Foreign policy: implications for multinational firms

We argue that foreign policy is a prominent source of risk and opportunities for multinational firms. While domestic policies have received ample attention in international business research, a nation’s foreign policy or its stances and actions vis-à-vis other nations can also upend firms’ strategy and performance, even when domestic policies remain stable. This is particularly salient in the global context of hegemonic decline and attendant geopolitical turbulence and transformation, though foreign policy changes are always relevant. Hence, we propose and delineate foreign policy as a distinct aspect of a nation’s institutional landscape. We illustrate the importance of foreign policy using two cases about India’s foreign policy, tracing how foreign policy shifts substantially affected firms in ways prior research does not address. We offer implications for how incorporating foreign policy helps extend international business scholarship and supports its relevance.