement mechanism when disagreements arise between members (Rodrik, 2020). International business policy has the duty to evaluate governance capabilities and their shifts at the sub-national, national and international levels.

New international business trends may at the same increase governance capabilities in some instances. For example, there is a growing acknowledgment that harnessing lead firms of global value chains can go far in promoting social standards and environmental stewardship across the globe. Lead firms have the corporate power to define the terms and conditions that global suppliers need to abide to for them to participate in a global value chain. The ability of lead firms to dictate the terms under which lower-level actors operate in a global value chain has led to a vibrant academic debate about the role of private governance in filling gaps in global regulation. Many MNEs have implemented corporate social responsibility (CSR) initiatives in their supply chains as a way of independently regulating labor issues, including the establishment of codes of conduct and the implementation of third-party monitoring of working and environmental conditions. While several scholars have pointed out the positive role that private governance can play in addressing market failures that public governance has difficulties tackling (Scherer & Palazzo, 2011), others have warned that it is relatively ineffective (Locke et al., 2009), depends on the institutional environment (Goerzen et al., 2021), and may weaken state regulation and create parallel regulatory systems (Rossi, 2019).

5 Government-Directed Actions

The final dimension of international business policy is the instruments and actions that public authorities have at their disposal to address societal challenges through the shaping of international business. Focusing on global value chains, Horner (2017) suggests that policymakers have four types of actions at their disposal: (a) the government can act as a facilitator of international business by using directives and regulations that stimulate international business transactions; (b) it can act as a regulator of international business by restricting private market transactions; (c) it can act as a producer by directly engaging in international business through state-owned production activities; and finally (d) it can act as a buyer that procures products and services, which may comprise distinct economic, social, and environmental requirements. International business scholars generally acknowledge the former two roles of the state while downplaying or ignoring the latter.

5.1 Facilitator

International business growth has the potential to alleviate many societal challenges—most notably the generation of economic growth—and governments, therefore, adopt a variety of policies and initiatives that aim to directly or indirectly facilitate or boost international business.

Policymakers can facilitate international business directly by unequivocally incentivizing exports and outward foreign direct investment or by reducing barriers on imports and inward foreign direct investment. Most countries, for example, run active export promotion programs to facilitate national firms’ exports into foreign markets. These programs often involve the provision of export support services, export credit insurance and subsidies associated with export requirements to help national firms overcome challenges related to operating in an international environment (Moons & van Bergeijk, 2017). Similarly, countries often use inward FDI policies such as tax breaks, duty exemptions and loans to attract inward foreign direct investment (Tavares-Lehmann et al., 2016).

Governments can also spur international business indirectly by implementing market-friendly policy interventions that eliminate those market distortions that inhibit countries from specializing in their latent comparative advantages or prevent their firms and people from developing global knowledge connectedness. Among others, this involves maintaining a stable business environment in which it is easy for companies to establish and operate business; creating high-quality institutions; developing an efficient and robust infrastructure; and fostering a healthy innovation environment. It also means the elimination of market distortions that provoke a suboptimal allocation of resources by sending the private sector wrong signals. For example, restrictions in factor markets and constricting regulations can prevent the competitive pricing of production factors and thus stifle international business. What this of course implies is that domestic policies (e.g., labor market policy) may well fall within the realm of international business policy if it helps shape international business to shape a societal challenge.

5.2 Regulator

The many dark sides of international business means that policymakers often need to develop policies and directives that harness global business transactions to tackle societal challenges. Evidence abounds that policymakers often put limitations on inward FDI from state-owned enterprises (SOEs) originating from emerging markets due to worries about their non-business motives (Cuervo-Cazurra, 2018; Li et al., 2021). Other scholars argue that sustainable development can be enhanced by giving priority to “Recognized Sustainable Investors” (Sauvant, 2021).

Government can also put restrictions on the international business activities of their own firms for national security or other purposes. During the U.S.-China trade war, the U.S. implemented a series of export controls to attempt to cut off Huawei’s access to semiconductors (Bown, 2020). During the COVID-19 pandemic, both the European Union and the United States threatened to put export controls on locally produced vaccines (Evenett et al., 2021). Several countries have recently adopted modern slavery laws that prohibits firms from importing goods that have been produced in whole or in part by forced or compulsory labor.

5.3 Producer

Besides shaping international business externally through the facilitation and regulation of the business environment, public authorities can also influence international business by directly inserting themselves in the market. Almost all countries act as producers by operating their own state-owned companies (SOEs). They may do so to take control of productive capacity in key strategic sectors (e.g., security and natural resources) or to boost production in industries where externalities make it less likely for the private sector to invest (Cuervo-Cazurra et al., 2014; Horner, 2017). Analyzing SOEs from an international business policy perspective is an understudied research area that has gained relevance in today’s world with rising geopolitical turbulence (Li et al., 2021).

5.4 Buyer

Finally, an instrument that has been almost completely ignored in the field of international business policy is public authorities’ ability to insert themselves in the market as powerful buyers through public procurement. Just like lead firms in GVCs, the “state as a buyer” has the power to shape international business by imposing technical or other conditions that firms need to meet for them to be considered for public procurement (Dallas et al., 2021). This is a potent tool since it can be used to force lead firms to promote social standards and environmental stewardship more actively throughout their global value chain or to require them to develop a more resilient supply chain.

6 A Roadmap for International Business Policy

The definition and delineation of the field of international business policy that this chapter provides illustrates both the distinctive nature of the research area as well as the central role that traditional international business scholarship can play in the development of international business policy.

Traditional international business research has lots to offer to our understanding of international business policy. Extant scholarship’s deep knowledge of how the international environment (including policy) influences the activities, strategies, structures, and decision-making processes of firms is critical for determining (1) the link between government-directed actions and international business and (2) the relation between international business and societal challenges. In other words, traditional international business scholarship is a key building block for understanding policy process, policy analysis, and policy evaluation. Understanding how international business influences aggregate phenomena is critical for understanding why governments prioritize certain societal challenges (policy process). Assessing how different policy tools affect international business is important to determine the optimal international-business-shaping actions that policymakers should adopt to address these societal challenges (policy analysis). And evaluating the effectiveness of international business policy relies on a deep understanding of international business mechanisms (policy evaluation).

A policy turn in international business research is nonetheless needed for the field of international business policy to realize its full potential (Van Assche, 2018). Scholars need to break out their comfort zone and select research topics based on their relevance for policymakers and societies and not for managers. Instead of analyzing how a new business trend matters for firm performance, scholars need to reflect on its importance for societal challenges (Buckley et al., 2017). In addition to asking how firms reconfigure their strategies and structures in reaction to a policy action, researchers need to in the same breath ask how these reconfigurations affect societal outcomes and which combination of actors is central to achieving a specific outcome. Finally, scholars need to concentrate on the actions that governments can take to better harness international business for grand societal challenges.

Embarking on this policy turn may well develop a breath of fresh air that not only boosts research in the field of international business policy but also permeates throughout the entire field of international business. In today’s world with rising geopolitical turbulence, the competitiveness of multinational firms may well depend on its dynamic capabilities to deal with changes in the international business policy environment. Just like multinational firms may develop geopolitical jockeying strategies that can boost their international competitiveness (Li et al., 2021), they may similarly strengthen the sustainability and resilience of their operations by internalizing the implications of their actions on societal challenges. We see this as a fruitful future research agenda.