Geopolitical Tension, Shifting Global Value Chains, and Corporate Responses in East Asia: An Institutional Complexity Perspective

Growing geopolitical tensions have generated great uncertainty over global value chains (GVCs). Spurred by a series of world-scale events like the US-China trade war and the Covid-19 Pandemic, some suggest that GVCs are about to demise, and the world is now in a de-globalization mode. Meanwhile, a moderate view highlights a more regionalized form of value chains as an alternative and others point to re-globalization, either as a goal or as a prospect, as a way forward. While geopolitical tensions are an important source of institutional uncertainty, other factors are also shaping dynamics for the future of GVCs, that is, market, technology and regulatory changes that interact with the geopolitical dimension. Existing norms or taken-for-granted ways of doing business in the world economy have been changing. The rise of emerging markets has shifted the end market of many GVCs to the Global South. A whole array of digital transformation has prompted firms to recalculate their locational decisions. Finally, the mounting concerns over social and environmental sustainability in GVCs have significantly shifted a regulatory environment for multinational corporations.

Taken together, all these developments generate a great level of institutional complexity in GVCs and the key actors therein. Global lead firms and first-tier and lower-tier suppliers are exposed to various institutional demands from different sources, some of which are conflicting or contradictory. This study examines the ways lead firms and suppliers respond to this new institutional landscape surrounding GVCs. Theoretically, it aims to engage in several different disciplines, mainly organization theory and the GVC literature. These theoretical perspectives are examined with East Asian experiences as a background. By examining the patterns of corporate responses to institutional complexity in the face of multiple interlinked uncertainties, the paper pursues to advance our understanding of institutional complexity and corporate responses in GVCs at a crossroad.