Abstract
This chapter aims to explore the uncertainties that the COVID-19 pandemic induced in internationalization. In this regard, the COVID-19 pandemic challenges companies worldwide as global value chains were interrupted and business models were contested. The theoretical background describes the internationalization processes and the specific role of foreign direct investments (FDI), but also the basics of uncertainty in doing business. Because of the scope of internationalization and the peculiarities of the COVID-19 pandemic, a descriptive analysis of secondary data from global databases was conducted. This includes macroeconomic data and also global research reports. With a focus on European-Asian relations, the results reveal an interruption in the flows of goods and services in Eurasia, but more importantly, also in FDI. Further on, there is a correlation between uncertainty and FDI flows. Finally, this chapter discusses future directions in internationalization, including resilience, regionalization, and the rise of China in global economics.
TopIntroduction: A Pandemic Challenges Internationalization
We need to acknowledge that the Covid-19 Pandemic has fundamentally changed globalization's mechanisms as it interrupted international cooperation and global value chains. However, the pandemic's long-term effects on internationalization (Zahra, 2021) may be hard to predict. Especially the initial stage of the Covid-19 Pandemic has shown that international cooperation is not that self-evident. Besides national politics, companies are in key responsibility to implement measures against Covid-19 to slow down the pandemic, but with this, companies face the dilemma to manage their international activities: Value chains are shut down and need a stepwise recovery, or key partners are in lockdown. Every effort is highly intertwined with the pandemic and global value chains (Alon, 2020; Sforza & Steininger, 2020). First studies showed that different crisis scenarios on an international scale are prevalent. Although a positive outlook by managers exists, differences among regions emerge (McKinsey & Company, 2021). As these recovery plans come into the discussion now, costs cuttings challenge economic recovery during the lockdown, making it difficult to innovate and prepare for future openings.
The mentioned challenges define a certain degree of uncertainty for companies and entrepreneurs' activities in internationalization and strategic planning in general. Moreover, there is a gap to explore long-term perspectives for the future of internationalization (Song & Zhou, 2020). Therefore, this chapter builds upon the effects of internationalization during the Covid-19 Pandemic in search of adaption and challenges. By recognizing highly complex internationalization and current challenges, the author aims to explore the consequences of the Covid-19 Pandemic, but also future development paths that lie especially in Eurasia. As the future of globalization is highly driven by Asia, a focus is set on the Chinese efforts in internationalization. This chapter asks how do crises, such as the Covid-19 Pandemic, influence internationalization, especially between Europe and Aisa, and what are future directions to achieve economic stability. However, in the sense of a bounce-forward, practical questions occur: How to start new cooperation and launch new investments for future projects? How to achieve innovation in times of uncertainty? Which forces are shaping global markets? How to mitigate global crises?
From a theoretical perspective, various approaches are available to support this study, e.g. on international governance (Abbott & Snidal, 2001) or global value chains (Humphrey & Schmitz, 2002). The role of uncertainty for entrepreneurs and companies in internationalization is critical (Alimadadi et al., 2018; Cuervo-Cazurra et al., 2018; Harris & Wheeler, 2005; Liesch et al., 2011). These theoretical considerations need to be combined with the current challenges of the Covid-19 Pandemic. Therefore, a proper case study is employed by European companies' activities towards Asia, as different strategies of handling the pandemic and the restart meet here and the Asia-Pacific market is a driver for future economic development and “a window of opportunity” (GTAI, 2020). The focus of the study is on the pandemic phase in European-Asian relationships but recognizing major developments beforehand and in specific regions.
Thus, section four analyzes secondary statistical data, e.g. on changes in foreign direct investments (FDI) or mergers and acquisitions (M&A). Further on, section five discusses the important future direction of internationalization in terms of resilience, globalization and the Chinese role in global economics.
Key Terms in this Chapter
Resilient Trade Networks: Resilience is an adaptive capability to prepare and respond to a disruption in order to achieve an effective recovery, which realizes a return to a normal state of operation after the disruption ( Tukamuhabwa et al., 2015 ). Consequently, resilient trade networks ensure the sustainability of their activities, such as exports and imports, for a successful long-term operation. They have the ability to recover from shocks and are robust and adaptive to crisis, external influences and change. Success factors for a decreasing vulnerability are considered diversity instead of dependency, spatial dispersion, regionalisation to a certain degree ( Javorcik, 2020 ), adaption of products and design of the value chain as well as resilience monitoring ( Miroudot, 2020 ).
Multinational Companies: Are firms that internationalize their business activities and maintain value added-holdings overseas ( Shah et al., 2012 ). These firms operate their branches, offices or production facilities abroad. Therefore, their organizational form is highly internalized. Their cross-border activities are typically including foreign direct investment, exporting and other non-equity modes of operations. These activities are allocated in more than one country abroad ( Knight & Liesch, 2016 ; Shah et al., 2012 ). These firms are also known as international or transnational organizations.
Internationalization: Is a process of increasing participation in international markets ( Westhead et al., 2007 ). It describes the sales or business activities of a company outside its home country ( Li Sun, 2009 ). As corporate strategy it adapts products and services for different national markets. As a learning and resource allocation process it distributes and exchanges resources in foreign markets ( Autio, 2017 ). It is a consequence of gradual adjustments to changing conditions within the company and its environment ( Aharoni, 1966 ). Inward activities of internationalization are relating processes like importers, licensees and franchisees. Outward activities describe processes associated with exporting, licensing, franchising and foreign direct investment (FDI) ( Westhead et al., 2007 ).
Uncertainty: Is a perceived lack of certainty, reliability or validity of an event. It refers to situations where there is an unknown future or where this future is known but not predictable ( Liesch et al., 2011 ). No information about the possible outcomes of processes is available to decision-makers ( Fueglistaller et al., 2012 ) or the existing information is too imprecise to determine a probability from it.
Mergers and Acquisitions: Are consolidations of firms or assets through various types of financial transactions ( Hayes, 2005 ). In acquisition one company purchase the majority of the share capital (>50%) or a whole legally independent organization, so that the economic independence of the acquired company is lost. In merger two or more legally independent companies combine to one, so that a new legal entity is formed and joint action is achieved ( Malik et al., 2014 ).
Foreign Direct Investment (FDI): Is a cross-border (asset) investment in foreign companies with the aim of significantly influencing and gaining a degree of control over their business activities over a long term. It is made by an individual or company in one economy who wants to establish a lasting interest in an enterprise located in another economy ( OECD, 1996 , 2020 ). Significant influence is deemed to exist if the investor holds 10% or more of the shares or voting rights.
Global Value Chains: Value chains consist of a collection of different activities that a company carries out in order to create value for its customers and to remain competitive ( Porter, 2008 ). By restructuring and outsourcing firm´s activities worldwide, global value chains are formed. A global value chain describes the international dispersion of entrepreneurial activities like trade and investments and a geographical fragmentation of production processes, in which the value of the product or service is increased ( Humphrey & Schmitz, 2002 ).