A conceptual framework for firms’ response strategies against sanctions: Lessons from foreign MNCs in China

This study develops a comprehensive conceptual framework to understand how firms operating in sanctioned countries, particularly foreign multinational corporations (MNCs) in China, can effectively respond to political risks and uncertainties. Drawing on the resource dependence theory and the concept of bargaining power, this framework categorises firms into four distinct groups based on their level of resource dependence and bargaining power. This study identifies specific response strategies for each group grounded in the global value chain (GVC) literature, including GVC upgrading, geographical diversification, and switching governance modes, apart from divestment from the host country. These strategies are contingent on firms’ ownership advantages, as defined in the Ownership–Location–Internalisation (OLI) paradigm, and on their level of dependence on the host country. Our findings highlight the resilience of firms that, despite geopolitical tensions, continue operating in China through strategic adjustments, demonstrating varying levels of flexibility and adaptability in managing the adverse effects of sanctions. This research contributes to the international business literature by offering insights into the complex interplay between geopolitical risks, firm strategies, and GVCs. It also provides valuable implications for policymakers and MNCs, guiding them in balancing economic interests with political realities in an increasingly complex global environment.